Repair or Sell?

Question

I'm a senior citizen and own a home that has a mortgage of $130,000 with a 4.75% interest rate. Current market value $325,000 to $340,000. I need about $50,000 to upgrade windows, doors, bathroom, and kitchen.

If I sell my home, I could buy a condo or townhouse, but the interest rates are too high. I need advice on how to get the equity out of my house to make the repairs. I don't want to spend my retirement savings. Another option is to refinance and take cash out---again, I'd be looking at a higher interest rate. I also considered selling the house and buying a 2-3 story apartment complex. I'd live on one floor and rent out the other two floors.

Crystal Smith · Answer

There are a few solutions:1. Renovate now/Pay Later- We work with a contractor who will update your property with no upfront out-of-pocket costs. He gets paid when you sell the property. You can then roll the profits into a new property.2. Reverse mortgage- My partner was on a conference a couple of weeks ago with an investment advisor. He came off the call convinced that reverse mortgages are perfect for folks with a lot of equity. I don't understand all the in and outs other than to say it's a way to pull out cash, make the upgrades you want and not have to dig into your retirement savings3. HELOC- That's already been mentioned on the thread4. Sale- Lease Back- If you don't want to move right away one of our partner companies has a program where they will purchase your property and then lease it back to you. There's even a provision for you to buy the home back. If the value of the home will be around $325K after the upgrades you could consider taking short-term loan from your retirement (This assumes you can take a loan from a 401K); do the upgrades, sell to a company like this one then pay your loan back.5. Another idea that we did over 10 years ago with a homeowner with a lot of equity but not enough cash to upgrade the home themselves- We partnered with the homeowner to upgrade the home and received our proceeds plus a nice profit when the home was sold. 6. Since I'm on a roll now another idea is to combine the Renovate Now/Pay Later contractor with another partner we have who will purchase your property for cash. The way the program works he'll pay 70% of the After Repair Value in cash up front. If the home appraises at $325K after the renovation you'd get approximately $227.5K which you would use to pay off your mortgage and the contractor. You still have the opportunity to sell the property to get the remaining 30% of your equity from a retail buyer. For all of these ideas you'll have to evaluate the cost and risks.

Jonathan Klemm · Answer

Hi there @Joselyn Woodson - I guess my first question is about the quality of life you have in your current home vs. what you would have if you moved...If you love your current home and enjoy it - stay there and get a Home Equity Line of Credit (HELOC)...If moving into a condo or multi-family sounds fun and exciting - do that...I wouldn't let the interest rates deter you from moving if that's what you'd like to do...they will at some point creep further down and you can refinance then.Would you plan to stay in Naperville or maybe come down to Chicago?

Adam Martin · Answer

I noticed in your post you said specifically you need to upgrade vs. repair your windows, doors, bathroom, and kitchen. This leads me to believe that they are functioning now just dated. With that being said I understand wanting to upgrade and enjoy your home however make sure you are really looking at needs vs. wants. If instead of doing the whole 50k at once are you able to prioritize what you would like done and do a bit at a time as finances permit. I'm all for leverage for buying properties however this level of consumer debt later in life on a fixed income can present a problem. I'm not going to say to go either way but I do urge you to really think about if this is the best use of your money or even if you could get some of these things done but scale it down some.

Terrence Terrell · Answer

Happy to help! Many lenders can do HELOC's, my company included. At the end of the day, you want to make sure the numbers work for you. Some lenders have minimum loan amounts and initial draw requirements so those are things you want to make sure align with your goals. But I would work with who you feel the most comfortable with.

Andrew Postell · Answer

@Joselyn Woodson yeah, I agree that a HELOC is at least worth looking into before we try any other route. How do you know who is a good HELOC lender? There are several ways to check - ask your current bank. Ask some friends or family members. My company is headquartered in Illinois if you want to try through us. But HELOC is what I would recommend first. At least to see what the payment/terms would be before making a decision.Hope all of that makes sense.

Matthew Paul · Answer

If the house is just dated and everything functions but is out dated . Sell it as is . You could dump 50 grand in it and only see a 25 grand increase in value . Let the new buyers customize it to their taste A lower price point opens up more buyers Inventory is low ( at least in my area )

Joselyn Woodson · Answer

Thank you for responding. What's the best way to select a HELOC lender? I'm thinking I could make the repairs and increase the property value.

Terrence Terrell · Answer

Hi Joselyn,That's great that you have a large amount of equity in your home! You can approach this several different ways. If you kept the property, I'd look at a HELOC so that you can utilize the equity for needed repairs. That way you wouldn't touch the current mortgage note, but would have a line of credit on your equity that you can use.The selling and buying option would come down to the numbers. With such a large amount of equity that you'd receive upon selling, your down payments on something new could be substantial enough that your mortgage payment is very comfortable. Again, it's a numbers game. With the multi-family purchase, you also want to consider the land lording responsibility.I'd be happy to talk through this with you further. Feel free to reach out to me directly.