Not sure if this question belongs here>>>

[Scott Vaeth]

I recently purchased my first property that I plan to BRRRR, and had used a homestyle renovation loan which allowed me to use a bank for the mortgage and rehab. Before the work could be done, I had to set contingency funds aside in case something went wrong. Luckily, I didn't need to tap into these funds for the initial work but I have a choice given to me: either have the contractor do more work or have that money go towards principle. 

Following the initial scope of the rehab, my insurance company told me I'd need to update the roof for continued coverage. Is it worth using those contigency funds to help fund the roof or put that money towards principle so I can reach 20% equity sooner. If I don't use those contingency funds for the roof work, I'll need to fork over an additional $5K in cash. However, from my understanding, it takes a long time to pay down the principle when making mortgage payments. I wasn't sure if putting $5K towards principle is more valuable than allocating it elsewhere. Any feedback from this community would be greatly appreciated!

[William Simpson]

Hi Scott, 

It sounds like a good opportunity to deploy the contingency fund for the issue with the roof that popped up.

As tempting as it is to use that contingency money to pay down the loan faster I think that sticking with the original purpose of the funds and updating the roof is the best use of that capital for the following reasons:

1.An updated roof adds value to the property. Estimated national avg roi of about 60%https://www.zillow.com/learn/should-i-replace-my-roof-before...

2. An updated roof mitigates potential water damage in the future. Water damage/mold/ect. is much more costly to repair than to prevent.

3. When you make an extra principal payment on a loan the ROI on every dollar spent is the APR of the loan. You can get a better return on that dollar by updating the roof.

To paraphrase Morgen Housel; at the end of the day it really needs to pass the sleep test. What sort of risk mitigation will help you sleep at night the most?