Home remodeling - tips and financing questions

[Sho'Nuff]

After a lot of debate, my wife and I have finally decided that we are going to go through with several medium to large remodeling projects. We are going to start with converting an Office attached to our master BR into a true fourth bedroom. We are then going to redo our basement (which is currently unusable), our deck (which is falling apart), refinish wood floors, paint interior and exterior, and then move onto *bigger* projects like remodeling our kitchen and master bath, and repairing our driveway.

Unfortunately DIY is not a possibility for us. I am more than capable, but I work from 6AM-6PM, and sometimes on weekends. Not to mention that the value of my time (on a per hour basis) is higher than what most contractors charge for this type of work. Hence, one or more contractors will be handling these projects for us.

Since this is my first stab at remodeling, I thought I would ask those of you who have been through this process for some tips. Any must dos or don'ts, in your opinion? Are there any pitfalls I should be aware of?

I would also be interested in hearing about how you financed your project. I have identified the following options:

1. Heloc (I can get a 20 year fixed HELOC (not mortgage) for 3.75% from my credit union

2. Raid personal (non-retirement) investments to cover bulk of the cost (cheapest but not desirable to me for various reasons)

3. Cease retirement/personal investments for 4-5 months - use those dollars to pay for the project(s) (note - I have significant retirement savings already and am only 35 years old).

4. ??

Any other options I might have missed?

Thanks in advance,

Sox

-Update 04/05/2013 - So the wife and I have decided to move forward. We got a quote from a reputable contractor for $62k that includes all materials except those that will be installed in the bathroom (for which we have budgeted another $18k). Construction will begin in our basement on 04/22. Will post pics as things progress, if I get a chance.

Financing wise, we decided to use a combination of non-retirment savings and a HELOC. HELOC rate through my bank was only 3.75%, which is quite low and less thanthe returns I'm seeing in the market. Plus the HELOC interest is tax deductible. So, we took out a $50k line of credit, and will pay the remaining 30k out of non-retirement assets. Can't wait for all this work to be done. The basement alone is going to be a huge improvement, as it will increase the finished living area of or home by almost 800 square feet (~40% of the current GLA).

 

[Dirigible]

We had our house remodeled last year. Entire house except for one bathroom torn down to the studs. New electrical, plumbing, entirely new kitchen, new roof, improved drainage, the list goes on.

First off, it sucked. Made sense for us financially, but totally sucked dealing with it. Even with a general contractor in charge there were endless decisions. It wasn't just a "Ok, redo the house, talk to you when it's done." Talked and oversaw things and had to take time just about every day. Hope your wife has a lot of availability.

I paid by your option 2. Non retirement funds.

Take your time finding a contractor. Investigate thoroughly. Do not just take a few bids and choose one. Make sure they will fit with your personality.

 

[highland145]

#3 or get #1 but use #2. Fall back onto #1 if you have to for other emergencies.

I got the heloc prior to the last housing crash just so I'd have it for future use. Haven't regretted it and it's probably raised my credit score with so much available unused credit.

 

[Sho'Nuff]

We had our house remodeled last year. Entire house except for one bathroom torn down to the studs. New electrical, plumbing, entirely new kitchen, new roof, improved drainage, the list goes on.

First off, it sucked. Made sense for us financially, but totally sucked dealing with it. Even with a general contractor in charge there were endless decisions. It wasn't just a "Ok, redo the house, talk to you when it's done." Talked and oversaw things and had to take time just about every day. Hope your wife has a lot of availability.

I paid by your option 2. Non retirement funds.

Take your time finding a contractor. Investigate thoroughly. Do not just take a few bids and choose one. Make sure they will fit with your personality.

Yeah, we have a good contractor picked out. He redid a home across the street from us and it came out amazing. Nice guy. Very detail oriented and very willing to work with us while making alternative suggestions. We had 5 or so contractors bid the first job already, and the one we selected was the only one I like both professionally and personality wise.

For the first two projects (making the fourth BR and redoing the basement), there are not that many decisions to be made. The BR remodel simply involves extending a shared wall to an exterior of the house, framing in a closet, moving three windows, painting and redoing carpet. The basement involves moving an existing wall back about 8 feet, extending the adjoining wall to fit, extending a drop ceiling, installing new flooring and adding a heat source (likely electric baseboard). The bathrooms and kitchens are where the choices really start to flow I think.

 

[DrPizza]

I don't have any tips on the financing, since I'm a d-i-y person & simply paid as I went. But, with that much to do, I'd recommend spending a lot more time up front looking at samples, (granite, tile, colors,) etc., all over the place with your wife. It was weeks and weeks before we found just the right colors that went together well.

 

[Sho'Nuff]

Not sure if anyone is still interested. But if so, we decided to go the HELOC route for the time being. My investments are doing very well at the moment, and HELOC rates are cheap (4%) and the interest is tax deductible. So the plan is to finance using the HELOC, reduce monthly investments into non-retirement funds to pay the monthly (or 2X monthly) payment, and allow our existing financial snowball to continue to pick up speed. Theory is that it will cost me less to borrow the money than to take the $60-70K out of investments. Worst comes to worst, interest rates rise and we liquidate to pay off the HELOC.

Projects that are now planned include:

1. Converting upstairs office into a true 4th bedroom. That room will be used by my father when he moves back to the states from Europe.

2. Expanding main room in finished basement by ~200 square feet, add a new ~12X10 office in previously unfinished space. Add heat to both spaces. Wrap lally colums. Remove drop ceiling in existing space to maximize ceiling height. Add decent water resistant flooring.

3. Renovate master bath - New double sink vanity, tile floor, expand and tile shower, reface jacuzzi tub surround, add new lighting. Reconfigure walls to create space for a 2nd floor laundry (laundry is currently on first floor by entrance from the garage).

4. Renovate kids full bath and powder room - new vanities and tile floors. Tile feature wall in powder room.

5. Garage entry: Remove existing walls at entrance to garage so that the door from the garage opens to our kitchen instead of a laundry room. Add "mud room" features (shoe rack, coat rack, etc.) on one remaining wall.

6. Garage - improve insulation in ceiling of garage (rooms above it get very cold). Replace garage doors. Replace entry doors to garage (both are starting to rot/rust). Seal many, many gaps. Cosmetically finish (add basic trim, paint white).

7. Master BR - Add crown molding, recessed lighting, ceiling fan

8. Deck - replace. Original deck is a hazard. New deck will be same layout (required because of wetland restrictions), but will include nice features like a pergola, lighting, etc.

9. Random electrical work.

10. Paint entire interior and exterior.

Realtor estimates that these improvements will increase the value of the home by ~$100,000 to $110,000. Seems like a steep increase given the amount of investment. But her rationale is that our home was at the bottom of the market in our neighborhood, and we would be "bringing it up" to the level of 95% of the other homes. In other words, we got a good deal when we bought the place, because it needs all of this updating.

 

[iGas]

It going to put your relationship on the line, and going to snow ball (will take much longer and cost much more than you anticipated).

A logical financial and lower stress alternative is to sell the house and buy one that fit your needs.

IMHO, it doesn't make financial sense to remodel the house that you live in as an investment, because the cost of remodelling is likely much higher than the 60-70k that you anticipated (if the bulk of the work is not DIY) and it may take up to a year or more living in a disastrous war zone to do what you have planed.

 

[Greenman]

It going to put your relationship on the line, and going to snow ball (will take much longer and cost much more than you anticipated).

A logical financial and lower stress alternative is to sell the house and buy one that fit your needs.

IMHO, it doesn't make financial sense to see remodelling the house that you live in as an investment, because the cost of remodelling is much higher than the increase in value of the home.

Horse puck.
In 27 years of remodeling I've never had a client's relationship end over the project. Snowballing cost (on the rare occasion that it happens) is due to an existing structure that was improperly built to begin with, or the client adding to the scope of work.

 

[edro]

The secret is to ALWAYS side with your wife, no matter how stupid it looks.

Also, I would stop your retirement for a few months to pay for it.

 

[Colt45]

Sure do wish I could come up with a shit ton of cash via not paying into retirement funds for a couple months.

 

[Elbryn]

just to throw it out there, if you were willing to do the extra paperwork, penfed has a fixed 1.99% home equity loan on up to 5 years. not much difference than the HELOC, just a cheaper.

edit - up to 80% LTV

 

[Sho'Nuff]

just to throw it out there, if you were willing to do the extra paperwork, penfed has a fixed 1.99% home equity loan on up to 5 years. not much difference than the HELOC, just a cheaper.

edit - up to 80% LTV

Interesting. Good to know.

 

[Sho'Nuff]

The secret is to ALWAYS side with your wife, no matter how stupid it looks.

Also, I would stop your retirement for a few months to pay for it.

Agreed that siding with the wife is always a good idea.

As for stopping retirement, I don't agree. Slowing non-retirement is fine (e.g., to make payments on the HELOC), but I don't agree with stopping it either. At least not in my situation.

Rational is this:

The annual average return on my investments is roughly 8% since 2003. Assuming that trend continues, my investments will double in value roughly every 8 years. With this in mind, I have 20 years to pay off a balance on my HELOC. If I borrow 50k on the heloc at 4% (or whatever the prevailing interest rate is), over the 20 year period I will pay roughly $22,000 in interest, or a total of $72,000. If I leave that 50k in my investments, over the 20 year term that 50k will double 1.5 times, to $150k. This of course assumes that I can get the same annualized 8% return, which may not be realistic. But as long as the annualized return is over 4% (or the prevailing HELOC rate), I win out. Particularly as the HELOC interest is tax deductible. Sure, I could pay off the HELOC sooner. But why? I have the capital to pay it off at any time, so why not put my money where it can do me some good?

This is one of the very nice things about having a fair amount of capital. Debt is no longer "debt." Its "leverage."

 

[Sho'Nuff]

Sure do wish I could come up with a shit ton of cash via not paying into retirement funds for a couple months.

Not stopping retirement investments. Might slow non-retirement. Retirement investments will cease (maybe) when I retire, which right now looks like age 55. Only 19 years and 3 months more to go.

 

[Sho'Nuff]

A logical financial and lower stress alternative is to sell the house and buy one that fit your needs.

IMHO, it doesn't make financial sense to remodel the house that you live in as an investment, because the cost of remodelling is likely much higher than the 60-70k that you anticipated (if the bulk of the work is not DIY) and it may take up to a year or more living in a disastrous war zone to do what you have planed.

Thanks for your comments, but I respectfully do not agree with them.

For one, I live in NH. If you have been to our state, you will realize that it is very rural, and there are not very many communities per se. Our home is in a very nice community in the seacoast area. It would be very difficult to find (or build) another home with similar amenities. Plus, we like the house.

We are still waiting for some quotes to come in, but my gut is that we are going to come in right around $55k. The changes we are proposing seem drastic, but really aren't as big a deal as they would seem. E.g., our contractor thinks that moving the laundry upstairs will be "simple" because the drain and supply lines are already available in the second floor area and all that would be needed would be a new 220 line for the dryer. The only *big* variable seems to be drywall/mudding, which apparently is time consuming to do correctly.

We'll see though. Crossing my fingers that I'm not delusional. If I am, we'll just do things piecemeal.

 

[RossMAN]

Interesting. Good to know.

Here's more info which is a little dated but worth a read.

 

[Sho'Nuff]

Update: We have have received our first quote for the work (outlined below) and with the exception of paint, it seems reasonable. Our realtor estimates a $110-120k increase in the value of our home, based on the proposed renovations and the market in our area, so we are going to pull the trigger. Can't wait to see what the house looks/feels like after its done, particularly as it expands the usable living space by about 30%.

We were able to secure a HELOC from our credit union at 3.75% (20 year repayment term), so we are going to finance the project that way. Worst come to worst, interest rates on the HELOC rise and we will liquidate some stocks to pay it off immediately.

Total Quote for Labor and most materials (not including paint) - $64,000

Total quote for paint - $14,500!!!!!! This seems astonishingly high, and we are seeking other estimates.

 

[BurnItDwn]

Not sure if your plan to replace the drop ceiling is to go drywall, or something else, but, if you decide you still want easy access to the ceiling for running cables or whatever, there are drop ceilings like Ceilinglink where you lose very little vertical space.

I used this snuff in my home theater, it gained me a couple of inches of vertical space.

I did put drywall in the very back, above the riser, but that was more or less for "looks."
http://www.ceilinglink.com/

 

[Sho'Nuff]

Not sure if your plan to replace the drop ceiling is to go drywall, or something else, but, if you decide you still want easy access to the ceiling for running cables or whatever, there are drop ceilings like Ceilinglink where you lose very little vertical space.

I used this snuff in my home theater, it gained me a couple of inches of vertical space.

I did put drywall in the very back, above the riser, but that was more or less for "looks."
http://www.ceilinglink.com/

Thats cool! Thanks for the link. I'll tell my contractor about that and see what he thinks.

Only issue I can see is that we have a few spots where some pipes are run below the joists. So we were going for an open ceiling "loft" style look. Like this one:

http://www.houzz.com/photos/895600/Loft-Like-Basement-Renovation-modern-basement-dc-metro

Another option we have considered is to use acoustic panels, like this:

http://www.houzz.com/photos/1706950/Lower-Level-Living-modern-basement-philadelphia

 

[Sho'Nuff]

Bump for update

 

[highland145]

So are you doing the kitchen? My best guess is 3+ months from start to finish. We were told 6 weeks for the cabinets, 4 more weeks for the tops, 1 week demo, paint, trim, redo the wood floors.....

 

[bignateyk]

So are you doing the kitchen? My best guess is 3+ months from start to finish. We were told 6 weeks for the cabinets, 4 more weeks for the tops, 1 week demo, paint, trim, redo the wood floors.....

LOL, 3 months to remodel a kitchen? You're getting ripped off. I've gutted and remodeled a kitchen in less than a week by myself.

 

[Anubis]

it really depends on what you have to do to get it ready and if you have everything on hand

ours took 4 months because it took that long to get the damn cabinets made (custom made, he was slow)

 

[bignateyk]

it really depends on what you have to do to get it ready and if you have everything on hand

ours took 4 months because it took that long to get the damn cabinets made (custom made, he was slow)

Yeah if you're getting custom cabinets, but it's not like they are at you're house working for those 4 months.

 

[Anubis]

true there were a lot of days when nothing happened