Home Improvement?

Let me give you a hint: DON’T go take out a home equity loan.

We’ve all been watching how home prices have skyrocketed in the last six months, and there are plenty of reasons for that.  In the last few weeks, though, a lot of markets are beginning to show some resistance to the increase. 

Inventories are growing, the average days on market are going up, and lumber and supply prices are starting to recede. 

Let me give you a hint:  DON’T go take out a home equity loan. 

On the other hand, it might not be a bad idea to go and get a home equity line of credit, but ONLY IF you’ll promise me you have the discipline to not go buy a bunch of stupid stuff with it. 

Let me explain:

When you take out a home equity loan, you and the lender agree on the amount of “ownership” (equity) you have in the home, and they give you a percentage of that in cash. 

If, for example, you decided to renovate the bathroom for $10,000, human nature will inevitably ask for $15,000, and when you’re finally done, you’ll have spent $8,000 on the renovation and $7,000 in stupid things you don’t need. 

Oh, and you likely didn’t have paid down your credit card balances either. 

In a Home Equity Line of Credit (HELOC), you and the banking institution will agree on the value of your equity, and you can borrow against it, not be given a blank check for it. 

In other words, a HELOC can help keep you honest. 

So, what does all this have to do with home improvements? 

Simple – it’s inexpensive to borrow money and the relative value of your home is going up.  Inflation and the supply shortages have increased the value of your home, so you can use that (normally) bad news to further increase your property value by improving your home as well. 

In the long run, you’ll not only have a home that more perfectly suits you, but also, one that has a higher value on the market when you decide to sell it. 

The same holds true when it comes to the various systems of your home.  Furnaces, air conditioning, roofs, and so on all contribute to the aesthetic and monetary value of your home.  It might be worthwhile to add or update these systems to add value, even as the market cools a bit. 

It’s also worth noting here – depending on what you do and when you do it, solar systems, or instant water heaters, for example, there might be tax benefits available to you, too, effectively subsidizing the costs even further.

Reach out if you’re thinking about this type of plan and let’s look at your situation. 

Chat soon…

Jeff Roltgen, Tax Rescue CPA

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