Remodeling Projects – The home owner’s guide Part I

PANDA EDUCATIONAL SERIES:  PART I – The homeowner’s guide to financing your remodeling projects

  • “Help us! We have an old and dated home and the sliding doors are either not functioning or require Arnold Schwarzenegger to open them.  Now we are at the point of remodeling and know what we want but not certain how we can afford it.”
  • “We are remodeling our home and want to open our home to the back yard to enhance our livability as well as increase the value where do we start?”
  • “We have great views around our home but only if you are standing outside our home!  Now we are in the middle of a major remodeling project so we can see everything from the inside while still having a wall between us and the weather outside. Is there a way to do this?”

These and many other similar questions and concerns are not unusual, in fact we hear these same types of statements daily at Panda.  It  is however, unfortunately common that a great number of remodeling professionals and remodeling designers do not know how to offer their clients a knowledgeable answer in order to successfully finance their remodeling projects.  The smart and successful remodeling pros and designers always have an answer to their clients’ financing challenges and this takes a considerable amount of research and relationship building with financing sources and options in their area.  Armed with this competitive advantage, those remodeling professionals are informed on the multitude of options and are ready to help finance almost any size remodeling project.

** In this blog, we will first be examining “Non-Borrowing” options.  Next month we will begin to discuss available options in financing.

The non-borrowing option has limits to it – the primary shortfall in this method would be the limitation as to how much you can afford to deplete your reserves and still remain comfortably solvent.  After all, life can heave issues our way which demand a cushion of liquidity and you don’t want your new door to cost you the ability to survive a storm.  And by all means don’t forget Uncle Sam!  There are tax consequences for each option and it is your responsibility to work with both a qualified financing expert and a licensed certified public accountant to discuss and understand the consequences or implications involved in these options.

Using CASH – Cash is the easiest and fastest way to get started on a project. Cash is King because there are no requirements and work can start immediately on your remodeling project. However, this may only allow you to pursue a project that ends up being less than what you had envisioned for your home.  It may make sense to finance part of your remodeling project with cash and then part of your project through means of a financing source which we will cover next month.

Retirement Account Withdrawals – whether it is your IRA or 401K, your retirement account may be an important part of your life after your career comes to an end.  Although your intent is to maintain a standard of income after retirement, these accounts can be used to fund home renovations. We recommend looking at it as a loan to yourself and focusing your financial excess towards replenishing anything that was removed.  Depending on your age, these accounts may be accessed without penalty. Prior to retirement age, they can be used under certain circumstances, such as hardship or loss of gainful employment. Although this option is included in the “non-borrowing” section, some retirement plans will permit a limited sum to be withdrawn, along with defined repayment terms. Assuming this repayment occurs as specified by the retirement plan administrator, income tax liability may be lowered or removed entirely. It is very important that the use of these funds be decided only with the advice of your tax professional.

There is more to come in this series on remodeling so stay tuned for next month’s blog!