What to do with the Cash Out from my REFI

Real Estate
#1

Hey guys. We are about to get $25k out of our home. We lowered the rate and the term. Our initial plan was to build out our attic and add a bedroom and bathroom. They say this adds 15% and that’s about right for this community. BUT, we can live without it. So what do you think - what’s smart? The ideas are swirling!

  1. Add to our Index Funds for retirement. We can spread it across our Roth over 2 years. But we were planning on maxing out the Roths anyway. So…
  2. Stick with the plan and upgrade our home. This will give us more equity to move in about 5 years.
  3. Invest the cash with someone who gets a 12% return on 6-month home flip. Continue to use this money to re-invest.
  4. Put the money down on a rental. 25k won’t go far… but would be a deposit on something somewhere.

Thoughts!?

#2

Welcome! It looks like you have some great options. These are thoughts I would consider based on the options you mentioned:

  1. How is your retirement account looking? What is your retirement goal number? Are you already investing an amount you’re happy with for retirement? Are you trying to retire earlier?
  2. Would this amount definitely cover the full renovation? Any surprises you may come across? From what I hear renovations can easily end up over budget despite good planning. How happy would this renovation make you or would coordinating this endeavor be more of a negative experience?
  3. How reliable would this person or transaction be? Would you get the return in 6 months or when would you expect this money back? This seems too good to be true but I’m not too knowledgeable in this area and know it can indeed be lucrative. Just thinking about risk vs. reward.
  4. If 25k won’t go far maybe this is not the best option despite the other ones you can consider. However, I don’t know what the market is like in your area and what the math for would look like for expenses.

Good luck with your decision!

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#3

When you say you are get $25k out of your refi- do you mean taking an extra $25,000 on top of the current loan value? I guess I am just not sure why you wouldn’t just take a loan to cover just the property and get hyper focused on paying it down or saving for other options you list.

We just closed on our refi today and dropped 10 years and 1.25% - saving us like $90,000 in financing! We our not saving monthly but in the long run it’s costing less.

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#4

Yes, beach Jaime, we were also able to shorten the term and lower the rate, so we will save long term even with taking $25K out. So it’s a good move.

We’ve decided to build out upstairs since we are already meeting our company 401k And maxing our our Roth IRAs. But we wanted to jump on the rates and the high appraisal to get that cash out at just over 3%!

We could save for that remodel but it would take so long and savings are losing 3% in inflation anyway right?!?!

#5

Ashfrica, Thanks for your feedback. We’ve decided we are not ready to take on the responsibility or risk of buying a second property so that last option is out!

We’re nervous about investing with friends also. It seems that could go wrong and then you color the friendship.

We are behind with our retirement savings but maxing our our company match and our Roth IRAs so for now, the home it is!

I think we’ve settled on the remodel because it’s actually an inexpensive way to add a lot of value to our home and life.

#6

Sounds like a great decision for your family! Wishing you well with the remodel. I’m sure it will be a nice addition to your home and of course for it’s future value.