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I own a large home in a recently gentrified and revitalized, very, VERY desirable urban neighborhood in the U.S. I purchased it for $400K 8 years ago, while the neighborhood and the house were not in a very good shape and have since almost entirely tore down and rebuilt, with a few outstanding items still needing to be completed. Similar homes in my area, assuming a completed status, currently go for 800-900K. I would like to sell the house so that I can build a new home in the countryside completely off the proceeds of the sale and begin living a life of minimal or no financial dependence on the system, meaning no more debt and working only to make enough for basic needs as I will not have a mortgage ever again.

The problem is that, in the process of remodeling the house, I have burned virtually all my savings and racked up about 25K in CC debt while not completely having finished the job. The job is mostly done but the main unit needs things like window trim and some baseboard painting while the separate basement apartment has all the infrastructure done that goes behind the walls but needs drywall, painting etc. I estimate 3-6 man-months of work are outstanding. In addition to currently not having money to hire someone else to do it, I also strongly dislike the idea of hiring contractors as I am admittedly a difficult person to please and I possess 95% of construction skills required for building/remodeling. The vast majority of work that has been done already was done while I had time, in two stretches of unemployment between jobs. However, I am now employed, earning about $120K but all my income goes on mortgage and CC payments so that I literally live month-to-month.

I am looking for ideas and advice how to finance a move forward to the next step of my life, which means selling this property and raking in an estimated half a million in cash. In order to do that, I will need some time off from work, which I currently cannot afford as my cash reserves are minimal. I tried refinancing before but the bank did not like the report from the appraiser that there is still work to be done on the house, while also estimating it to be valued at $750K, assuming a completion of the outstanding items. But the catch 22 is that, in order to get those items completed, I need time off work as evenings and weekends are not enough because, frankly, I don't like burning myself out and have a need for leisure. Also, I would prefer to skip the hassle of refinancing if by all means possible and just finish the house and sell it because refinancing is an administrative nightmare.

So imagine a situation where you have no cash, maxed out CCs, yet are sitting on a cash cow that needs to eat just a little more grass that you currently can't afford.

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    Have you looked at an equity line of credit? You can usually get these for a very low APR. – BobbyScon Aug 4 '15 at 19:48
  • i have not because I didn't know about the option. I will look into it – amphibient Aug 4 '15 at 19:49
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    We used one to finance improvements on our home. As with any line of credit (and based on what you're saying above I'm sure you're aware), make sure you don't take out more than you can repay. You're gambling a bit on the final sale price, but it sounds like it's pretty low risk to have a high return. – BobbyScon Aug 4 '15 at 19:51
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    Remember that a house can take a long time to sell, if you're at all concerned with getting a good price for it. How long depends on the house, the location, what else is on the market, and a nontrivial amount of luck. – keshlam Aug 4 '15 at 20:35
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    2 years ago is a completely different market, and it was a different house with different improvements in different condition asking a different price. Don't bet on it moving quickly at a price you'll be happy with. Remember that most renovations do not come close to paying for themselves. I wish you luck, I just want to make sure you're leaving yourself enough space in your plans – keshlam Aug 4 '15 at 22:05
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I'll write this up as a more formal answer, here. I'd suggest looking into a Home Equity Line of Credit, or HELOC. You didn't mention in your question how much equity you have in the home, but assuming at least 20%, you might be able to open a HELOC with a line of $40,000. My experience is that you can do 50% of your equity, but depends on the bank. Here are a few notes that are generally in play with HELOC's (YMMV, so be sure to know the specifics before signing on the line)

  • Interest paid may be tax deductible.
  • No closing costs (unlike a refi or second mortgage), but there may be small fees.
  • Rates can be negotiated, so get a rate from multiple banks.
  • It's not an upfront loan, but a line of credit, so you can write checks as needed (to yourself or anyone really). There is a draw period, which is determined when opening the account, and a payback period.
  • During the draw period, you can pay back interest only. It's like the minimum payment on a credit card, rather than a set payment like a loan.
  • Most are set up as a variable rate, but some banks offer fixed rate options.
  • The rates are typically in line with mortgage rates.

Doing this, at least when we did 8 years ago, did not subject us to PMI. There are certainly plenty of things to research, but it sounds like you're pretty astute based on how you're evaluating the financial side of this endeavor. There are no guarantees in real estate. Houses could be selling like crazy now, but in 6 months they might not. It certainly sounds like that's a lower risk in your area, but you never know what might happen. If you're taking on this extra line of credit, make sure that it's something you could afford should the worst case scenario happen.

Equity loans are also available. This is a more traditional fixed-rate loan rather than line of credit, so you'd be looking at set monthly payments rather than the flexibility of paying interest only when you need to. There's a brief write-up on the differences here.

I have also heard of a construction loan, which falls into the same category as the aforementioned options, but I can't speak to today's market on those.

  • i have around $400-500K of equity, depending on the market. however, if this requires an appraisal, it won't work for me because the house not being finished was what prevented the refinance that i mentioned in the OP – amphibient Aug 4 '15 at 21:31
  • How much of the $400k did you actually pay in cash when you originally purchased it? Yes, an appraisal will be needed, but HELOCs are advertised as ways to do improvements and large renovation projects, so it should be weighted differently than a full refi. – BobbyScon Aug 4 '15 at 21:39
  • that doesn't matter how much i paid cash because i owe less than 400K and the value is around 800K now for comparables... so my equity is at least 400K – amphibient Aug 4 '15 at 21:42
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    The bank will determine how much equity you truly have in the home. You'll need an as-is appraisal rather than the subject-to appraisal it sounds like you recently had done, because the value will be based on what the property will get if sold right now. Loans or LOCs based on existing equity aren't as harshly viewed as 2nd mortgages or a refi. I hope they come back and say you have $400K equity, but be prepared for a much lower #. – BobbyScon Aug 4 '15 at 22:02

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