Q: I’ve been trying to make a decision to fix up my older home or buy new. I just put $6,000 into foundation work in my current home. In retrospect, I’m not sure that was necessary and it caused more cracks to be fixed. My emotions are all in an upheaval.
I am a single woman with a boyfriend who says he will help me fix up my two-bedroom, one-bath home assessed at $49,000. It is paid off. He had been unwilling to help me before, but now he needs a cheap place to stay, which is at my house.
But I can get an interest-free loan from a relative to buy a new house. (A mortgage would be hard since I’m self-employed.) That along with my savings would let me pay cash for a home.
I’m so disappointed in the foundation repair I want to dump this one and run. I am 55 and want to retire in my own home in 12 years or so. But the home I own needs updates and is not in the best neighborhood. Do I stay or do I go? –Carol, Dallas, Texas
A: Carol, I am sorry to hear about your experience with the foundation repair; it is well-known in real estate circles that they tend to cause extensive cracking and even throwing windows and doors out of plumb, so many foundation fixes should be undertaken only with a plan of action for this sort of follow-up work.
You don’t say how much work your current house needs, or how much mortgage debt you would have to take on to buy a new home, and I encourage you to work with a financial planner to position yourself for retirement success.
That said, here are some insights that came to mind as I read through your concerns, which should help you figure out how to move forward.
1. Pay attention to your gut feelings on your boyfriend’s involvement. Life has taught me that if someone has been unwilling to help you on a potentially extensive project until he needs something from you, chances are good that you will end up very disappointed in the outcome of that project even after that person changes his tune. I am detecting incredulity and resentment on your part at your boyfriend’s willingness to help with the fixes to your house only after he became in need of an inexpensive place to live.
I know you’re thinking it’s relevant to your decision-making that you possibly have a cheap or free source of labor to get the repairs to your home done, but I want to suggest that his role is much less relevant than you might think.
First off, there’s nothing that says his fortunes won’t change again or that he won’t simply fail to do the repairs; remember, he didn’t really want to do them in the first place. Then, you’ll end up having to hire someone to do them anyway.
Secondly, even with cheap labor, you’ve only removed one portion of the cost of fixing the place up: You’re still going to have to come up with the cash for supplies, permits, and any contractors or vendors that are needed to do specialized work.
Third: Assuming he truly pours his heart into this project, does he have the skills to complete the work you need done in a quality manner? It is more disappointing and destructive to relationships to rely on someone who can’t or won’t fulfill his promises than it is to simply plan to hire the right people to do the work. Be honest with yourself. What is your gut telling you?
I would encourage you to disregard his offer entirely in your decision-making. Whether you decide that you want or need to move, don’t let your decision be based on his offer of work. It’ll take the pressure off of you both.
2. Consider selling this home and buying a new(er) one if you think you can pay off the mortgage by the time you retire, without damaging your retirement savings. I’m a big fan of staying put if a home is really working for you and your motivations to move are thin. But the facts that you are trying to resolve your housing situation for the long term and that you have concerns about your neighborhood and about your home’s condition make me believe that you might be a good candidate for selling now, while supply is low in many areas, and moving while you have access to such a great opportunity to finance your next home.
If you do decide to buy a newer home, make sure that you focus on neighborhood and on making sure you have the space and amenities you’ll really want when you retire. Also, do everything you can to avoid biting off more than you can chew. If you can realistically plan out a monthly budget that will allow you to pay your family loan off by the time you retire without impairing your ability to stay out of consumer debt and save and invest for your retirement fund, you should not hesitate to find a better home in a better neighborhood. Work with a financial planner, if you need to.
3. Take your relative with you to the CPA’s office before you finalize the loan. An interest-free loan might be construed as a gift by the Internal Revenue Service and does not allow you to deduct any mortgage interest on your tax returns. On the other hand, charging interest could create taxable interest on your generous relative’s behalf.
Talk with a tax adviser to put a strategy in place for how to create and document this arrangement in a way that will keep both of you in good standing with the IRS, and will make the most of any possible tax advantages either or both of you could realize.