Forum: money.stackexchange.com
Tags: <home-renovation><cash><line-of-credit><loans>
Title: Home Renovations are expensive.. Should I only pay cash for them?
Question: Should I save up enough cash to do home renovations, or can I take out a loan?  Our house needs a new kitchen floor as the linoleum is actually ripped in some areas, and the wood is exposed... This is going to cost $1500 to fix.. it's going to take a few months to save for that.. ideas?

Answers:
sents: text: Is it a safety thing?
text: If the heat pump goes out you replace it immediately, if your floor looks bad but you aren't tripping, I would suggest saving.
text: Use the extra time to find a great deal and educate yourself on your options.
text: Maybe even take a class and learn to do it yourself.
text: In these rough times, anything I can save for and pay cash I would.
text: The exception is if you can finance with 0% interest for a period of time and you have enough money to pay that off.
text: The last consideration I can think of is if you plan to sell the home soon?
text: For that you might be getting more value than the loan and a real estate agent would be probably know best.
answer_details: author: money.stackexchange.com/users/91/MrChrister
score: 12
sents: text: I agree with MrChrister about first considering how necessary the renovations are (is it a nice-to-have, or a need-to-have?), as well as the importance of consulting a Realtor, if you are selling your home, as they will advise you wisely.
text: For instance, they might advise you to replace the linoleum with a neutral beige ceramic tile, as you would be assured a better resale value on your dollar spent, than if you were to replace the old linoleum with new linoleum (or laminate).
text: There are many types of renovations that simply don't pay off, and others that do provide good return-on-investment (like intelligent kitchen and bathroom updates).
text: I found this ROI grid at lendingmax.ca (which is pretty consistent with what I remember reading in the Toronto Star this spring):
text: Top 10 Renovations ~ Average return on investment Painting and interior decorating = 73% Kitchen renovations = 72% Bathroom renovations = 68% Exterior painting = 65% Flooring upgrades = 62% Window/door replacement = 57% Family room addition = 51% Fireplace addition = 50% Basement renovation =
text: 49% Furnace/heating updating =
text: 48% If you are selling your home, and your Realtor has suggested improvements, they are probably necessary, and not doing them might serve as an impediment to quickly selling your home - so factor in the (potential) costs of carrying your home for additional weeks/months, or worse, overlapping mortage costs, if it takes your home longer to sell, and you end up owning two homes simultaneously for a bit.
text: As far as your question (should you pay cash for renos or take out a loan), one factor to consider if you live in Canada is the Home Renovation Tax Credit , which applies to renos that take place until Feb 1, 2010, and can deduct up to $1,350.
text: So if you have to do a reno and yours qualifies for this tax credit, and you won't have the cash before that deadline, factor in the cost of borrowing vs. the $1,350.
text: Good luck!
answer_details: author: money.stackexchange.com/users/14/Nat_Rea
score: 8
sents: text: I have a different take on this.
text: If it would only take 3 months to save up to pay for it, line up the work now.
text: Shop with your spouse to find the exact floor you want.
text: By the time you hire the store to do the install, a month will have gone by, by the time the charge bill comes in, you'll be able to pay 2/3 off, and pay in full next month.
text: Note
text: : I see this was asked in December.
text: For those carrying no debt at all, I'm not adverse to a purchase of this type getting partially floated on a credit card for a month or two.
text: Not a pair of shoes, or golf clubs, but a kitchen floor?
text: The $10 interest is worth it to not walk over a ripped up floor in your home.
answer_details: author: money.stackexchange.com/users/187/JTP - Apologise to Monica
score: 7
sents: text: It depends on your situation.
text: If your floor is broken, fix it.
text: If you don't have $1,000 on hand, spend appropriately.
text: It seems silly to be doing ROI calculations on the potential impact on resale value.
text: It's sillier to blow money frivolously, whether you do so with cash or credit.
text: I'm assuming that if you have a broken linoleum floor that the kitchen isn't new, so it doesn't make sense to install your "dream tile" into the kitchen.
text: Skip the imported travertine or wood and buy some nice linoleum and hire a handyman to put it in or install it yourself.
text: You can probably do this for $500-700.
text: If you have longer term plans for the kitchen, get them on paper and figure out what exactly you want to do and when you'll be able to do it.
answer_details: author: money.stackexchange.com/users/1288/duffbeer703
score: 4
sents: text: I know that both Lowes and Home Depot (in Canada at least) will offer a 6 month deferred interest payment on all purchases over a certain dollar amount (IIRC, $500+), and sometimes run product specific 1 year deferred interest specials.
text: This is a very effective way of financing renovations.
text: Details:
text: You've probably seen deferred interest -- It's very commonly used in furniture sales (No money down!!!
text: No interest!!!
text: Do not pay for 1 full year!!!)
text: (Personally, I think it's a plot by the exclamation point manufacturers)
text: It works like this:
text: Buy something
text: - Say $2000 item Interest accrues, but is not charged over the term of the loan.
text: On the end date of the loan, if the entire principal is paid off, then the interest is never charged.
text: However, if on the end date, you owe even one penny, then the entire accrued interest is added to your account.
text: Typically, I manage these types of purchases by dividing the principal by 6, and then adding 5%, and paying that amount each month.
text: Pay close attention to the end date, because you do not want to pay 22% interest on the entire amount.
text: This also requires that you watch your card balance carefully.
text: All payments are usually put to current purchases (i.e. those not under a plan) first, before they are applied to the plan balance.
text: So if you are paying 250 a month on the new floor, and run up another $150 on paint, You need to pay the entire new balance, and then the $250 floor payment in order for it to be applied correctly.
text: Also <shameless plug> http://diy.stackexchange.com </shameless
text: plug> Consider doing it yourself.
answer_details: author: money.stackexchange.com/users/1822/Chris Cudmore
score: 1

Summary of the answers:
It depends on your situation but think about good return-on-investments and consider your long term plans like whether you would want other work to be done in the future or if you're planning to sell the house. If something essential brakes down then you should replace it immediately, but a floor that looks bad but you're not tripping on but be better to save up for. 
The answer will depend on your situation and how urgent the repair is. If it would not take long to save up, you might want to wait, if not, you may want to consider a loan. If you have longer-term plans for your kitchen, perhaps you should consider making a long-term plan on how to pay for them.