shopoholic
Member
This may seem stupid, I know a lot either use a HELOC or cash, but for those of you that financed who did you go through?
Looking at doing a 40'x60'x12' pole barn.
Looking at doing a 40'x60'x12' pole barn.
Shop/garage finance
- Thread starter shopoholic
- Start date
mike93lx
ALLIANCE MEMBER
If you don't have equity, I would expect you are going to have a problem. The shop won't add much value to a residential property.
Cash out refi or heloc are probably about it.
And rates have jumped massively. Double this time last year and something like 15 year highs
Cash out refi or heloc are probably about it.
And rates have jumped massively. Double this time last year and something like 15 year highs
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A Heloc's timing is key. Secure it against a high appraisal.
I couldn't do a pole-barn because I'm on a 1/2 acre and not a farm. It's a building with a proper foundation like a house. Property value increased by more than I spent. Typical or not, that's how it went.
I couldn't do a pole-barn because I'm on a 1/2 acre and not a farm. It's a building with a proper foundation like a house. Property value increased by more than I spent. Typical or not, that's how it went.
OP
shopoholic
Member
We have equity but not enough for 50k yet, closer to half that, plus just refinanced last year at 2.625% from 4%. Rates are around 5% right now so yeah almost double
Current home is sitting on a little over 2 acres, we bought the empty lot next to ours.
What's the thoughts on maybe adding a small bedroom area on one end, adding heating and cooling and then financing like a mortgage? Is that a grey area? Or for that fact just a bed in it ha
Current home is sitting on a little over 2 acres, we bought the empty lot next to ours.
What's the thoughts on maybe adding a small bedroom area on one end, adding heating and cooling and then financing like a mortgage? Is that a grey area? Or for that fact just a bed in it ha
reader2580
Well-known member
I go through a local credit union when I have had home equity loans in the past. Some will go up to 90%. They used to go up to 100% before the 2008/2009 meltdown.
I'm not sure what you would expect to achieve by adding a bedroom and all that. Credit unions also have home improvement loans if you are improving your house, but don't have enough equity. The rates tend to be really high. I would not be refinancing your primary mortgage to get cash out with the low rate you have.
I'm not sure what you would expect to achieve by adding a bedroom and all that. Credit unions also have home improvement loans if you are improving your house, but don't have enough equity. The rates tend to be really high. I would not be refinancing your primary mortgage to get cash out with the low rate you have.
zc15
Well-known member
Currently researching this, but haven't reached out to any banks yet.
Most equity based products only allow you to go to 80% or 90% Loan-To-Value maximum.
I have seen "Home-Improvement" loans which are a fancy way of saying Personal unsecured loan. Was looking like 7% for up to a 10 year term. I'm not sure if these have a maximum loan amount.
Sure it isn't ideal, but has anyone used one of these types of financial products?
For those of us below 3% interest rate on the mortgage, it would cost more in interest each month to do a cash-out refi at todays rates around 5% than to just pay the extra interest on an unsecured loan for just a shop
Most equity based products only allow you to go to 80% or 90% Loan-To-Value maximum.
I have seen "Home-Improvement" loans which are a fancy way of saying Personal unsecured loan. Was looking like 7% for up to a 10 year term. I'm not sure if these have a maximum loan amount.
Sure it isn't ideal, but has anyone used one of these types of financial products?
For those of us below 3% interest rate on the mortgage, it would cost more in interest each month to do a cash-out refi at todays rates around 5% than to just pay the extra interest on an unsecured loan for just a shop
mike93lx
ALLIANCE MEMBER
Building a house and a shop are very different things. What about septic/sewer? Separation between the living space and shop space?
Either way, getting a small living space with a huge shop financed will probably be very similar to a huge shop. The shop just doesn't add enough value
Not sure what could do better than a Heloc. It's my banks answer to almost anything.... Renovation, addition, shop, landscaping, downpayment on a 2nd home, etc.
I even tried to merge the outstanding balance on the Heloc, later, into the mortgage, but couldn't qualify. They clearly allow you to carry more on the Heloc than even a regular mortgage.
Maybe a wait a few months for the appraisal to increase, see what you can get then.
I even tried to merge the outstanding balance on the Heloc, later, into the mortgage, but couldn't qualify. They clearly allow you to carry more on the Heloc than even a regular mortgage.
Maybe a wait a few months for the appraisal to increase, see what you can get then.
OP
shopoholic
Member
I have been researching as well and finally got tired of conflicting information so I posted here.
Just got off the phone with a bank that someone I know used for his... not sure if he did HELOC or not but the bank said they could do up to 50k for 84mo at 7-10% for a building but she would not elaborate much without getting an invoice from a contractor/company.
If I knew for sure we were at the peak of housing I would pay the $325 appraisal to see where we stand. But being in a LCOL area I doubt its even 10k more. Went back and looked, the last appraisal was 9/14/20 little more than the year I initially said, may be worth trying.
With HELOC we would not refinance just borrow against the house right?
Just got off the phone with a bank that someone I know used for his... not sure if he did HELOC or not but the bank said they could do up to 50k for 84mo at 7-10% for a building but she would not elaborate much without getting an invoice from a contractor/company.
If I knew for sure we were at the peak of housing I would pay the $325 appraisal to see where we stand. But being in a LCOL area I doubt its even 10k more. Went back and looked, the last appraisal was 9/14/20 little more than the year I initially said, may be worth trying.
With HELOC we would not refinance just borrow against the house right?
mike93lx
ALLIANCE MEMBER
Yes, that is what a heloc does.
If you are relying on the market peaking to afford this, you may want to think twice
IMHO, it's a no-brainer. Can't go wrong making your property worth more with real improvements funded by equity - like another legal building. Spending it on new lawn, fence, paint, and flowers isn't the same.
Here, heloc rates are usually an interest point above prime. Appraisals are usually ~10% better than annual property tax value assessments. Both ratchet upwards when a couple houses on your street sell high.
mike93lx
ALLIANCE MEMBER
Adding a shop add little value. Certainly nowhere near what the project costs. Either way, we aren't talking about just spending cash. This is a loan, secured by a property's value at a market peak. They are very different things.
But it is not my money being spent here.
zc15
Well-known member
True that. I wouldn't want to lose the house because I couldn't pay for the shop when times get hard
OP
shopoholic
Member
Not relying on but trying to do this building efficiently. IF I could get a HELOC or financing for a lower interest rate 3-4% then why use cash. It would serve me better in the market at that point. But its quickly looking like the interest rates are just going to kill any ideas of thinking this way
This is always said, but not definitely not my experience. My AHJ may as well have laid the declared permit value right onto the assessment.
mike93lx
ALLIANCE MEMBER
Or be way underwater if you need to move
mike93lx
ALLIANCE MEMBER
It's easy to say the money will do better in the market but will you really put it there? The market can certainly return better, but it can also lose value. Not taking on debt is a guaranteed return.
I am not afraid of or adverse to debt, so don't take it that way. Everyone has their own risk tolerances
mike93lx
ALLIANCE MEMBER
Assessments generally have no tie to reality. An appraisal will be much more accurate and ultimately, none of it matters until you sell
Not here. They keep going up, up, up - together.
OP
shopoholic
Member
Yeah good point. I would HOPE it would do better in the market. Every time I get a raise I do half of that towards 401k before I see the check, so I probably am in the minority that can answer yes to that.
For debt I don't mind a home loan and one vehicle at a time.. everything else is generally high interest.. we credit card and travel hack as well but its not a revolving debt.. paid every statement.
I wouldn't be opposed to this shop being a debt because I rather not wait 3-5 years to pay cash. May end up being a combo of cash and HELOC and I have to wait a year or so instead of doing it now.
For debt I don't mind a home loan and one vehicle at a time.. everything else is generally high interest.. we credit card and travel hack as well but its not a revolving debt.. paid every statement.
I wouldn't be opposed to this shop being a debt because I rather not wait 3-5 years to pay cash. May end up being a combo of cash and HELOC and I have to wait a year or so instead of doing it now.
mike93lx
ALLIANCE MEMBER
With the way rates are headed and stagnant wages, debt is going to get a lot more expensive.
I bought my house last summer at 2.8%. Same mortgage today would be 33% more.
I went into the build with this mentality, but it was a strain and I gave it up. Moreover, bylaws didn't allow a home-based auto-repair business at all.
8 years later, it's all paid for. So glad to have the personal shop space. No regrets.
The interest on a heloc will somewhat keep pace with interest and mortgage rates. Those of you that claim "cheap money" and consistently beat interest rates with your investment returns should have no trouble.
finn
Well-known member
Multiplying a percent by a percent is a silly way to make a small increase of a small number seem dramatically large.
A 33% increase on a tiny 2.8% mortgage rate only brings it up to 3.72%, which is still a low rate by historical comparison.
Sounds dramatic, though.
mike93lx
ALLIANCE MEMBER
I didn't multiple a percent by a percent. I calculated the new payment at the new rate and felt like giving a percentage would better state the change vs just saying it would go up $700.
Rated have doubled. That's 100%, BTW
Try again though
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CraigStu
Well-known member
One thing to realize is that if you decide to move and sell, that heloc will need to be paid off. If you don't have enough equity to cover it you could be in trouble.
nadogail
Well-known member
My radical suggestion is to pay yourself first, put what would be your loan payments into an investment that compounds. I will not hand out investment advice but I am sure your financial advisor can steer you to a company that has a history of paying monthly dividends that can be re-invested; there is one that pays around 4% .
if you put your garage money into an investment that grows you may soon be able to have the shop you can afford.
if you put your garage money into an investment that grows you may soon be able to have the shop you can afford.
If you have less than 50K equity in your primary, I wouldn't do it period, regardless of cost of money. Depends on what your equity % is in your primary, but based on what you're saying it sounds pretty low. If/when the housing market dips, that puts you in a bad spot, even before you build a shop.
If you are still able to put half of raises towards your 401K, you aren't putting enough in. You should be maxing out your 401K (~20K a year is the limit, changes yearly), building your equity portion (so if the market dips you aren't stuck in a house, you still have options) and not building a shop lol.
Unsolicited advice, but if you aren't maxing out your 401K and you have low equity % in your house those are two pretty big safety nets/good habits that you should have first, and signs taht you shouldn't be building a shop.
If you are still able to put half of raises towards your 401K, you aren't putting enough in. You should be maxing out your 401K (~20K a year is the limit, changes yearly), building your equity portion (so if the market dips you aren't stuck in a house, you still have options) and not building a shop lol.
Unsolicited advice, but if you aren't maxing out your 401K and you have low equity % in your house those are two pretty big safety nets/good habits that you should have first, and signs taht you shouldn't be building a shop.
Shoester
Well-known member
An alternative you may want to consider is a 401k loan. Note this is a loan from your 401k, not a distribution, and does not carry any taxes or penalties. The benefit is that it's typically a lower interest rate, the interest is paid back to yourself, and you aren't risking your property.
Nor sure it's any different than taking a loss on a car you had on payments, and the outstanding is rolled into the new car payment.
Banks limit how far you can 'mine' your equity for this reason. It's highly unusual for valuations to drop these days. Every player in the system is determined to never lose, and tax/comissions depend on high values.
Putting in the effort for a personal shop, and then moving promptly is not an outcome to strive for; it's riskier.
mike93lx
ALLIANCE MEMBER
But your money is out of the market during the payback and if you leave your employer, you typically have to pay it back.
401k loans are not a great idea
Shoester
Well-known member
Sure wish I would have taken out a big 401k loan before this market dip!
But yes, of course that is the most significant drawback is the potential for a loss of job and balloon repayment, and that over the (typically max) 5 year period that you have taken that money out, it is not earning for you, beyond the interest that you are paying back. It's worth noting though that you are still earning on all the rest of the money in your 401k, and you should not reduce or stop contributing. Most 401k providers limit you to $50k anyway, which over the course of 5 years may cost you $5k in earnings once you factor in the interest that you are paying back to yourself.
Some banks like to do fixed equity loans for improvements ... it seems a lot of the big banks push HELOC. Years ago equiety loans were easier to get vs other loans (I'm talking 30 years ago ) ... but, in general money is easier to get today (except maybe in the very late 00's when it was hard)
HELOC are nice because they are simple .... you borrow against the line based on what you need vs asking for a fixed amount. Some lines are 20/20's .... you can borrow for 20years and must pay back in 20years after the borrow period --- so they can last a long time. Also --- many are interest only for the first part of the term.
Obviously -- sell the house and the line much be paid.
HELOC are nice because they are simple .... you borrow against the line based on what you need vs asking for a fixed amount. Some lines are 20/20's .... you can borrow for 20years and must pay back in 20years after the borrow period --- so they can last a long time. Also --- many are interest only for the first part of the term.
Obviously -- sell the house and the line much be paid.
Maxcustody
Well-known member
You need to take in account everything needed for the building. I just had a 40x60x14 built.
Building=$44,925
Excavation where it was built= budget$25k actual $39k
Gravel for concrete= $2,000
Concrete= Being done May 10th; 40x60 pad and 40x30 apron; 25k
Electrician to put up meter and panel box= $2,000
and I am not done yet.........................
Building=$44,925
Excavation where it was built= budget$25k actual $39k
Gravel for concrete= $2,000
Concrete= Being done May 10th; 40x60 pad and 40x30 apron; 25k
Electrician to put up meter and panel box= $2,000
and I am not done yet.........................
zc15
Well-known member
$40k in excavation? What kind of work did you need?
Maxcustody
Well-known member
A ton! A lot of trees removed and my pad took 115 loads of shale to get it to grade. You can check out my shop build. It is in progress now................
I can relate. Yard looked fine to build on, but wasn't. It was a hastily filled-in ravene some 50 years ago. Old dirt had to be trucked out and replaced with compactable fill.
I also skipped the electrical and interior to save money; so as to dismiss the contractor asap.
Maxcustody
Well-known member
I have learned "flat is NOT level"