Speaker 1 00:00:08 What's up, everyone. Welcome to the finance for physicians podcast. I'm your host, Daniel Raimi. Join me as we dig into what it looks like for physicians to begin using their finances as a tool to live better lives. You can learn more about our
[email protected] let's. Jump into today's episode. There you go. So if you're having a great day, I'm looking forward to talking about funding your home project today. There's a lot of different options here and, um, and I think it'll, it'll be a good discussion to kind of explore what those look like and talk through some of those pros and cons and, and work through kind of like what might be the best direction to think about on your end. So we'll, uh, we'll jump into that and, uh, look forward to chatting in a minute. Okay. So funding your home project, let's say, you know, it's a big project, your goal called the dream home project.
Speaker 1 00:01:01 So, um, maybe you're thinking about, um, you know, you want to do a big project on your house. If I have owned a home for a while, it feels like there's always something, uh, on our list. And maybe more than one thing, some of them are big things. Some of them are small things, uh, related to our house. Um, I think the list started the day we bought it, bought our first house. Uh, so the, the dream, the dream home project is, it seems like kind of a common thing to have. At least it's been on my list. And a lot of our planning clients, uh, have have big projects on their list. And so I think the question we'll talk through today is how do you decide if that makes sense? And then also what's the best way to, to make it happen financially?
Speaker 1 00:01:51 Cause that's, that's typically the hurdle is, is making it happen financially. Before we get into that, I thought it would be good to kind of talk through like, you know, the typical thought process I'll call it like the American way. So culturally there's one way of kind of working through this. And I think this kind of, this is probably like the gravitational pull that all of us feel towards this direction. The reason I think it's good to talk through this first is because I think it's just helpful to realize these kinds of polls are happening for all of us are temptations, are there for all of us. And it's really just about awareness when you're aware of these things. I think you're more in a better position to maybe mitigate them or avoid some of the missteps that can happen from them. So what is the American way?
Speaker 1 00:02:41 I'm sure you guys know kind of which direction I'm going with this, but like the culturally it's like, you know, everybody it's immediate gratification is the culture we live in. So it's like you deserve it now is kind of the thought process is like, why not now? Uh, now is the best time, you know, get it done. Everybody's doing it too. I mean, that's, um, you know, if you look typical neighborhood, it's like everybody, you know, the neighbors down the road and just did a big home renovation and, you know, there's a, you know, I can think of a million people just off the top of my head that have done big projects. Um, so there's a lot of people doing it and financing is really, you know, interest rates are really low and so financing, you know, maybe this is good debt, I'm just kinda throwing out these ideas first.
Speaker 1 00:03:27 So, you know, maybe there's this idea that, you know, maybe if you're using the bank's money to, to pay for this kind of, uh, home project, it's a, it's maybe a good thing or it's good debt. Also, a lot of people believe that, uh, uh, home big home project is a good investment. And on top of all that, there's, there's a lot of these like emotional drivers and like sneaky kind of things that we tell ourselves. Um, my favorite is like the catalyst, um, little tiny catalyst that kind of sets all this stuff off. So, uh, it's like, okay, I got, um, maybe you get like a, uh, a water leak or something, um, you know, leaky dishwasher or something in your kitchen. And you're like, I just had a leaky dishwasher and maybe it ruined a little bit of my hardwood floor. And so it's, that's a lot of times a catalyst for like, we need to do an entire kitchen renovation.
Speaker 1 00:04:26 And so sometimes these little tiny things can turn into monster big projects, not necessarily that these are bad or good. Like I said, I'm just throwing these out there. And on top of all this, we tend to, uh, justify all of this stuff that's going on. Even if it's like completely ignorant and illogical, we're gonna tell ourselves like a story that it's, you know, to make it be reasonable and logical, at least in our own heads. I see this all the time. I mean, I, as a financial planner, I get to kind of witnesses witness this as a third party and even, I mean, uh, you know, every person that's human, I mean, we're all susceptible to this kind of thing. So it's much easier to see it as a third party. It's harder to see it happening in yourself. So, but like I said, awareness is helpful.
Speaker 1 00:05:17 Um, so we tend to trick ourselves though into thinking, even if it's like completely just absolutely, I've seen some people make some horrible financial decisions and they have tricked themselves, um, and have talked through a very thorough explanation of why it's completely reasonable and logical. It doesn't sound, you know, reasonable maybe to the third party, uh, or the people that hear it. But what matters is that it sounds reasonable to you. And so you have to be careful with like that little voice in your head is, you know, how you're justifying these things and, you know, the story you're telling yourself. So, I mean, that's, that's a lot of stuff it's not typically, um, as logical as we like to think it is, there are a lot of emotion, like I said, but I think I just wanted to kind of get all that out there and, you know, say that that's typically the factors we're dealing with that kind of drive these sorts of decisions.
Speaker 1 00:06:14 And I think it's important to recognize those factors and, um, you know, be minimum, be careful with cautious as you proceed through this kind of thing, because it's very easy. It's a slippery slope here to get into situation where ultimately where the house is, you know, bringing your, your financial kind of, you've heard of being house poor, then, you know, that's the worst case scenario is this, this kind of dream project turns into like a, you become house poor. And so that's what we don't want to happen. Now. I'm not like maybe you're thinking I'm like anti home renovation or, you know, I don't want to sound too much like I'm, I definitely am not anti home renovation by any means. I'm more just about awareness. And if you're aware of it, all the factors and you are thinking reasonably and you have a good solid footing on your decision, that's all good.
Speaker 1 00:07:10 And by all means, like do what you feel like you need to do and want to do. And, and, um, I'm, I'm a fan of nice houses and, you know, that's a, that's a great thing to do, but I think the problem is when you fail to look at these things and really see what's going on bail to consult like your long-term goals, you fail to follow your own values. You get kind of pulled in the direction of keeping up with the Jonas's and, and forget about like, what are your true values? Um, you tend to, you know, maybe analyze this logically when in reality it's not even a, you know, you're using analysis to justify your illogical decisions. So you kind of have to be careful when you get into that, uh, analysis aspect as a form of justification, um, people tend to fail to think objective really in an emotionally.
Speaker 1 00:08:06 And so all these things, uh, are risks to really be aware of as you're kind of thinking through this decision. I think the ultimate solution to all this is to have just kind of like a grounded plan or, you know, your financial plan is what we, we like to call it. Uh, ideally you just consult your financial plan and that's, that's why it's such a great thing for everyone to have a financial plan. People always think about, you know, what's a financial plan that, you know, everybody's like our retirement, blah, blah, blah investments. That's just what people tend to think about first. But I think what more often we see people getting value from having a good financial plan is in these kinds of things like the day to day big decisions. So like, how are you balancing doing a big home project and prioritizing it, Verises paying off debt or investing or saving or whatever other things you have on, on the radar.
Speaker 1 00:09:08 Uh, and so having a good financial plan and then consulting it as you approach these sorts of decisions, I think that's the best possible solution to help you avoid all these potential, um, you know, problems around this sort of decision. And so what I find, um, you know, most people at the end of the day, most people don't have a financial plan. It's just not, uh, it's just one of those things that it's easy to procrastinate. So when you don't have a financial plan, you know, you're going to just resort to natural tendencies. And, you know, that's when you're at risk to all these sorts of cultural pools and not really consulting, what's most important to you. And, and, um, so just keep that in mind, as you think about this decision, the financial plan is really just your, your objective kind of guide for reminding you of where you want to take this thing financially.
Speaker 1 00:10:09 It's, it's really like, uh, you know, we're talking about house projects, it's, it's a lot like, uh, you know, building a house it's like a good financial plan has a kind of overview of what's most important to you, your values and your goals, and has taken into consideration what resources you have available and is kind of like your, uh, roadmap. And so it's, like I said, it's a lot like building a house. It's like your, your values and goals are kind of like the, uh, you know, the, uh, architectural drawing or blueprint or whatever for your house. And the resources are, are kinda like the materials and the tools you have to build the house. And so when you're building a house, you, everybody knows, you've got to start, like, there's a very specific process you need to take and you, you know, start with like digging the hole and the foundation, all that kind of thing.
Speaker 1 00:11:00 Um, and there's probably things I don't, you know, I'm not thinking about. So, um, basically what financial planning is, is it, it's that process of helping you kind of get everything out there on the table, remind yourself what's most important and draw up your kind of roadmap of, you know, how are you going to build this thing out? So the house thing, the reason I went through all that is this, this house thing, you know, big home projects are probably one of the biggest errors that I see people making and, you know, cause for financial pain. And so I think it's important to, to, to think about that as we approach the discussion of, you know, how do you finance that? Okay. So let's say, um, you have a good financial plan, you've consulted it. You kind of know generally what, where it fits in this scope of all the other big priorities in life.
Speaker 1 00:11:57 And you kinda know like rough idea of timeline on w you know, when you'd like to get it done. And really you're just like, you know, thinking about w you know, how do I, uh, what's the best way to kind of follow through with that? So the big factors, um, beyond just what we've talked about so far, uh, I would say, you know, what is your cash flow situation? So like, do you have, how much can you budget towards the thing? So that's a big deal. Um, you know, if you have lots of surplus, extra cash flow, that's a big difference than if you're, you know, already really tight, how much equity is in your house. So like, when I say that, I mean, like, what's the value of the house? So let's say it's worth a million dollars. What do you owe on the house in the current mortgage?
Speaker 1 00:12:47 So say that's 500,000, and that example, a million value minus 500,000 owed that's, that means you have 500,000 of equity in the house. And so that's important to kind of understand, as you think about these options, how much are you already paying for debt out of your income? So they call that debt to income ratio. So maybe you're already, maybe you have student loans and mortgage and other debts, and you already have a really high debt to income ratio, or maybe you have no debt. And so that those are big, big difference, differences in situation and important to think about. So some of the ways, so we're going to talk about several different ways. There's, there's a, there's a bunch of different ways to fund. It's a big home project project like this, but, um, I'm going to go in order of, um, I guess maybe hardest money or the hardest way, uh, the most disciplined required, I guess, way and down to the easiest way, or the least discipline required route.
Speaker 1 00:13:50 And so neat. None of these are, there's not a right answer. There's not a perfect way. It's just, you know, depends on what you're going for here and what your situation is. So let's start with the hardest saving up cash. And so going back to the American way, I mean, that's just, most people don't do these kinds of things that away in our culture, it's like, well, you know, I could finance it. You know, why would I save up cash? So, uh, on top of that, everybody has equity now because home prices have gone up so much. So it's like, well, I can easily get financing because I got a lot of equity in my house. The forces are not in favor of, and on top of that cash returns, nothing like savings, accounts pay no interest. So your money sits there, earning nothing while you wait, does your home project that takes forever to save up for, and then you finally do it.
Speaker 1 00:14:43 You don't get to enjoy the house project until the very end. So I can come up with a million reasons not to go the save cash route. But what's interesting about that is it's rare. I don't know if I, I can't think of anyone that's gone that route that I've worked with that regrets. It it's like people don't say, man, I wish I had taken out more debt. Uh, that's just not, um, people, um, it's like any, uh, delayed gratification kind of a thing. Once you get to the point of having the cash to pay for it. And then you write the check, you typically feel really good about it, and there's no baggage that is stuck with you along the way. So that's the huge, massive pro or benefit to this, you know, hardest route. Is that it, you feel good about it. Um, typically it's the long-term best, um, bang for your buck in terms of, you know, like security and feeling good about your decision.
Speaker 1 00:15:50 You know, there, there's a lot of like the, the researchers that study like finance and happiness would say that it's the best, like return on your happiness route. And so, you know, debt is the, you know, some of the other alternatives we'll talk about is debt is kind of the opposite of this is the problem with it is you gotta, you know, it's like buy now pay later. So this is like save up beta, uh, buy later. So there's, there's a lot of, a lot of downsides, all the factors, like I said, in our culture, in our economic situation or our economic, current economic situation, everything is kind of like, everything's pulling you away from this route of saving up cash first for the project and then doing it. But there's a huge benefit when you can, you know, you do have the discipline to do that, and you can kind of write that check and then call it a day.
Speaker 1 00:16:43 This works, especially, especially well for short-term projects. So if you can do kind of like a, say, you want to do a big project on your house in a year timeframe or two years or something like that. That's not long enough of a timeframe to really merit investing the money. So you want to have it like safe and Cassius safe. And so it works well. Plus you don't have cash sitting around for too long because cash doesn't really earn you much interest. And so it works really well for shorter term projects. And so maybe you have like a, uh, maybe your home project is not like a dream monster, huge project, and maybe it's a, um, ma small to medium sized project. Um, and this may lend itself better to just saving up cash, you know, for that project and picking them off as you have them.
Speaker 1 00:17:31 Uh, this works a lot better also for the, uh, uh, you know, the behavioral aspect of, um, it's hard to get into financial trouble. Like if you're doing this kind of thing and saving up cash and then purchasing it, it's, it's, it's, um, you really it's the very, obviously it's the responsible route, but it's also the most challenging, hardest route. You'll, you'll notice a trend with this. It's these kind of go together. The second example, and this kind of is in the same category of, you know, it's the hardest route, but it's kind of a different flavor of saving up cash. So this would be like investing cash for the big home project. This is the same sort of idea, um, you know, except this works well for kind of like longer term projects. So say you're, you want to do like a huge, massive prod, uh, home rebuild and, you know, like total gut job kind of thing.
Speaker 1 00:18:26 And it's big, big project, and it's going to be like five to 10 or 10 to 15, you know, longer term project. And that sort of timeline you can, you typically want to like put the money to work and you can invest depending on, you know, what your, uh, financial plan looks like. Um, you can put the money to work a little bit more and get a little bit of return on those dollars and help you kind of accelerate that project. So you might be thinking as I, you know, go through that most difficult route, I think, you know, common thought is, well, I can't do that. I mean, like I can't, I'm going to have a hard time to save it up that sort of money to pay for the project. So if your, if your mind is going that direction and that's okay.
Speaker 1 00:19:11 I mean, that's just, but I would ask yourself, well, maybe that's a sign that I'm, maybe I'm doing a little too much project-wise because if you can't, if you're having, if you're going to have a hard time saving up for the project, it's going to be also hard to pay off the debt that you're going to have to take otherwise. And so, and that's not always the case, but, um, I think if your mind is going that direction, it might be a sign that you might be pushing a little too hard on the, you know, the budget and it might be worth at least at a minimum thinking about that. Now, if you're thinking well, it's, that's not it. I mean, I have plenty of cash to save up. I'm just, you know, wondering about the return on my dollar, that kind of thing. If you're in that boat, that's a much, you know, that's a much more financially flexible position.
Speaker 1 00:20:05 And so I think that comes down to more personal preference, I think. So we'll talk about the alternatives to these sorts of things. I think, I think, you know, different people prefer different things. And so I think that's where, you know, you have, you're going to have some choices. The good thing about that situation is, um, that's a sign. If you have plenty of surplus cashflow, that's a sign that you are probably in a good position to be able to afford this kind of thing. And so, so that's the first thing is save up cash or invest cash until you have the cash to write the check for the project. And then you write the check, get it done, move on, no debt next route. So this, this, this is where we get into the, you know, financing options. So home equity line of credit, actually, let's talk about like a home equity loan versus a home equity line of credit is easier money.
Speaker 1 00:21:03 So we're going in hardest to easiest order. So home equity loan, and that's kind of like a, you know, going back to the example I gave, like, let's say you got a hundred or a million dollars of home value and you owe 500,000 with a home equity loan. You're going to a bank and you're saying, Hey, check out my house, it's worth a million. I only owe 500. And you say, what options do I have? They're going to say, well, um, since you have so much equity, we'll happily loan. You, maybe they say up to 80% of the value. So maybe up to 800,000. So if you owe 500, they'll say we're, we'll happily, uh, loan you, uh, $300,000, which gets your total equity up to 800,000 and we'll give it to you as a home equity loan. So that's kind of like a second mortgage, um, is typically structured similarly to a mortgage, but oftentimes it's a little higher interest rate and it has like a set payoff schedule, um, over a set period of time.
Speaker 1 00:22:03 And it's very structured payoff and it's kind of like a lump sum chunk. And then you just pay it off over a set period of time. And so the key though is you have to have the equity in the house. That's a big, important thing. And so this is a, you know, it's definitely much easier to get this done than saving up cash. You can, it's going to happen. You'll be able to do it much faster doing it this way. Now, a lot of times though, with home projects, they don't, you don't like write the check all at once. It's like kind of a phase thing, I guess. And so maybe you're doing a big, huge home renovation. That's a couple of hundred thousand dollars or so, and you're going to need like 25,000 now, and then like 60,000 in a year or six months, and then another 50,000 in a year, and it's going to be chunks.
Speaker 1 00:22:54 So, um, maybe that a home equity loan doesn't make the most sense. It's just a chunk all at once that you're going to get your loan all at once. And so home equity line of credit. So that's the next option. So this is a little bit, um, easier, I guess, uh, or requires a little less discipline. And so we'll talk through this. The reason it requires less discipline is it has less structured terms. And so it's, I guess more like a credit card. It's not, it's not a credit card, but it's, it's SIM more similarly structured to a credit card than it would be a mortgage. It's kind of like a hybrid between a mortgage and a credit card. So I just talked about the, you know, uh, the home equity loan, that's really just like another mortgage to finance your home project. Home equity line of credit is a line of credit.
Speaker 1 00:23:52 It's like a credit, uh, option you have. So you can say so same example. I was just given with the home equity loan. You let's say you have a million value, 500 loan. They'll say, you know, we'll give you up to 80%. So we'll, we'll happily give you a $300,000 home equity line of credit this time. But the difference is they're not like stroking a check for $300,000 to you to pay for your home project. They're giving you access to $300,000. So it's kind of like getting a credit card for, you know, with a limit. So like the limit is the $300,000 mark. So you can pull out cash from that line. You're not going to get charged interest until the money comes out. A lot of times they don't charge you a fee or, you know, anything really until you start pulling money out.
Speaker 1 00:24:46 So it's free to kind of like tap that as you need the funds, and then you, they, they typically, so this is where it gets a little easier kind of easy money. They typically are structured as like flexible terms, like I said, so a lot of times it's like a variable interest rate. So the interest rate kind of goes up and down with the market. And you oftentimes the payment you pay is just the interest. So that is nice from a cashflow standpoint, but it's not nice from a paying off the debt standpoint, because if you're just paying off the interest, you're not paying anything off of the actual loan itself. So a lot of home equity line of credits or HELOCs a lot of times is what they're called. A lot of times he locks are structured as interest only payments for say a set period of time, maybe it's 10 years.
Speaker 1 00:25:38 So if you're, um, you know, making their normal monthly payment, you're not getting anywhere with the actual loan, you're just paying interest. Uh, so home equity line of credit can work really well. If you need kind of like flexible chunks of money, you're not exactly sure what the amount is. Um, and it's going to be spread out over time. Maybe you're going to pay it off pretty fast. Home equity line of credit can work. Well, you just say, you're going to get a bonus in a year now, first of all, probably not always good to like plan on a bonus until you get it, but like, say, you know, for sure you're getting a bonus in a year where you want to go ahead and account for that. You you'd take the, uh, home equity line of credit out to pay for the project and then pay it right back after a year.
Speaker 1 00:26:24 A lot of people use it when they're, you know, moving or putting a down payment on the second home. Sometimes people use home equity line of credit, but it works well for like that flexible pay off, you know, pay, taking the money out and then also paying it off. But the risk is so we're getting into easier money here. So the risk is it's easy. So it's much easy with easy money. It's much easier to get into a pinch, you know, cause you don't really think about the effort that's required to pay the thing, the full thing off. You're just looking at the normal monthly payment or it's, it's just so easy to take the money out. It's like, uh, send me a check. And uh, I got my home equity line of credit and I don't even have to pay the normal payment. I just have to pay the interest.
Speaker 1 00:27:14 That's easy to do much easier to take out, but on the backend I've definitely. So going back to what I said about the saving cash, like I said, I have not had really, I can't think of anyone that complains or regrets doing that, going that route. I definitely know. I know of many people I can think of that are kind of regretful of the hilar or out, or maybe they're like, I'm not going to do that again. That's, that's more common a year. People say that they're like, you know, it was okay, but like I'm not going to ever get a home equity line of credit again. And I think what happens is that, um, a tend to price spend a little more than they expected and they tend to overlook what the monthly payment is going to be. And they tend to, you know, not, you know, get caught up in the emotional aspect.
Speaker 1 00:28:03 And so he locked is kind of a slippery slope, but it is very, very flexible. You know, one of the most flexible routes to getting financing for your house. One other option I forgot about, I just remembered, um, this is kinda like a variation to the, uh, home equity loan, but sometimes when interest rates for mortgages have gone down overall, and maybe you ought to refinance your entire mortgage anyway, sometimes you can do what's called a cash out refinance. So this is kind of more in the camp of a home equity loan, except you're just getting a brand new mortgage for the whole shebang. So in this example, um, you know, let's say same numbers, million dollar house, $500,000 mortgage say the interest rates have gone down. You need to refinance anyway. And you're saying, okay, why don't I just get a new mortgage for 800,000?
Speaker 1 00:29:02 And so I'll use 500 of it to pay off my old mortgage and 300,000 of it to use for my home project. So that's, that's how I cash cash out refinance works. That can be the best route in cases where interest rates have gone down, which has happened like historic, you know, the past 10 years, the trend has been for lower interest rates. So these have been pretty popular. They're not going to be good when interest rates are going up, which most people that like to predict the future, uh, economically are saying interest rates are on the way back up. So, um, but that's just another option to think about is that cash out, refinances, what they call it, um, and that, that can work well and that interest rates are going down sort of situation. Okay. So next option on the list. So construction loan, so a construction loan is where, so this is normally like not an option, unless we're talking about a big project.
Speaker 1 00:29:59 Like if you're doing a, you know, floors putting new floors in or something like that, or getting a new roof, like this is not going to be an option usually. But if you're say like putting an addition on onto your house or like totally gutting it and building it from scratch, anytime we're talking about bigger projects, this can potentially be an option is to get a construction loan. And so a construction loan is like a shorter term. It's kind of like a line of credit, but I guess the difference with a construction loan is the lender is going to take into consideration what the project is going to do to your house. Um, there, I would say they, it seems like they used to be more common. Like I didn't use to hear about them, except for, with people that were doing like flips they're, they're typically, you know, used with flipping homes.
Speaker 1 00:30:54 Um, but because they're always lot of times going to do a big construction job and then they're going to sell it. Or a lot of people did them. I've CC, I've worked with a lot of people that have used construction loans for a brand new house that they're building. Um, but it seems like lately though, especially lately people have been using construction loans for just a home renovation. And so either way though, a construction loan, I think the big difference about a construction loan is the lender looks at the, um, anticipated value of the house when the job is done and uses that for their value calculation. So going back to the example, I've been using a million dollar house, $500,000 loan, existing mortgage. So in this scenario, the bank is going to be like, okay, tell me about the project. And you're going to say, well, I'm doing a huge addition on the house.
Speaker 1 00:31:47 Here's the architectural drawings and the floor plan and the blah, blah, blah, and the projection per projected costs and everything like that and the square footage. And, and if you don't have that, they're going to ask for it. So they're going to look at all that and they're going to say, okay, let's do our analysis. The bank is, and they're going to say, okay, let's, let's say they conclude that it's gonna probably be worth $1.5 million after the big project. So they say, okay, we'll give you, um, we'll happily give you, um, maybe it's like $700,000. So you owe 500,000 now and they think it's going to be worth $1.5 million. So maybe they'll say, we'll give you 700,000. So you end up with 500 plus 700. So, you know, that's 1.2 million and that's still not, you know, that still leaves you with some equity. Um, so we'll give you $700,000 to finance this project, this big construction project.
Speaker 1 00:32:48 And during the project, it's just going to be like a line of credit. Cause you're not going to have to write a $700,000 check all up front. It's going to have to be paid over time and it's going to take a while. So, um, but the total is up to $700,000 and then it's typically the construction loan is so that's how they set the dollar amounts for it typically. So on the backend, um, it's often times going to be like turned into a mortgage, a normal mortgage. So once the construction is done, then you kind of like flip it into a brand new mortgage. And sometimes you'll like combine all, uh, all your mortgages into one new mortgage. So maybe you end up with a $1.3 million new mortgage and, and you're, you're, you just have one mortgage it's for 15 years or whatever, and you're off to the races.
Speaker 1 00:33:37 But the trick is though, is, is it a it's based more on this project in that takes it into consideration. And then you typically flip it into a new mortgage once the project is done. And so the reason I think this is the reason I put this a little bit easier money down the road, or, you know, I think it's more of a, it's a slippery slope. So there's a, there's a lot more risk with this kind of route. The main, I think the main risk with going this route is that if things don't go as planned, because I guess the, the, the number one difference with going this route is we're now taking into consideration the plan for the house, all the other stuff we've talked about so far, uh, at least the lending options. They're not looking at what the plan is for the house.
Speaker 1 00:34:28 They're just lending based on what today shows. So this, the big difference here is their lender. The lender is considering what's potentially going to happen or the plan for the house. So the big risk here is that the plan doesn't pan out and that's where you can get into a lot of trouble. And it depends on the deal. And you got to understand all this, like there's a, there's a lot of different fi you know, terms and fine print and all this sort of stuff. Sometimes things are guaranteed. Sometimes it's fixed rates, variable rates, it's complicated. So you need to understand this for sure. If you're going to go down this path at a minimum, the thing I would be really zeroed in on is like, okay, what happens in that scenario? Where the, the plan doesn't go exactly how we think it's going to go, because that's actually not entirely out of the question.
Speaker 1 00:35:20 So I'll give you some examples. Um, so there's those things that are, uh, you know, in your control, um, and still still can happen. So maybe you don't realize it, but you're picking all these nicer finishes for everything, all these different aspects of the job. And all of a sudden the price has just gotten super inflated from what you started at, and you didn't quite realize what you were getting into. And all of a sudden the project is, you know, gone up by 30% in costs. And that's just strictly based on your, uh, decisions, um, that can create this sort of pinch, uh, where the lender is going to be like, listen, we're only lending you this much money you're on your own for the rest or prices can go up like they have in the endemic. Um, and that can cause a pinch where you're getting stuck with the bill.
Speaker 1 00:36:12 Another example is this. So this gets into like factors that are less in your control, or maybe not even in your control at all. So let's say the market turns, I don't know how many people were doing this kind of a deal in 2008, the last big, huge real estate downturn. But, um, I'm sure there were some. And so when real estate prices tank like that, so like a lot of places, real estate was going down by like 50% or more the price of real estate. And so in that sort of situation, if you're right in the middle of this kind of a project, um, you need to understand how that's gonna play out if real estate prices dropped by 50%, because in a lot of situations, when I've looked at the deal terms in a lot of time, in a lot of examples, the lenders basically like, nah, we're not going to give you a mortgage.
Speaker 1 00:37:02 We're not going to guarantee that mortgage after the construction loan is done in the event of this occurs. So in other words, they're going to like stick you with the bill. You're going to have to come out of pocket somehow to kind of get bridged the gap, or maybe they're going to put you in a variable rate loan or something like that. But you need to understand like how that scenario plays out. If real estate prices don't go as planned, or if you go way over budget or if prices go up, um, kind of like the worst case scenario stuff, um, when you're getting into this kind of deal, uh, because that can, that's really what can get you in a pinch, uh, with this construction loan at least. But I mean, it can work really well if, you know, if you've taken all this in consideration and it is really a bigger job, the nice thing is it's kind of like a hybrid of home equity line of credit and ultimately getting a new mortgage.
Speaker 1 00:37:54 So next one on the list. So this is when we're getting into really easy money. So you can just get a personal loan there's. I mean, this is kind of equivalent to going to get like a dishwasher at Lowe's and they use 0% financing. That's like a personal loan, technically, I guess a lot of times it's a credit card, but, um, you can go to your bank and say, Hey, I want a personal loan. And they'll say, okay, let's look at your balance sheet or your financial position. And we'll, we'll loan you some money based on that. And so this is an easy way for most people that have some resources to get money financing for a house project, but it's oftentimes like the highest. So now we're getting into higher interest rate territory, and it's almost usually not as bad near as bad as a credit card, but like up to like probably 10%, you know, five to 10% interest rate range in today's world for this kind of alone.
Speaker 1 00:38:50 But typically it's not going to require any home equity or it's not going to directly tie to your house. So it's going to look, they're going to look more at your overall financial position, or maybe they'll just give you a certain amount without much questions asked. Um, but these are typically not nearly as good interest rate and can hurt you. You know, it's going to be a much more painful, uh, debt to pay off basically. And the last on the list as you probably would expect. So this is like the easiest money, but you know, maybe not the best, definitely not the best, so credit cards. So you can, you know, you could finance your home project with credit cards and all of us have done like, you know, small bits and pieces of this. Um, but I'm talking about like straight up paying for the deal on credit cards and, and slowly paying the credit card balance off.
Speaker 1 00:39:41 So this route is, you know, definitely the most penalizing interest rate wise, cause you know what interest rates are on credit cards. It's like ridiculous. I, the other part about this is I'm going to assume if you're thinking about these bottom two options is you probably don't have an emergency reserve cash. So if you don't have emergency cash, like you're like amped up risk as it is. If something goes wrong on top of that, you have this credit card balance. So you're having to pay off. So it's not a, um, we're getting into very, very low likelihood. That's the best route. So if I had to, you know, all, I guess there can be a place for any of these examples of how to finance your home project. You know, if I'm just talking to, you know, a group of people in general, which I guess I am right now, I'm going to say like, you know, pay cash or invest like that.
Speaker 1 00:40:35 You can't, um, I know I'm not going to get much negative unhappy people on the backend, given that generic kind of general suggestion. And if you go into, if you want to get into these other areas, I think you want to have some really good reasons around that. Not that they're bad or good, it's just that, uh, cash saving for something and paying for it in cash or investing ahead of time. That's going to be a, you know, long-term better routes. So, um, but I think so I think recapping on this, so we've got lots of ways to do this. You could save up for cash. Like I said, you could use the different types of debts, like home equity line of credit, home equity loans, construction loans. You could even get like a cash out orange refinance, or you can go even further down the list and look at personal loans or credit cards to finance your home project.
Speaker 1 00:41:29 But going back to what we talked about at the very beginning, I think the most important thing is that you are consulting your financial plan. So what I mean by that is looking at, or revisiting, you know, what is most important and what is, what are your priorities looking at like how this fits in with everything else and maintaining or trying to kind of maintain awareness of some of those kind of tendencies. We all have to slip up on these time types of decisions. So if you're going that route, if you're doing that, I think you're going to put yourself in a fantastic position to feel good about your decision. That's really what I would, you know, that's what I would be shooting for is like, you want to have like regret free spending where you're feeling good about writing checks and you're not having to say I'm never doing that again.
Speaker 1 00:42:23 That sucked. Um, ideally you want to be feeling good about your decisions and that's, that's really what I'm after. So I hope, I hope that's been helpful. Let me know if you think of other routes or you want to like explore any of these areas more in depth, but, uh, hopefully, hopefully it has been helpful. I, I want to thank you guys for checking, checking us out at this time and, uh, look forward to catching up again next time as always, thank you so much for joining us today. If you found this valuable, please give us a review on iTunes and share with a friend. Also check out our
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