Starting this weekend, we will begin the process of finishing our basement. Finally, I’m going to get a real office of my own, a “proper” home theater area, a play room for the kids, a kitchenette for entertaining, and a respectable bathroom in what is currently unfinished, dead space. But finishing a basement properly is expensive. My parents just had theirs finished and the final total is somewhere around $17,000.
But, I’m lucky; the guy who finished their basement has taken a liking to our family and decided to donate his time on my project as long as I do some of the work, too. Since I will only have to pay for materials, my outlay will be somewhere between $8,000 and $9,000. But, if you’ve been keeping track during my net worth statements, my savings (including emergency fund) is hovering somewhere around $11,000. While I could pay for my basement outright, I have decided to handle half of the load myself and initiate a personal line of credit from my parents for the other half.
I almost always recommend against taking loans for something you technically can’t afford and especially not from family, but I felt the deal I was offered was too good to pass up – especially since I desperately need a quiet, private office at home to work. I’m not going into hock over the deal, but it’s still risky since I’m using part of my emergency fund to pay for a “frivolous” upgrade to my house. Hopefully, the benefit I gain from having my private space to work and write will more than offset the temporary risk we’re taking by accessing those funds.
But taking a loan from my parents in this case was smart because it allows me to maintain liquidity in case of emergency and it was the only way to ensure I could get started right away. Instead of taking the full balance up-front, I have opted to use their generosity as a line of credit at 0% APR (at their insistence – not mine) with monthly payments of $200. If I borrow the full amount I expect I need from them, that turns into a 2-year loan. In all, it’s not a good deal and will garner a huge return on investment when we eventually sell the home.
Usually, I prefer to maintain a position of lower risk, but as I wrote earlier this week sometimes you have to decide if your home is worth taking on a bit of extra risk. Since I would like to eventually start working from home full-time, a true office is necessary, so this reasonable risk opens up many new opportunities for us. Hopefully it will pay off in the near-term and not just long-term. But only time will tell. Of course, this will make my net worth statement bottom out, but in the long run it will just be a small blip on the larger, growing curve.
Even as I start this process, I still cannot recommend taking this same path because it goes a bit against my normal financial sensibilities. But there is where the personal side of personal finance comes in. Right now felt like the right time to move on the deal (especially before the new baby arrived) and we had the funds and available credit to pull it off. If I were to do it differently, I would have put it off for a year or two more to allow me to save up everything I needed, but this is a deal that could only happen now. I guess this is a “do as I say, not as I do” sort of situation that I’ve found myself in.
Oh well! Wish me luck on a successful remodel!
{ 3 comments… read them below or add one }
Definitely not a step in the Dave Ramsey plan but if you can get someone to do a bunch of skilled labour for free then that is a great deal.
Tough call, but I think you might look back on this one and say that you might the right decision.
The skilled labor for free was the kicker for me. Otherwise, I know I couldn’t have done it.
It is one of those times where you have an opportunity that is too good to turn down, I can understand that. And it isn’t like this is something you of all the time – it is a one time thing. I’ll wish you good luck, but I don’t think you’ll need it. I think you will be just fine.