Ask the grumpies: Pay for renovation in cash or take out loans?

Ellie asks:

I am moving to take a new job and have been fortunate enough to be able to buy a house in New Town right off the bat. There is, however, some fairly significant work to do on said house, also right off the bat. I will have enough cash from the sale of my house in Current Town to cover the cost of this work, but am wondering if I should. Given what’s going on with interest rates, would you pay for renovation work in cash? Or take out a second mortgage/HELOC to cover reno expenses and invest the house proceeds? Once moving expenses work their way through the cash flow pipeline, I would be able to pay off a second mortgage pretty aggressively.

I feel like this should be a relatively simple opportunity cost calculation, but somehow it doesn’t feel as simple as it feels like it should. Secondary question: Is there any way to blame the Ongoing Unpleasantness for making this a harder decision that it ought to be?

Well, if you’re asking what we would do, we would pay in cash.  It’s possible you could open a HELOC in case of emergency and then just not use it unless there’s an emergency. But, we also left carpet in the childrens’ bathroom until our mortgage was mostly paid off (and #2 doesn’t even own a house), so we may be too risk averse.

In terms of what is optimal:  If this is just a short term cash-flow thing, then you won’t be wasting much time not being in the market and can put the moving expenses into it once they’re done.  Second mortgages are a hassle and sometimes you are not allowed to prepay them or you still have to pay for mortgage insurance even after you’ve hit 20% loan to value ratio (this will depend on the mortgage terms– some of them are pretty nasty).  HELOCs tend to have interest rates that are higher than your first mortgage and make the uncertain gains of the stock market less attractive compared to the certain losses of the HELOC.

If this were a longer term thing in terms of repayment, say, more than a year, you’d want to look at the bigger picture more carefully and it might be more worthwhile to take out some additional debt (probably the HELOC rather than the second mortgage just because the hassle factor is smaller, but intelligent people will disagree on this).  Mainly the margin I would be looking at would be an employer match for retirement.  If paying in cash for renovations means that your retirement savings isn’t going to happen, then I’d take a long hard look at that– what renovations need to actually happen, and what are interest rates on loans?  Getting an employer match will blast past most interest rates, even high ones.  Then after that you’ll have to think about whether you’ll remember to set up more retirement savings once you have money again– if not, then you might want to set that up and take out more loan just so you don’t lose out on retirement savings by not getting around to setting it up.

The Ongoing Unpleasantness makes long-term planning difficult for many people.  Uncertainty at large makes things difficult at small.

So:  tl:dr

If you’re going to have the money in a few months, pay in cash.
If it’s going to be longer, make sure you get your employer match for retirement and take a loan if you have to.
Then: think about hassle, interest rates, and how likely you are to set up retirement savings later.

Update with some numbers:

The total cost of the work will be in the neighborhood of $40,000. So a very decent chunk of change that could do a lot of things. Once the down payment on the new house is made, I should have about $59,000 left of the proceeds from selling my current house and I have $40,000 or so cash in savings. I don’t have any other debts that would be logical first priorities—student loans and car are paid off, and credit cards are paid in full every month. But there will be some decently expensive travel & transition costs in the immediate term, as well as some concerns about cash flow because the new job pays 9-month contracts over 9 months, without the option of distributing payments over 12 months. So there will be a couple of months between the last paycheck from my current position and the first paycheck from the new one.

It looks like the local credit union there is offering home equity loans at 4.75%.  [No numbers for a second mortgage.]

Investing options are… my Roth [IRA and] my TIAA-CREF [presumably a 403(b) through work].

One thing to remember is that you’re most likely not going to have to pay all of the renovation costs upfront.  So it is possible that some of the bills will not come due until after your reimbursements have come in, possibly after your paychecks have started (depending on how long things drag).  You won’t need to decide on the IRA until April.  It sounds like you will have enough leftover that you should be able to start your retirement savings via direct deduction from your paycheck without worry when school starts.

Given the numbers above– the HELOC rate isn’t terrible, but it’s not low enough to make investing the difference a slam dunk.  Personally I’d figure out how much you intend to contribute to the 403(b) and get that started with the school year (so that it goes on auto-pilot) and then decide on the IRA after all the renovation stuff stuff has been figured out or April happens, whichever comes first.

#2 says:  Pay cash because it takes time to open a HELOC (apply, get approval, etc.) and you want the reno done ASAP so you can move in and not go insane.

Grumpy Nation:  What are your thoughts?  Any experiences with HELOC/2nd mortgages/renovations/etc.?

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Ask the grumpies: anything you wish you’d done before marriage and/or kids?

yet another pf blog asks:

Is there anything you wish you had done before you were married? How about before you had kids?

#1:  One of us doesn’t have kids so the point is moot over here. (#2, got anything?) What would I have done differently before I got married? I can’t think of anything. Being with my partner has made the rest of my life easier and more fun.

#2:  Hm, I got married young.  I can’t really imagine single life before marriage.  I mean, I did date some losers in college, mainly because I didn’t know how to say no and a small amount because of the novelty of guys thinking I was amazing.  Those are not good reasons, so it was a huge relief in grad school to be able to stick my hand up and point to the ring when loser guys hit on me.  So definitely not dating other guys (or other people, more generally– I used to think I was DH-sexual, but now I’m fairly sure I’m… what was that word I discovered on captain awkward?  I can’t remember but it’s the one where you have to really get invested in a person before you find them physically attractive, so it seems like asexuality, but it really isn’t.  That’s what I am.  Except younger Pierce Brosnan– he’s still hot, but who knows, maybe I just liked Remmington Steele.).  Everything else I can do while married, I think.

Before kids we didn’t have money.  Now we have money.  Perhaps I wish we had money before kids?  Though getting money at the same time as kids was pretty useful and caused our standard of living to go up instead of down, so maybe not that.  Yeah, I got nuthin’.  I’m not big into regret… maybe it’s time spent in LA with the constant message that everything happens for a reason.  Or maybe it’s just the sunk cost moving forward training in economics.  I guess I wish I’d published more!  But I wish I’d published more after kids too… it’s sort of a never-ending thing with an academic career.

Grumpy nation, is there any day seizing you wish you’d done in the past?

Ask the grumpies: What is your favorite movie?

Leah asks:

What is your favorite movie?

#1:  I guess maybe the Princess Bride?  Though it does bother me how it doesn’t pass the Bechdel test, it’s still a really enjoyable movie.  I used to say Captain Blood and Tales of Manhattan, but I haven’t seen either in well over a decade and for all I know the suck fairy has visited them.

#2: I’m not sure. But recently I saw Black Panther and y’all should go see it!

Ask the grumpies: How to covertly practice for a job interview as a tenured faculty member

Susan asks:

it looks like I may interview for [a new job] soon, so here’s a somewhat urgent question: do you have suggestions for how to sharpen up my interview skills (like the chalk talk) as an already-tenured faculty? The last time I interviewed was as a postdoc, so there were plenty of coaching opportunities, but now I need to be covert. I think I’ll be ok with the talk itself, but it’s all the other soft skills

Disclaimer:  neither of us has applied for a tenured job after being tenured.  #2 has applied for non-tenure-track jobs after, but #1 has really only done one year faculty development leave stints.  However, #1 has been through the hiring process for the other side about a bazillion times both for her department and for related interdisciplinary departments that sometimes need to call in more (female or maybe just well-behaved?) economists for their searches.

Really the job talk is probably the most important thing, so if you’re ok with that, you’re ok!  Depending where you are in your career and what they have asked you to do, you’ll either want to be presenting a new piece of research or giving them an overview of a big chunk of your research agenda (as well as how it fits into your teaching and service).  If they just want a piece of research, you should easily be able to get people to listen to your practice talk just by telling them you need to practice for your upcoming talk.  If you’re doing one that has an overview of your entire agenda, you may want to stick with folks outside your department and/or close friends if you’re keeping things on the down low.

In terms of other soft skills… honestly, I don’t think you will need to practice them.  You’re an already-tenured faculty.  You don’t *need* this other new job.  You’ve most likely been on the other side of interviews and know more about what matters and what doesn’t matter for applicants.  (I am embarrassed now by what I thought mattered but nobody actually cares about!)  Just be a polite slightly more extroverted version of yourself (if you’re an introvert) and you should be fine.  Talk about research and teaching and service.  If it’s for an administrator position, talk to people at the department in advance so you have ideas for what the issues and concerns for the unit are going forward.  It’s ok not to have ideas and to just talk about how you make decisions based on faculty input, but you should be aware of any landmines as well as being able to do some discussion of the pros and cons of major issues.  If it’s for a faculty position, just pretend you’re there to give a seminar but add some more questions about things that you care about, whatever they may be.  Senior hires give so much more power to the candidate and are so much more relaxed than junior hires.

But maybe you’re wondering what kinds of questions you should be asking?  I get a lot of questions about the public and private schools (and I volunteer that information for everyone even if they don’t ask), housing, food, restaurants, distance to the nearest city.  More senior candidates feel more comfortable asking about quality of life information than do junior candidates.  I don’t know if they realize it is important or if it actually is more important or if they feel more comfortable signaling personal information.  Additionally more senior candidates are more likely to have make-or-break things– if X isn’t met, then they don’t really want the offer, and they’re happy to let us know that.  I also get more questions about how people in the department get along and how everyone gets along with the chair and the dean and so on, though sometimes that signals that the person is coming from a more dysfunctional place which can be a bit of a red flag– it’s usually best to signal that you’re happy where you are but you’re excited about this new opportunity for some other reason (like less snow or family or it’s ranked higher or you have friends on the faculty etc.), but not always.  Other than that, talking about interesting research, yours, theirs, other people’s, is always good (unless, of course, it’s a department where nobody does research).  And it’s easier to do as a senior person when you realize you don’t have to know the minutia of every person you meet’s cv than it is when you’re junior and don’t realize it’s ok to ask about things you don’t know or understand (or maybe that was just me).

#2 notes that for the two jobs she’s gotten post-tenure, the interviews were more like conversations.  She wasn’t even really aware the one for the second job was an interview.

So, we don’t really know, but we’ll throw this up to grumpy nation, and maybe send a signal over to historiann to ask for a boost.

Grumpeteers, any advice for Susan?

Ask the grumpies: Please talk at length about how wonderful gourmet ice creams and related frozen treats are

Leah asks:

What is your take on “gourmet” ice creams? Things like Salt & Straw from Portland, where they put weird combos in. My favorite from them, by the way, is arabequina olive oil. Sea salt and caramel is another example (tho that has gone mainstream). What’s your favorite “weird” flavor?

#1  I find ice cream places in many cities I visit (there are no good places in my town  *sob*.  Not even a Ben and Jerry’s!).  Man, I love ice cream so much.  And gelato.  And fancy flavors.  And all sorts of fun things mixed inside.  I love weird combos and straight combos and all sorts of stuff.  Let’s see though, it’s been a while since I’ve been to a place that offers fancy combos.  Something with rosemary is coming to mind, but I can’t remember what else was in it… I think it was a sorbetto, so something fruity.

I like all sorts of variations on kulfi.  There’s something about cardamom that I just love, whether that’s with pistachios or pecans or whatever else they put in.  I think I’ve had different kinds in Boston, Westwood, and Houston.  I’ve also had variations of rosewater ice cream in a couple different cities.

Salted caramel is definitely mainstream enough to get at the grocery store.  Though I do remember the first time I had it at a gelato shop in the city.  Angels sang in heavenly choirs.

#2:  Ice cream is delicious. Ben & Jerry’s used to make a White Russian that I liked. I’ve had Black Sesame ice cream — it tastes just like sesame seeds but that’s not really what I’m looking for in an ice cream. I don’t like caramel. In general: more ice cream is good. Taste them all. noms.

#1:  I like black sesame.  Especially when there’s still toasted seeds and it crunches.  I don’t think I’d pick it as just one ice cream, but when I get three little scoops in a cup, it might be one of the choices.

Grumpy eaters, opine!

Soliciting more ask the grumpies questions!

Ask the grumpies is a feature we run almost every Friday (sometimes we post less-popular but still fascinating google questions).  You ask, we answer, or we punt and ask the grumpy nation to answer.  In any case, you get the benefit of not only our wisdom but the collective wisdom of the far wiser grumpy nation.

What questions do you have for us?  What can we bring clarity or further confusion to?  What can the grumpy nation ponder and discuss on your behalf?  Ask in the comments below or email us at grumpyrumblings at gmail dot com.

A brief ask the grumpies novel interlude

Idon’twannaworkanymore wrote:

Dear Grumpies,

I just want to read novels.  That’s all I want to do.

What is wrong with me?

Best,

Idon’twannaworkanymore

Dear Don’twanna,

Books are better than work; there is nothing wrong with you.  This doesn’t help you work, of course, but you can bask in the warm glow of Being Right.

Best,

All Books, All the Time.

c/o The Grumpies

p.s.  This is the last ask the grumpies in our queue– we’ll be putting out a call for more questions next Friday.