Category Archives: Finance

Our First Major Fiscal Mistake

I’ve kind of been debating on whether or not to write this post. I don’t want to come across as some rich jerk that screwed up. Nor do I want this to be interpreted as a ‘woe is me, we have no money’ (especially by our friends and family) type of post. Since one of my goals with this blog was to help people out in doing similar projects, I opted to write. First off, especially for family & friends, we aren’t broke or destitute.  Yet.

What we are finding, though, is that here at the end of the project there are a ton of things that we need to purchase for the house that were not included in the original bid. I’d say that these purchases fall into two categories. First are things for the house that are needed that weren’t included in the bid. This would be, in our case, lighting, knobs & pulls, and landscaping. The second category are things that we want for the house, but aren’t necessarily required to build it. Furniture, alarm and other asides fall into this boat. You see where I’m going with this, don’t you?

Thus far, we’ve been able to put most of our purchases on our loan. It’s like playing with the houses money. You know when you have a pocket full of chips and it is really simple to keep playing.  The problem that we have is that we’ve left the casino and are trying to buy a couple of t-shirts and the store doesn’t take chips.   They want cash (or at least a check), so we are back to the casino to cash in our chips.  What is really amazing, is how few of these shops take credit cards, too.  So much for free airline ticket.

If you’re working on a project like this, take this as a word of caution.  As you get down to the end, be prepared for unplanned for expenses to rear their ugly heads.



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If You Buy A Fridge, I’ll Tax the Ice

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We are doing a pretty decent job of staying in budget on our allowances.  All said and done, with windows, plumbing fixtures, doors & appliances, we are only about $4,000 over budget.  Compared to other people we’ve talked with, we are knocking the cover off the ball with this.

Some of this is due to our negotiating.  A lot of this is due to us getting Craig’s pricing.   Some of it still is us understanding what we can get for our budget and working as hard as possible to stay within it.

The main reason that we are over our budget, and I offer this word of advice, is that we don’t take into consideration tax and delivery.  If you are working on a project, don’t forget about these little dittys.  In California, where sales tax is 8 1/4% it becomes a significant chunk of change.  Add on delivery or installation charges and you’re looking at 10 – 12% of your total budget.  It sucks.  Don’t forget about paying the taxman.

BTW, that picture above is by an artist named David Ross.  Of course, it is called ‘The Taxman’.

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Somehow, We’ve Got to Pay For This Project


Wow, that is an ugly image, but you get the idea.  We’ve got our financing lined up now and are going through the document signing process.

I probably called a dozen or so banks during this process and have a very detailed understanding of the types of loan products that are available through all of them.  The decision to go home equity versus construction loan, when you actually ran the numbers, wasn’t much of a decision at all.

Equity lines are still fairly expensive unless you only get 80% loan to value financing.  Unfortunately, for what we want to do, we would have had to go 100% loan to value and even then, it would have been tight.  We opted to go with a construction loan and went with First Horizon.

First, we’ve worked with FHHL in the past and have a great relationship with Chris Mohammed, our agent.  Chris is extremely smart and understands this business better than anyone I’ve ever spoken with.  It is a pleasure to work with her, too.  Second, FHHL has an incredible construction loan product right now.

One of the things that we really liked about a lot of the construction loans that we looked at was that there was no payment due while construction was going on.  Essentially, we get an interest reserve where the interest from the money that we use goes into a pot and after the construction is finished, we roll everything into a traditional mortgage.  Most of the products that we looked at had rates of 8 – 10% for the construction loan (Moose and Rocco come break your fingers if you miss a payment) and something more manageable for the traditional loan.

FHHL’s product puts the construction rate at the same rate of traditional mortgage.  Essentially what you are getting is a 31 year loan (or 6 year loan) and not having to pay anything for the first 12 months or until your construction is finished.  It is a great deal and the most aggressive that we saw out there.

If you’re interested in talking with Chris, you can reach her at her site.

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Plans Out of the City


Except it came about 4 weeks early.  We have been kind of caught with our pants down a bit since we don’t have financing lined up yet nor have we finalized on a contractor.  But our plans are ready to be picked up.

Probably this week, we will resolve the above.  We’ve narrowed our contractor down and now need to finalize that.  We’ve also found two really great loan products from IndyMac and First Horizon.  I’ll be doing the spread sheet later this weekend and letting everyone know what we found.

We also discovered Lamps Plus, which has every single lamp ever manufactured.  I don’t know anything about their quality, however, they do have selection down pat.

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From Granite to Laminate

Like a lot of people that are in this process, especially in the Silicon Valley Area, we were planning on using money from stock options and equity in our existing home to pay for this project. Unfortunately, Yahoo, my company, missed a quarterly number a couple of weeks ago which sent the stock price tumbling 25%. Goodbye granite, hello laminate.

The consistently rising interest rates haven’t helped either, so now we are at a fiscal cross roads. I strongly believe that YHOO is undervalued and that it will bounce back. Based on this belief, I don’t want to cash out the stock in order to pay for the majority of the construction (I don’t want to do that anyway due to the tax implications, but that is another issue). The equity in the house is still there and in good shape, but now, we are looking at the option of using a building loan versus an equity loan.

For those in the know, there are benefits to doing this either way.  An equity loan is less expensive, however, the burden of making sure that the milestones (demolition complete, house framed, windows installed, etc.) outlined in the agreement are up to us.  While we have a high level of confidence in our builders, we are still new at this and are sure to have enough screw-ups on our own without having to worry that our cabinents were hung correctly.

A building loan is slightly more expensive and would roll-up our insanely low current mortgage into a loan at today’s rates.  However, we could get more money to do the project since the loan is based on the future value of the house.  Also, the onus to be sure that things are being done correctly is up to the bank.  When the builder claims to be finished, the bank sends someone out to confirm that it is done and then they cut a check. 

Since I couldn’t tell home framing from picture framing, we are leaning towards the building loan, however, I’d love to get a consensus of how other people have paid for their projects and why. As I mentioned in my fiscal disclaimer, we aren’t rich, but we are ambitious and don’t mind a little extra leg work, for substantial savings over the long term. Any guidance would be appreciated.

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First Estimate is In

We got our first estimate in today.  It was about 10% lower then our budget is, but didn’t include things like landscaping and permits.  I’ve heard that permits can be as much as 8 – 10% of the value of the project.  Landscaping is probably another 10 – 15% of the cost of the project.  With everything added together, it probably exceeds our budget by about 10%.

The contractor figured a pretty big number for our appliances.  Since we aren’t going with Wolf or Viking, the number that we got may have been a little high.  Probably corners that we can cut there.

It will be interesting to see where the other quotes come in.  We met with one contractor who felt that the job would take 9 – 12 months, or 3 – 6 months longer than everyone else.  Ugh.  Such a nightmare.

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My Fiscal Disclaimer

Holly and I aren't rich, so I don't want any strange, unknown relatives coming out of the woodwork thinking that we are on easy street and begging for dough.  We have pretty much resigned ourselves that, unless an ultra-wealthy unknown relative kicks it and leaves us all the money or some other financial windfall bestows us (finding a lottery ticket, odd law suit paying off big, bags of money found in the demolition phase), we are going to be doing a lot more ramen noodles and taking a lot less vacations for the unforseeable future.

It is hard to write about doing a project like this without, at some points, bringing up the  costs associated with doing so.  Throughout the documentation of this project, I am going to try very hard not to bring up cost in terms of dollars.  I will talk about percentages as it gives an idea of scope. 

I don't want to come across as the Rich Jerk during this documentation.  That is not the intention.  We live in an expensive region of the world and consider ourselves lucky to be able to pull it off, but our house won't have gold plated toilets or anything of the such.

Thanks for understanding. 


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