Car project cash - house equity?

[Autophile]

Just an idea I'm thinking of. I'm open to all advice, so anyone with good or bad experiences, please comment.

What do you guys think about using home equity for a car project fund? I have a project car (Cuda) that needs paint, some misc TLC, and perhaps a Hemi engine. It has been patiently waiting for an overhaul for over 10 years, and it might take me another 10 years to save the money to get it done right and in a timely manner. However, with house values here rising 20-30% per year, I believe I could use 20-30% or so of my equity with no danger of being upside down. My Cuda is desirable as it is, but a Hemi and a fresh facelift would make it even more valuable. So, I don't think I'd lose any money on the work I'd put into the car.

Upside - getting my Cuda finished the way I've always imagined it, and maybe paying off the balance of my NSX loan while I'm at it (optional).

Downside - having a higher mortgage balance/monthly bill, minor risk of investment, possibly getting a higher mortgage interest rate than what I currently have (5.25% fixed, 30 year).

I've already finished and paid for some major upgrades to the house this year, so the house is doing fine. I just feel cautious about jumping in, regardless.

Sigh, ideas?

 

[hlweyl]

I wouldn't be against the idea of using a home equity line to restore your car, but before you do, I would talk to some experts in the classic Mopar field before making any major decisions such as new engine, paint, etc.

Throwing big money at old cars is usually a money-losing proposition, especially if they are not numbers matching.

good luck

 

[Dave Hardy]

No-way, no-how would I use home equity for a car project. The ONLY thing I'd use equity for, and even then it's not a slam dunk, is for reinvesting in the house. An upgraded kitchen for instance.

 

[O-Ace]

I wouldn't do it. I recommend buying ALL mods in Cash

 

[ajnsx]

I wouldn't do it. I recommend buying ALL mods in Cash

*nods approvingly*

 

[The Kid]

muscle cars are worth huge money! check the barrett-jackson reports and if its worth maybe you can make some serious $$$.

 

[tampajerry]

Please be careful. I did a body off resto on my vette. It cost a ton of money. If your cuda has a 440 in it and you replace it with a hemi(426) your car would actually lose value. The big buck prices are for original or NOS, New Old Stock part cars. If the 440 is not original or numbers matching, then go for the hemi for fun. If you go the original route, check around to see what the value of the your car would be as an 80/90/100 point restoration. Use the net to determine what prices are in Hemmings etc. Depending upon the shape of your cuda you could drop $50K+ in a restoration. You may wish to collect your parts at swap meets over time and rebuild subassemblies also a little bit at a time. Set up a budget for time and money and then double it. It is very difficult to make money restoring these cars if this is not what you do for a living. Lastly, I would not tap the equity in my home for this project. Use your equity to upgrade your home. Interest rates are going to go up in the not to distant future. Most equity home loans are not fixed. You could get caught paying for a restoration for the next 30 years using home equity. Good Luck and go slowly.

 

[Autophile]

Thanks for the replies.

Since I wrote this, I have been doing a little reading about my options. My original idea was to do something like a refinance, which sounds silly now and is understandably not recommended. However, something like a home equity line of credit might still be an option, as I can leave my mortgage alone and do the project piecemeal, but maybe take advantage of a tax deduction (Q: do lines of credit have the tax benefit?). I think I would consider something like $10k at a time, which would be a small risk. However, if there is no tax benefit and the rate can change to over 5%, then I'll disregard the whole equity idea.

Oh, my Cuda is not an original 440, nor is it numbers matching. The original eng & trans were changed long before I bought the car. So, I don't think a Hemi would hurt its value at all, and I believe it would most likely increase it's resale value at least to the cost of the upgrade. Btw, I'm thinking of dropping in a 528 Hemi, not a 426. The difference is only a few thousand dollars, but the HP and TQ would be on the order of 40-50% increase. I can't help it, I hang out with guys building 1000+ HP street cars. :wink: The car would look stock externally, but it would have upgrades as needed (brakes, drivetrain, wiring).

My intent is not to build this car for resale, I want to drive it! So, it's potential value on B-J is nice for bench racing, but my interest is to make the car a practical toy. While I don't want to butcher this car, resale value is not as important to me as its "fun value."

 

[White92]

Like others have said, I would avoid using your equity to do this. If you are dead set on it, I would maybe take a little bit different route. You could sell your house, use whatever you made on the deal to fund your restore project and simply buy a cheaper house. I would never use the equity on anything but putting it right back into the house. But then again, it's your money. What I said is just my own 2 cents. Let us know what you decide and keep us up to date on the project, if that's what you decide to do?

By the way, do they have any mods for your car that will actually make it handle in turns or are you keeping with the stock theme and only going for straight in a fast line?

 

[PHOEN$X]

So, I don't think I'd lose any money on the work I'd put into the car.

My intent is not to build this car for resale, I want to drive it!

I find the these statements contradictory. Are you trying to convince us, or yourself?

No one else here, myself included, think it's a good idea to tap into home equity for something like this. Your house is not an ATM.

However, if you don't have a family to support, and you really want to do this, go for it.

On the other hand, if you have dependents whose lives could be adversly impacted should your plan not pan out, and you wind up losing your house, please reconsider for their sake.

 

[sjs]

I don’t “disagree” with most of what’s been said and generally figure that if you can’t save money in a reasonable period of time to do this kind of thing with cash, then you probably shouldn’t be doing it at all. It reminds me of rent-to-own stores where people pay $10/week for a year so they can have their $300 TV today. But that said, let’s do a little reality check. First off, he made it quite clear that he is already doing the desired upgrades to his home. But let’s say that he hadn’t done that yet, or even intended to. He’s been penny conscious for awhile and now has $20k disposable cash laying around so he decides to restore the old Cuda, cash. Hooray for him. But when that's done the wife says it’s her turn so they take out a $20k home equity loan to do that. He’s a good man and a fine husband, but is he any more financially savvy than if it had happened in the reverse order? My point is that a borrowed buck is a borrowed buck unless there is a tax difference. As for downgrading to a lesser home to free up some capital, that’s got to be the worst choice of all. The only justification for that is if you are moving from an area where appreciation has leveled off to a place where it is about to take off, and that’s speculation which of course has risks of it’s own. But even then you’d want to spend the same amount of money to avoid gains tax.

 

[Autophile]

White92, my Cuda project is important to me, but not THAT important. :biggrin:

My objective is not to deplete my equity, but rather use it to my advantage. Of course, I don't like to pay interest on anything. I don't even like to keep zero-rate balances above $0. However, if the project is important enough to me to consider paying interest, then I'd like to investigate the best rate.

By examining the mechanics of an equity line of credit, it appears to be simply a "credit card" that is secured (in case of default) by home equity. So, risk is there, but if the balance is kept reasonable, i.e., within the threshold of personal liquid assets, then there is minimal danger. The attractive aspects of this type of credit are, the rate is better than anything else out there, and the interest is tax deductible. Of course, the danger is, if the balance was high and couldn't be payed for an extended time, then the house would be at risk.

Phoen$x, I don't see my comments as contradictory. It's like putting money into an upgraded kitchen - your money is used to increase your house value (i.e., an investment), but maybe you also plan on living in the house forever. It's the same thing with my car.

Also, I don't want to use my house as an ATM. I want to use it as a nice suit to open doors for me.

I don't have any dependents, nor a wife for that matter. But, I am not reckless enough, by myself, to blindly walk into losing my house, either.

White92, I was just going to focus on stock-style suspension components, so the goal would be primarily straight-line performance. Some vendors offer modern suspension kits for better handling, but I don't want to change the car that way. Besides, I just installed 4-wheel disk brakes and a fast ratio steering box on the car, and I don't want to start over on those (if necessary). I'd like to keep it to where it could be returned "to factory" without using a welder. :smile:

If/when I do start working on the car in earnest, I'll post pictures and whatnot of my progress.

I appreciate all of your input, guys. I'm learning a lot from this discussion.

 

[PHOEN$X]

But even then you’d want to spend the same amount of money to avoid gains tax.

If he has lived in his house for at least two of the last five years, and his profitis less than $250k, there is no capital gains tax:

http://www.bankrate.com/brm/news/real-estate/20041018a1.asp

But that point is moot given that probably isn't going to happen.

Phoen$x, I don't see my comments as contradictory. It's like putting money into an upgraded kitchen - your money is used to increase your house value (i.e., an investment), but maybe you also plan on living in the house forever. It's the same thing with my car.

The difference is, a house is an appreciating asset, whereas a car is (generally) a depreciating asset. If your finances are such that you don't ever forseeing yourself needing to tap into the home equity, then you're right, it doesn't matter.

Good luck with your project.

 

[Autophile]

The difference is, a house is an appreciating asset, whereas a car is (generally) a depreciating asset.

That's true. But, in case this hasn't been posted before, this article discusses the current status of the musclecar resale market, and specifically, '71 Hemicudas. (Note, my car is not a convertible) The yearly increases in (original and clone) resale prices rival the best housing markets in the country.

Good luck with your project.

Thanks! :biggrin:

 

[Briank]

Adjustable rate home equity loans scare me now that interest rates are are going up.

 

[Autophile]

Adjustable rate home equity loans scare me now that interest rates are are going up.

That's a valid point. But there are options to lock the rate while it's low, however. The best rate I found via LendingTree.com today was a variable rate at Prime less 0.51% (5.25% - 0.51% = 4.74%). The only downside to locking the rate is, you have to commit the lock to your current balance amount. I do not like that idea so much.

 

[Dave Hardy]

So, risk is there, but if the balance is kept reasonable, i.e., within the threshold of personal liquid assets, then there is minimal danger.

But if you have enough in personal liquid assets to cover the HELOC, then why get it in the first place? Use the liquid assets to fix the car.

 

[PHOEN$X]

in case this hasn't been posted before, this article discusses the current status of the musclecar resale market, and specifically, '71 Hemicudas. (Note, my car is not a convertible) The yearly increases in (original and clone) resale prices rival the best housing markets in the country.

It sounds like you know your cars and have done your homework.

I'm just curious though, since the majority of us disagree with the idea, did you really think the members here would encourage you to proceed with your plan when you posted this thread?

 

[Autophile]

But if you have enough in personal liquid assets to cover the HELOC, then why get it in the first place? Use the liquid assets to fix the car.

Well, I don't have enough liquid assets to cover the entire HELOC (i.e., cost of the project), which is why I mentioned below about using maybe only a partial amount of a HELOC at a time to minimize risk. You know, my lack of the funds to complete the total job at once is what started this whole option-seeking idea I considered. But I agree, using liquid assets is much more palatable than using some form of credit.

Anyway, after more introspection, I've decided I am not going to get a HELOC, or any kind of loan for that matter. I'll be paying for it for years no matter what method is used, so I might as well do it interest free. I don't use credit as it is, so this plan just didn't make sense for me. I'm going to create a dedicated savings account for the car instead.

I'm just curious though, since the majority of us disagree with the idea, did you really think the members here would encourage you to proceed with your plan when you posted this thread?

At first I thought SOME people might be neutral or encouraging, but that was back when I was drunk with pre-purchase euphoria. However my intent, I think, was to prompt Prime members to make me think this through, as you guys have, before I jumped into unknown waters. :smile: I admit that my cars make me lose rational thought sometimes.

Thank you for lending an ear, fellas.

 

[ANYTIME]

A number of years back, I did a complete restoration on a 68 Coronet convertable. I had someone do the mechanical work and another do the paint bodywork. It was around 14k and then it needed a complete interior and top to finish it off. I stumbled across Julius, the builder of the Nash Bridges cars. He finished the car for me for another 13k. Alot of the previous mechanical work (front end rebuild, tranny, brakes, etc.) all had to be redone. I hated having to pay twice for work I already paid for. Originally, the car was a 318 and it was converted to a 440. It was also made into a RT clone. The yellow/black/black was changed to a red/white/white with white bumble bee stripes. I decided to sell the car the day it was done, as there still needed about 5k worth of work to get the car exactly the way it should have been done in the first place(pull the motor/paint the firewall/rebuild this/rebuild that). Julius said it could have done it factory fresh for 30-35k total. No matter how much money/time/new parts I threw at the car, it was a smelly, I'm a boat leaning, big steering wheel turn me alot, problem per week, rattle trap car. That being said.....I did have an aftermarket big brake kit, wheels and sways on the car. It did have some nice features like a power top, power windows, AC and the gas mileage of a motorhome. Most of the power stuff (mostly new) barely worked. The AC on high gave you a feeling of it trying to work. I thought that it would be fun to have an old Mopar musclecar, but after it was said and done, it was still and old car and never would be close to what newer cars feel, drive or act like. It did run like a raped ape and looked like a million bucks. I always wanted one, but never, ever will own another old car. I can admire them now at car shows and I can keep a safe distance.
John :biggrin:

BTW, The car was sold at a muscle car auction in Van Nuys for 22K, at a loss.

 

[W]

I don't understand why you need any equity in your home to help you decide whether or not to spend money.