humor >> Money Pit in a Bear Market

When we purchased our 80-year-old bungalow in 1996, we did so because we were enchanted with its 10’ ceilings, quartersawn oak flooring, and wide crown moldings. Our tale of owning an old house is an old one: leaky roof, drippy plumbing, and enough moisture in the basement to grow mushrooms. Our savings drained away much faster than the perpetually blocked garbage disposal. We were seriously wondering if we could afford the extravagance of owning it. Then the stock market plummeted in the dot.com crash and our money pit became our highest performing investment.

To capitalize on our property’s value, we decided that we needed more capital. We took out a home equity loan while the rates were low and used the cash to retile the bathroom, replace the worn kitchen vinyl, water-proof the basement, landscape the yard, and re-roof the garage. Where as before the crash, we would cringe at the foot-long hardware store receipts, but we now classified our expenses as a form of dollar cost averaging.

Although I’m not an accountant -I just play one on weekends- I came up with a formula to calculate the return on our investment. I took the total expenses of our home improvement projects and subtracted the tax deductions on the home-equity loan to arrive at a net expense. Then I looked at the average increase of real estate values in our area over the last 10 years. My unqualified estimate is that we will have broken even on our investment in 2.58 years-  not too bad considering it might take that long for our mutual funds to break even again.

Then it occurred to me that our house was a form of mutual fund in that we were investing in it for long-term gain. It seems fair to me that we should be getting a tax incentive for remodeling because we’re revitalizing the economy.  It could be called Remodelers Economic Housing Adjustment Benefit or REHAB.

Here’s a simple explanation: We took out a home equity loan, whose processing fees and interest benefit the mortgage company. The mortgage company paid their loan officers who used their salaries to buy more consumer goods, which boosted production and the gross national product. We bought supplies from home improvement stores, which helped them hit their earnings-per-share target to pay dividends to their stockholders, which increased confidence in the stock market. We hired craftsman and laborers for the bigger projects thereby reducing the unemployment rate.

Stay with me here; it gets better. The improvement in our house meant that our property taxes went up, which helped the local government to maintain our roads and hire more teachers for the schools. When it came time to pay our income tax, our home equity loan was tax deductible, which allowed us a small tax refund so we could order new storm windows that lowered our electricity use and kept the planet green.

OK, so maybe reversing the green house effect is a little farfetched, but the point is that it benefits everyone when homeowners sacrifice time, effort and money to restore their old homes. We should be rewarded for our efforts. After all, we’re doing what Alan Greenspan has been trying to do with lower interest rates, which is infuse the economy with cash.

Regardless of tax credits, we will continue to fix up our old bungalow, partly because we love it and partly because it makes financial sense. It’s nice to know that we’re investing in a retirement nest egg that we can actually live in. So what if our nest needs a new slate roof. Did I mention that I’m not an accountant?