Q&A: Cash is king when it comes to home improvements

Dear Liz: My husband and I are squabbling over how to pay for the pool we may get. We have a line of credit on the house, and rates are still low. I say we use that, make it part of the mortgage and pass the cost on to the next owner (assuming that, someday, we sell this house). He wants to pay cash, which seems insane to me. I don’t pay cash to buy a car — why wouldn’t I finance a pool?

Answer: You probably should pay cash for your cars. Borrowing money is usually advisable only when you’re buying something that can increase your wealth, such as an education that helps you make more money or a home that can appreciate in value. Paying interest to buy something that declines in value generally isn’t a great idea.

Whether a pool can add value to your home depends a lot on where you live. If pools aren’t common in your neighborhood, adding one may not add much if any value. A pool could even place you at a disadvantage by turning off potential buyers who might not want to deal with the hassle and expense of pool maintenance. Parents with young children also may shy away from pools because of the drowning risk.

Adding a pool could increase your home’s value if you live in a warm climate and most of your neighbors have pools. But even then, it’s unlikely that your pool will add as much value as it would cost to install. (Home improvements rarely result in a profit — even the best-considered upgrades typically cost more than the value they add.)

A reasonable compromise might be to finance half the cost and pay cash for the rest. You’ll still want to pay off the line of credit relatively quickly, though. Lines of credit typically have variable interest rates that can make this debt more expensive over time.

You won’t be passing on the cost to the next owner in any case. Any money you borrow against your home has to be paid off when you sell, reducing your net proceeds. That’s yet another reason not to borrow indiscriminately.

Wednesday’s need-to-know money news

Today’s top story: 3 colleges that help you handle student debt. Also in the news: How one couple purchased a home in Oakland, Marriott/SPG cards are getting a makeover, and how to get reimbursed for old medical expenses with your HSA.

3 Colleges That Help You Handle Student Debt
You’re not alone.

How I Bought a Home in Oakland
One couple’s story.

Bonjour, Bonvoy: Marriott, SPG Cards Getting New Names, Perks
New goodies.

Get Reimbursed for Years-Old Medical Expenses with Your HSA
No time limit on reimbursements.

Q&A: Watch out for scams when trying to dump a timeshare

Dear Liz: How do I get out of a timeshare contract? A few years back, we signed up for one that’s associated with a major hotel chain. Promises were implied but not kept. Since then, I continually receive notices from legal groups that say all laws favor the timeshare developer and that my kids will take over my debt unless I pay the attorney thousands of dollars to get out of the contract.

Do you know of legitimate ways to sever the ties? I know I will lose my investment but would rather be out of the contract “for eternity.”

Answer: Timeshares typically include “in perpetuity” clauses meant to keep owners on the hook indefinitely for annual maintenance fees and other charges.

That doesn’t mean their heirs have to be on the hook, however. Your kids can “disclaim” — essentially, refuse to inherit — the timeshare on your death, as long as you haven’t put their names on the deed.

If you’re not happy with your timeshare, though, consider getting rid of it before your death. Check to see if the developer will take it back or if you can sell it on a site such as RedWeek or Timeshare Users Group. Don’t expect to get much, if any, money out of the deal. In fact, you may have to pay a year or two of maintenance fees in advance as a sweetener. That could be a relatively small price to get out of what otherwise might be a lifetime obligation.

It’s unfortunate that most timeshares don’t offer a simpler way out for owners. The difficulty in getting rid of timeshares opens the door for all kinds of scams and shady behavior, with companies charging thousands of dollars and often not delivering the exit they promise.

Friday’s need-to-know money news

Today’s top story: How to save money on health care. Also in the news: How to work from anywhere like a boss, one person’s homebuying journey in Seattle, and why employers check your credit report.

How to Save Money on Health Care
The three questions you need to ask.

How to Work From Anywhere Like a Boss
Reliable wifi is key.

How I Bought a Home in Seattle
One person’s homebuying journey.

Why Employers Check Your Credit Report
Lookimg for financial distress markers.

Q&A: Here’s why two siblings who inherited mom’s house should prepare for an ugly family feud

Dear Liz: My mother left her house to my brother and me. He wants to use it as a rental property. I have no interest in being a landlord or in ownership. He doesn’t want to buy me out, so I’d like to sell my half interest. What are the tax issues I need to prepare for, and does my brother need to sign any documents?

Answer: You should first prepare for an ugly family feud. If the property hasn’t been distributed yet, you’ll face a probate or trust contest over the house, says Jennifer Sawday, an estate planning attorney in Long Beach. If you’ve already inherited the home, you would need to go to court to file a real estate partition action. Either way, a court action typically forces a sale or arranges for your brother to buy you out before dividing the proceeds — minus all the attorneys’ fees, of course. (This is not a do-it-yourself situation, so you’ll both need to hire lawyers.)

That may be the best of bad options if your brother won’t see reason. Being a landlord involves considerable hassle and liability. You shouldn’t be forced into such a business — or any business — with a family member.

You can use the threat of legal action as a bargaining chip, since you both will net a lot less from your inheritance once the court gets involved. It makes much more sense for your brother to agree to a sale or get a mortgage to buy you out. Let’s hope he comes to that conclusion as soon as possible.

Wednesday’s need-to-know money news

Today’s top story: One couple’s real estate journey to a home in Philadelphia. Also in the news: What rising DTI limits mean for your next mortgage, why the cashless trend doesn’t have all shoppers sold, and bad money habits you could be guilty of.

How I bought a home in Philadelphia
One couple’s real estate journey.

What Rising DTI Limits Mean for Your Next Mortgage
Know your debt-to-income ratio.

Why the Cashless Trend Doesn’t Have All Shoppers Sold
For some, cash is still king.

Are You Guilty of These Bad Money Habits?
Sound familiar?

Q&A: How to get results when you complain to your mortgage company

Dear Liz: Last year my mortgage was sold to another company. I didn’t know that I had a new loan number, so my automatic payments weren’t posted properly. With the help of my bank, I was able to sort this out but not before the new company reported me as delinquent to the credit bureaus. I have never been late with a payment in 15 years.

I pleaded with the company to remove the delinquency from my credit report, but they declined, saying their records show that they fulfilled their obligation by notifying me that they are my new lender. Do I have any recourse and what are my options in getting this delinquency removed from my credit report?

Answer: You can try disputing the delinquency with the credit bureaus, but that is a highly automated process. The company may check its records and respond to the bureaus as it did to you, refusing to remove the black mark. It’s worth a shot, but far from guaranteed.

You most likely will need to get to the right human being to help you. Sometimes when you run into a brick wall with customer service, you can turn things around by appealing to someone’s expertise. Asking the customer service rep, “If this happened to you, what would you do to fix it?” may get you pointed in the right direction.

Of course, you may have been talking to a call center worker with little training and even less authority. If that’s the case, ask to speak to the manager. You might also write a letter to the company’s chief executive, asking directly for help.

Another option is to involve regulators. Filing a complaint with the Consumer Financial Protection Bureau or your state attorney general may get results.

A single missed payment can knock more than 100 points off good credit scores, plunging you into the “average” category and causing you to pay more for such things as credit card interest, insurance and cellphone coverage. It may take considerable effort, but it’s worth fighting back.

Thursday’s need-to-know money news

Today’s top story: 7 tactics to help car-buying newbies bargain like a boss. Also in the news: 5 ways to save energy during the dog days of summer, what you need to know about buying a house in 2018, and how a freelancer turned dog sitting into a successful side gig.

7 Tactics to Help Car-Buying Newbies Bargain Like a Boss
Don’t be intimidated.

5 Ways to Save Energy During the Dog Days of Summer
Staying cool.

Buying a House in 2018: What You Need to Know
Things have changed a bit.

How a Freelancer Turned Dog Sitting Into a Successful Side Gig
Getting your side hustle on.

Q&A: Figuring the tax toll for an inherited house

Dear Liz: I inherited my home when my husband died. If I sell this house now at a current market value of around $900,000, what will be the basis of the capital gains tax? I think at the time of my husband’s death, the house’s market value was $400,000.

Answer: Based on your phrasing, we’ll assume your husband was the home’s sole owner when he died. In that case, the home got a new value for tax purposes of $400,000. That tax basis would be increased by the cost of any improvements you made while you owned it. When you sell, you subtract your basis from the sale price, minus the costs to sell the home, such as the real estate agent’s commission, to determine your gain. You can exempt up to $250,000 of the gain from taxation if it’s your primary residence and you’ve lived in the house at least two of the previous five years. You would owe capital gains taxes on the remaining profit.

Here’s how the math might work. Let’s say you made $50,000 in improvements to the home, raising your tax basis to $450,000. You pay your real estate agent a 6% commission on the $900,000 sale, or $54,000. The net sale price is then $846,000, from which you subtract $450,000 to get a gain of $396,000. If you meet the requirements for the home sale exclusion, you can subtract $250,000 from that amount, leaving $146,000 as the taxable gain.

If your husband was not the sole owner — if you owned the home together when he died — the tax treatment essentially would be the same if you lived in a community property state such as California. In other states, only his share of the home would receive the step-up in tax basis and you would retain the original tax basis for your share.

Monday’s need-to-know money news

Today’s top story: How to protect your money from criminals. Also in the news: How to fight about money and stay madly in love, how to have “the talk” about finances with your parents, and deciding to reroute some of your retirement savings to pay for a house.

Banking Has Changed, but Criminals Haven’t — Here’s How to Protect Your Money
Staying on guard.

How to Fight About Money and Stay Madly in Love
Don’t let money get in the way.

Have ‘The Talk’ About Finances With Your Parents Already
Having the tough conversations.

Should You Reroute Some of Your Retirement Savings to Pay for a House?
One of the biggest decisions you’ll ever make.