Remodeling During A Recession

Are you stuck with an investment property and a mortgage? Make the best of the situation-move in.

So you bought a house, never intending to make it a home. Then the real estate market went south, and your expensive investment didn't sell at the price you wanted. What to do?

Stay put and enjoy your assets, that's what. And while you're at it, invest some more in the property.

I'm not supposed to live here!

Time to face the facts: It will take some patience to recoup the original investment in any real estate you bought in the last couple of years. Buyers are a scarce and precious commodity these days, and they won't pay as much today as they did last year, or even last month. That's just the way this real estate cookie crumbles.

Since you're stuck paying a mortgage that you never planned to hold for very long, you might as well live in the place that you're paying for. And, if you treat it like a permanent home, the rewards will start to line up.

Accentuate the positive

First, you get to enjoy a great property. If you did your homework when buying the place, it should be in good condition, and in a nice neighborhood and respectable school district. That's why you thought someone would buy it from you in the first place. Take full advantage of the positives that you found.

While you're living in your investment, you'll start to see ways it could get better. The landscaping might be blah instead of blooming, or perhaps the living room would look better with hardwood floors. Go ahead and plant some new bushes, and rip out that worn-down carpet. You'll upgrade your own life for now, while making the home more attractive to future buyers. Win today, and win again tomorrow.

Brightening up with home equity

Of course, those upgrades aren't free, but you can use the property itself to finance them. You're building up home equity with every mortgage payment, and there are a couple of ways to tap into that for home improvements, depending on how your original mortgage is set up.

If you have a high-interest loan that was structured for a quick sale, you may want to refinance. To fund those home improvements, you'd simply do a cash-out refinance.

Maybe you went for a more traditional 15- or 30-year mortgage, and are paying reasonable interest rates while building up some equity. In that case, look into a second mortgage. A home equity loan is best if you know how much you need, and how much you can afford to pay every month. For a more flexible financing solution, try a home equity line of credit (HELOC). Either way, the interest is tax deductible when you're using the mortgage to pay for home improvements-even if you're planning to sell the house as soon as possible.

The buyers will come back-they always do. Until then, enjoy (and improve) your beautiful home.