CapEx account for a house hack - Savings vs HELOC

2 Replies

I've recently bought a 1910s duplex in the greater Boston area for a little more than $600k as a house hack. With the age of the home I need to consider major CapEx. Right now I have on the following on my radar:

  • $3k (immediate): W/D and hookups
  • $15k (~2 years): 2x heating conversion to natural gas and baseboard heating for 3rd floor
  • $15k (~5 years): House siding

I've budgeted $500/month for capex and am putting it into a savings account.

Down the line, once i'm under 80% LTV (5 years w/o appreciation), I'm not certain if I should consider using a HELOC for capex or try to rely on a savings account. Obviously there is an opportunity cost to that money and I should have some amount of cash available. The decision will partly depend on my risk tolerance.

What's everyone's thoughts on a HELOC vs savings for CapEx? Pros vs Cons? Other thoughts?

HELOC. Do the math.

Assuming your $500/month "savings" (this is also assuming no vacancies or any other events that will draw from this savings), you would have $6k saved up per year.  Times 2 years, and you'll be $3k short of your projected expenses.

Now add into the mix the increase in costs from what you are using now to estimate your future CAPEX off of, and you won't have enough money...even if all goes well.

Saving for CAPEX through your cash flow is a losing option.

Let's just see what happens if you do have added costs, and vacancies per year:
assume 1 month vacant and one month worth of added costs per year, and you would end up saving only around $4500 per year.

That would put you $6k short of your 2 year estimate, and (assuming you will only have the 3 years after that) $1500 short at the 5 year mark.

The HELOC is there waiting for you when you need it.

Thanks for the @Joe Villeneuve :

HELOC. Do the math.

Assuming your $500/month "savings" (this is also assuming no vacancies or any other events that will draw from this savings), you would have $6k saved up per year.  Times 2 years, and you'll be $3k short of your projected expenses.

Now add into the mix the increase in costs from what you are using now to estimate your future CAPEX off of, and you won't have enough money...even if all goes well.

Saving for CAPEX through your cash flow is a losing option.

Let's just see what happens if you do have added costs, and vacancies per year:
assume 1 month vacant and one month worth of added costs per year, and you would end up saving only around $4500 per year.

That would put you $6k short of your 2 year estimate, and (assuming you will only have the 3 years after that) $1500 short at the 5 year mark.

The HELOC is there waiting for you when you need it.

Thanks for the reply @Joe Villeneuve, 

It seems that no matter which route (or combination) I use, the $ will still be coming from cash flow. Its just whether I defer those payments and invest in the mean time. The way I'm thinking currently, is eventually I'd like to have a capex reserve fund sitting around $5k and using the HELOC.

I am saving for vacancies in addition to my capex savings. While living in the house (which i plan for at least 5 years), I can have a 10% vacancy rate w/o taping into my capex funds.

The biggest hurdle for me mentally is getting to a point where I'm comfortable with my reserves. Purchasing the property basically wiped out all my cash, but if i really needed I could use my ROTH IRA in a pinch. I originally planned to use these funds for the purchase, but opted not to last minute.

From what I've researched, I like the concept of a HELOC for major capex, but wanted to get other people's opinions.

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