Hi all,
I have learned so much in this forum about everything, including mortgage and renovation financing. Now the opportunity to purchase a home is in front of me and questions keep coming up.
One question is whether, at the time of purchase, to add renovation costs to the mortgage or to pay renovations in cash. I am in a fortunate situation where I can opt for either, or even a mix or split. There are similar posts about repaying mortgage or investing in ETF. In those scenarios investing usually beats repaying mortgage. But this is different and I did not find a thread with a similar scenario.
Imagine adding 100k to mortgage (1.5% fixed) versus not adding it and then finding 100k cash to pay for renovations.
What confuses me is the tax deductions possible with value-preserving (maintenance) renovations. This impacts the opportunity cost of paying cash instead of investing it, as the tax deductions of value-preserving renovations are significant.
For the add renovations to mortgage scenario, I heard that the budget added to the mortgage can only be used for value-enhancing renovations, hence not tax deductible (except much later at the time of sale, having missed the opportunity to grow invested)?
Overall, my math suggests to pay renovations in cash rather than add them to the mortgage. I am missing the mustachian knowledge, so please, let me know your thoughts: being able to pay renovations in cash, why would I add them to the mortgage? Is adding to the mortgage a good option only for value-adding renovations?
Thank you in advance for sharing your knowledge and experience.