Same-as-cash credit promotions are mostly used to close a sale when the customer is able to come up with the entire job amount after a predetermined time. But they can also be a great fit for a customer who wants to sell a home but needs to make some improvements to make it marketable. “With same-as-cash they can get a new kitchen with no money down,” Gorman says. “The price of the job will be paid off with proceeds from the sale, and the kitchen will help the home sell faster and for more money.” He says that this tactic works best with kitchen remodels which, according to REMODELING’S annual Cost vs. Value Report (see page 65), recoup a high percentage of cost upon resale.
A secured home improvement loan backed up by a second mortgage can be presented to customers in a way that shows them how it can help with other expenses. In many cases, the interest is also tax deductible. “Say they have a $50,000 project but they also have a $30,000 tuition payment and a lease on a car that’s worth $20,000,” Gorman says. “The tuition and car payment aren’t tax deductible. You tell them that they can borrow the first $50,000 to do the remodeling, and the next $50,000 to pay off the car and college loan. All of their interest is now tax deductible.” This type of loan also carries the lowest interest rate, and payments can be spread out over 20 years or more.
Average job size is around $30,000 according to Bruce Christensen, vice president for Home Improvement at GE Money, and the contractor can set up a draw schedule. In some cases, the lender will make a secured loan for up to 125% of the home’s value. “We don’t consider this to be risky,” he says. “We’re looking at the value of the customer — and property values will go up again.”
A secured loan may also be best for someone with less than perfect credit. “If a customer is rejected on an unsecured loan, we try to get them to apply on a secured basis,” says Rob Levin, president of Statewide Remodeling in Grand Prairie, Texas. In fact, he often presents customers with an option for both a secured and an unsecured loan. “Rates are lower on a secured loan. On the other hand, some people don’t want to use their property as collateral.”
Getting a secured loan takes longer and requires a fair bit of paperwork. Because of this, some remodelers pass on smaller projects where the client can’t get an unsecured loan, according to Levin. He thinks they’re nuts. “We are not walking away from a $10,000 or $12,000 project because they have to fill out some forms.”
Partial self-financing is something most contractors don’t consider, but it can increase the profit on a job. “I have done jobs where the customer wanted to build a $20,000 project but only had $15,000, so I financed the extra $5,000,” Gorman says. “What I’m basically doing is financing my profit.”