Buying or building a house before age 40 is a MISTAKE.
My friends and I have been saving money together to build
our own houses. However, after a lot of soul searching and
consultation, I have come to the realization that building or
buying my own house is not a priority at least till I turn
Let’s take arbitrary incomes and see what can be achieved
at the respective ages
Age. Net pay kshs. Family
25. 50,000. Single
30. 100,000. New wed
35. 150,000. 1Kid
40. 200,000. 2, 3 kids
If you take a mortgage or construction loan before you turn
40, you might buy a house or build a house that might prove
to be a liability.
This is why
A 2bedroom apartment in Athi River, Kitengela or Kiserian or
Juja or Kikuyu will go for between 5 and 6 million. If you buy
your own plot and build a house in the said areas you will
spend roughly the same amount of money.
If you take a loan for the Kshs 5 million to buy or build a
house today at the prevailing variable interest rates of about
18% PA you will be repaying about Kshs 78,000 per month
for the next 20 years. Let’s assume that you can actually
afford to repay such an amount every month. This means
that between now and the time when you 1 year old kid is
the 2nd year in the university, you will be repaying 78,000.
If you decide to move to another house for one reason or
another, you will let out your apartment or house for about
Kshs 30,000 if you are lucky. This means that you will be
repaying the difference which is about Kshs 48,000 every
month from your pocket.
So if you move to another house, say a bigger house closer
to work or school for the kids, you will be paying rent
because you might not qualify for another mortgage.
Assume that now you are 40 and you have 2 or 3 kids and
you need to move to a bigger house, you now move to a 3
or 4 bedroom house in South B/C or Kiambu Road or
Mbagathi road. You will pay rent of about 50,000 per
month. Your total monthly expenditure on housing has now
increased to Kshs 98,000 i.e 48,000 (top up from the
Mortgage) + 50,000 (Rent). Call it 100,000. That is already
half your net pay! You are now left with 100,000 to fuel and
service the car, clear your any SACCO loans you might
have, pay school fees, save for high school and university
and EAT. At this point, your parents are needing more
medical attention and you want to do that MBA you have
been postponing and start a business etc.
You might be saying, but the house or plot is appreciating in
value. True but when you calculate the total repayment after
20 years you will have paid about Kshs 18.5 million
assuming that the interest rate remains constant in the next
20 years which is highly unlikely. I doubt that the value of
the house will have appreciated to a value anywhere near
the 18.5 million. Actually, If you decide to sell the apartment
or house after 10 years at Kshs 10 Million, you will make a
“loss” because the amount of interest you will have paid
plus the capital cost of buying the house and renovating it
before selling will be higher than the selling price.
What if I already have the cash, am not taking a loan? Don’t
buy the house just yet…. Use your money to make more
money, don’t bury it in an immovable asset.
So, what to do?
Buy a parcel of land, like 5 acres and plant trees. Harvest
the trees every 10 years and sell them as timber. One acre
can hold about 2000 trees. Five acres will hold about 10,000
trees. If half of the trees die and sell the other half at Kshs
5,000 per tree, you will make about 5,000 trees x Kshs 5000
= 25 million. Surely, you can get a very decent house with
Buy a plot and build mabati houses and rent them out for
Kshs 3000 each per month. A ¼ acre plot can fit about 45
such mabati single rooms with a shared pit latrine and
bathroom. 45 units x 3,000 = Kshs 135,000. If you are
servicing the 5 million loan we discussed earlier, you will
repay the entire loan in just 10 years without ever having to
“go back to your pocket”. After the 10 years, the plot has
appreciated in value and you have a cash flow of 135,000
every month. What can’t you do with such “extra” cash?
Start a “kabiashara” that will give you about Kshs 500 per
day. This will translate to about Kshs 15,000 per month.
Add to the 135,000 you now have a “virtual” income of Kshs
Buy a plot for speculation and say you will sell it when your
kid goes to the university. The sale price might be enough to
pay school fees at Oxford or Harvard University for the
Buy shares and diversify your portfolio.
Enjoy living in a rented house and be a good tenant. Pay
your rent in time and live in an area that is convenient for
you and your children’s school. Get a big enough house that
will fit your family.
Have some cash or “near cash” assets since they say,
“opportunity knocks once at every mans’ door”…. Be ready
when the knock comes…. And remember, CASH is KING.