Wazua
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Renting vs. Buying
Rank: Veteran Joined: 6/2/2010 Posts: 1,091
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I have done my math and it points to the fact that if one is disciplined enough to invest each month in the stock market the equivalent of what they would pay in mortgage; they would eventually come out ahead. Let me illustrate. Sam and Tim both have the ability to invest Kshs 50,000 per month. Sam takes out a morgage which eats into the entire Kshs. 50,000 each month. Tim invests Kshs 30,000 each month without fail and rents for Kshs. 20,000. With Real Estate appreciating only single digit figures over the longterm whereas stocks appreciate by double figures. I can bet you that if Tim remains disciplined, he will own stocks worth much more than Tim's house in the long term. My 2 cents attached the following image(s):  buyrent.jpg (6kb) downloaded 7 time(s).
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Rank: Member Joined: 4/14/2010 Posts: 806 Location: Nairobi
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Tim's rent will keep increasing and reduce his investing surplus...so he will have less to invest over the years.
Also Tim's stocks will be subject to bulls and bears and 'Timing' of profit taking and entry/exit will be important to preserve/maximise his capital gains. This may require some skills.
Anyways...this reminds me of a thread on which is better: real estate or stocks?
of late the number of threads on real estate is starting to rival those on stocks.
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Rank: Elder Joined: 9/12/2006 Posts: 1,554
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My 2 cents wrote:I have done my math and it points to the fact that if one is disciplined enough to invest each month in the stock market the equivalent of what they would pay in mortgage; they would eventually come out ahead.
Let me illustrate.
Sam and Tim both have the ability to invest Kshs 50,000 per month.
Sam takes out a morgage which eats into the entire Kshs. 50,000 each month.
Tim invests Kshs 30,000 each month without fail and rents for Kshs. 20,000.
With Real Estate appreciating only single digit figures over the longterm whereas stocks appreciate by double figures. I can bet you that if Tim remains disciplined, he will own stocks worth much more than Tim's house in the long term. if both were on cash basis investing cash at the stock exchange and investing on house, i believe Sam would have been better off, but on the current senerio Tim is better off
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Rank: Elder Joined: 5/24/2007 Posts: 1,805
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It is very difficult for Tim to catch up with Sam while investing just about half of what Tim is doing. This would only work if the Bourse is giving three times returns above the growth of real estate consistently. In Kenya, believe it or not, the value of housing seems to double every four years or so; consistently especially if bought off plan or constructed. I do not see your theory holding especially if Sam got a property that was very well located. On the other hand, have you considered that the mortgage has an 'invisible' income of the rent due on it? I Think Therefore I Am
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Rank: Elder Joined: 6/23/2009 Posts: 14,319 Location: nairobi
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imo.. renting also has medical factors such as stress which will have to be accounted for! in addition, if there is a family involved, financial security will need to be considered, as stock volatility is for individuals to bear, not an entire family! COOP, IMH, KEGN, KQ, MTNU
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Rank: Elder Joined: 6/27/2008 Posts: 4,114
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My 2 cents wrote:....Sam and Tim both have the ability to invest Kshs 50,000 per month.
Sam takes out a morgage which eats into the entire Kshs. 50,000 each month.
Tim invests Kshs 30,000 each month without fail and rents for Kshs. 20,000.
With Real Estate appreciating only single digit figures over the longterm whereas stocks appreciate by double figures. I can bet you that if Tim remains disciplined, he will own stocks worth much more than Tim's house in the long term. Which stocks is Tim investing in? Would he have been savvy enough to buy ARM @ sh4.53 and EACBLS @ sh0.69 in year 2000 and cash out at sh156 and sh18.50 today? Hindsight is such a good thing... What if he had picked Kenol & Uchumi? Oops!!! Nothing is real unless it can be named; nothing has value unless it can be sold; money is worthless unless you spend it.
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Rank: Elder Joined: 6/19/2008 Posts: 4,268
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consider the risks of investment too.
consider time of entry into the market. Houses that were going for 6m in kilimani/kileleshwa etc areas is now worth more than double that right now..... not sure if Shares would have given that return considering 360k investment every year.
For an 8% rise in value of house you will require roughly a 13.33% rise in your share value....
In some instances, when you want to pull out of the market, you might find it easier pulling out of the real estate market than in shares. Let me explain.... though it may take some months, in the current market, you can still find someone to buy your house, and a higher value than you bought it.... you can even decide to rent it out and move to a cheaper house if need be.... with the shares, if you invested in AK @35, you can only burn your fingers by pulling out if there was no averaging down... and even with averaging, you could just recoup the capital if the market is not bullish enough...
Well, i bet there are many factors to consider for both markets. Stocks have their positive side too.
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Rank: Veteran Joined: 5/23/2010 Posts: 868 Location: La Islas Galápagos
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You need to make this comparable by making Tim live in Sam's house. If the rent Tim pays Sam is lower than the monthly interest accruing to Sam for the mortgage, then Tim is better off. In reality, Tim will always be better if the mortgage market is overheated and worse off if the houses are fairly priced. I have given the case of buy-live A bad day fishing is better than a good day at work
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Rank: Elder Joined: 9/15/2006 Posts: 3,907
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I personally just can't get enough of this issue - always turning in my mind. Just a quick reference to when it last came up... Do our perspectives change with time? Jun16, 2010 SHARES versus REAL ESTATEApr06, 2010 Best long run investment
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Rank: Member Joined: 3/17/2008 Posts: 567 Location: Nairobi
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The fallacy that makes investing in the stock exchange look good is that youre not comparing like with like. Housing has intrinsic leverage.
Example
In 2 yrs the NSE investor has put in 720k assuming it even does 100% in 2 years you have made 720k profit. (actually much more than 100% as not all is invested at the start)
Return = 100% or even 150% or so
On the other hand Assuming 10% down on a 10M house and a 25% growth p.a. In 2years the house will be worth at least 15M. 5M Profit. The cash put in is the 1M deposit and 20k per month (difference between the morgage payment and the rent he would pay if no mortguage).
Net Profit 5M (house increase in value) less 480k effective mortguage. = 4.52
Return over 2 years = 4.52M/1M = 452%
Ofcourse there are all these assuptions but the house there is significant leverage that make it much much more lucrative.
Those who convince themselves that stocks are better that houses are escapists who dont want to stress themselves in the hassnes needed.
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Wazua
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Renting vs. Buying
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