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Is Taking a Mortgage the WORST Decision Ever??
Rank: Elder Joined: 7/22/2009 Posts: 7,455
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Angelica _ann wrote:Balance both. Make money and then buy an asset 'house/land' and re-cycle that over and over. It works wonders at least for me! Over a period of 16 years now! @Angelica _ann - I will definitely build or buy me a [dream?] house. But it will definitely not be on mortgage - not at 15% levels. And it is not high up in the list of things to do [though emotions say it should]. And finally - and most importantly - it will NOT be an investment [in my mind]! It will be just like the way I buy myself a nice pair of shoes or a watch. Nothing to do with investments!!! Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Member Joined: 8/5/2011 Posts: 125
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Is taking a mortgage the best decision ever?
Apology first to the opposite discussion @maichblack:
Am in my early 30's and have a portfolio of stocks (10%), real estate - undeveloped plots (70%), policies and insurance policies (15%). This is an amount that runs into 8 figures. I also run a restaurant business on the side with net income of 120k per month (for the last 18 months) and little debt. Household income after loans and subsistence is 200K - from professional employment, so little risk of unemployment. Have recently gotten some 3 mirrion. current
I have two options:
1. take a mortgage for an apartment in Kileleshwa
Cost - 16M
Deposit - 3 mirrion
Repayments for 13 mirrion @ 13.9% (stanchart) = 160K for 25 years. Interest initially consumes 95% of this
Direct lumpsomes to reduce principle: target 3-5m within 12 months
Adv:
Nyumba ya kuishi (decent, great environment from Ngumo!!! ach ach)
Build equity for future projects - through equity release
Disadv: obvious - high interest
2. Build a 12 unit block of apartments in Kisii. Ready market
Estimated income 300k (worst case scenario)
Budget 30 mirrion.
Since 3 m is available, means the rest would have to come from financing...
Adv:
Can start ground floor and ???? possibly start earning 75k with initial amount. will have to top up
Great foundation for future projects
Disadv: - kuendelea kuishi ngumo (apology to those who have aspired to Ngumo - where I stay is not very nice... but thats not the discussion)
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Rank: Member Joined: 3/3/2014 Posts: 131
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kiwaru wrote:I have two options:
1. take a mortgage for an apartment in Kileleshwa
Cost - 16M
Deposit - 3 mirrion
Repayments for 13 mirrion @ 13.9% (stanchart) = 160K for 25 years. Interest initially consumes 95% of this
Direct lumpsomes to reduce principle: target 3-5m within 12 months
Adv:
Nyumba ya kuishi (decent, great environment from Ngumo!!! ach ach)
Build equity for future projects - through equity release
Disadv: obvious - high interest
2. Build a 12 unit block of apartments in Kisii. Ready market
Estimated income 300k (worst case scenario)
Budget 30 mirrion.
Since 3 m is available, means the rest would have to come from financing...
Adv:
Can start ground floor and ???? possibly start earning 75k with initial amount. will have to top up
Great foundation for future projects
Disadv: - kuendelea kuishi ngumo (apology to those who have aspired to Ngumo - where I stay is not very nice... but thats not the discussion) Option 1 is "25 years a slave". If you read Robert Kiyosaki's books you will see a common phrase in all of them, Seeing your home as an asset is one of the most common blunders that people make. We always aim at acquiring assets and reducing liabilities, but you should ask yourself whether taking a mortgage would do so. Mortgage is for salaried guys who only think of short term gains and dont like investing and instead spend all the salary on paying bills and loans. IMITATION IS LIMITATION
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Rank: New-farer Joined: 1/3/2014 Posts: 32
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Pardon me, but are the numbers realistic for Kenya? Ksh 1 to grow to Ksh 6,859 in 20 years? Maybe you can give exact figures for NSE between 1993-2013, what has been the average rate of return? Then use the number.
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Rank: New-farer Joined: 1/3/2014 Posts: 32
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Top yielding investments 2013-
Nse-16%
Govt Securities-8.2%
Fixed deposit-6.6%
Real estate-6%
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Rank: Member Joined: 8/5/2011 Posts: 125
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I met a guy who told me that he bought half an acre in Kile at 1m in 1981.
Recently it was valued at 100m
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Rank: Member Joined: 8/5/2011 Posts: 125
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 I met a guy who told me that he bought half an acre in Kile at 1m in 1981. Recently it was valued at 100m #dothemath
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Rank: Elder Joined: 7/22/2009 Posts: 7,455
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knight026 wrote:Pardon me, but are the numbers realistic for Kenya? Ksh 1 to grow to Ksh 6,859 in 20 years? Maybe you can give exact figures for NSE between 1993-2013, what has been the average rate of return? Then use the number. Hell yeah! See post# 9 and post# 14. As a matter of fact, wazuans like @stocksmaster will tell you I am being extremely conservative! Visit the links provided in post# 9. Forget the rate of return at the NSE in general. You are not buying each and every stock. You should cherry pick. And if you don't know how [and you don't want to do the work yourself], listen to some very generous wazuans (One being @stocksmaster - among others) who will give you the information absolutely free of charge. Also follow discussions in this forum. You will outperform the market every time!!! Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Elder Joined: 6/17/2008 Posts: 23,365 Location: Nairobi
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I agree with @Maichmweusi aboslutely, at the current rates a mortgage does not make sense. A friend working at Safcom took a mortgage through their company (about 6%) and the repayment per month was coming to around 54K. The other day he got another opportunity with another company and wanted to resign from Safcom, that is when he reazlized that to service the mortgage outside the company scheme he needed a further 44K net from the prospective employer before he could count any extra coin in his pocket......long story short, he did not resign!!!!! ..."Wewe ni mtu mdogo sana....na mwenye amekuandika pia ni mtu mdogo sana!".
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Rank: Member Joined: 8/5/2011 Posts: 125
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MaichBlack wrote:Angelica _ann wrote:Balance both. Make money and then buy an asset 'house/land' and re-cycle that over and over. It works wonders at least for me! Over a period of 16 years now! @Angelica _ann - I will definitely build or buy me a [dream?] house. But it will definitely not be on mortgage - not at 15% levels. And it is not high up in the list of things to do [though emotions say it should]. And finally - and most importantly - it will NOT be an investment [in my mind]! It will be just like the way I buy myself a nice pair of shoes or a watch. Nothing to do with investments!!! @Maichblack, I like your reasoning. But i do not agree with it: sometimes a house becomes an investment simply because it is a significant portion of your portfolio: if you have a 3 mirrion shilling house and nothing else (as most Kenyans start...)you have to make it count. If you have a 100mirrion portfolio, you can buy a house like you are selecting a pair of shoes... right?
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Rank: Elder Joined: 7/22/2009 Posts: 7,455
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What's more @knight026 even with a modest return of 16% p.a. you still end up with 172 million!!! Or a 20 year old house =FV(16%/12,20*12,-100000,0,0)
"Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it." ― Albert Einstein Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Member Joined: 8/5/2011 Posts: 125
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kiwaru wrote:MaichBlack wrote:Angelica _ann wrote:Balance both. Make money and then buy an asset 'house/land' and re-cycle that over and over. It works wonders at least for me! Over a period of 16 years now! @Angelica _ann - I will definitely build or buy me a [dream?] house. But it will definitely not be on mortgage - not at 15% levels. And it is not high up in the list of things to do [though emotions say it should]. And finally - and most importantly - it will NOT be an investment [in my mind]! It will be just like the way I buy myself a nice pair of shoes or a watch. Nothing to do with investments!!! @Maichblack, I like your reasoning. But i do not agree with it: sometimes a house becomes an investment simply because it is a significant portion of your portfolio: if you have a 3 mirrion shilling house and nothing else (as most Kenyans start...)you have to make it count. If you have a 100mirrion portfolio, you can buy a house like you are selecting a pair of shoes... right? And a lesson i have learnt is that high risk-high return investments need to be anchored in low risk-low return investments because there is a season for... and a season for...
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Rank: Veteran Joined: 12/8/2009 Posts: 975 Location: Nairobi
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Murang'a wrote:Option 1 is "25 years a slave".
If you read Robert Kiyosaki's books you will see a common phrase in all of them, Seeing your home as an asset is one of the most common blunders that people make. We always aim at acquiring assets and reducing liabilities, but you should ask yourself whether taking a mortgage would do so.
Mortgage is for salaried guys who only think of short term gains and dont like investing and instead spend all the salary on paying bills and loans. Muranga Even people in business take mortgages. Some wazuans in the past have claimed to pay their mortgages from proceeds earned from the NSE. BTW not everyone is cut out for entrepreneurship. You will know that you have arrived when money and time are not mutually exclusive "events" in you life!
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Rank: Elder Joined: 12/7/2012 Posts: 11,908
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McReggae wrote:I agree with @Maichmweusi aboslutely, at the current rates a mortgage does not make sense. A friend working at Safcom took a mortgage through their company (about 6%) and the repayment per month was coming to around 54K. The other day he got another opportunity with another company and wanted to resign from Safcom, that is when he reazlized that to service the mortgage outside the company scheme he needed a further 44K net from the prospective employer before he could count any extra coin in his pocket......long story short, he did not resign!!!!! And that is why majority of guys who work in banks and call themselves 'bankers' dare not move unless to another bank hovever routine and boring their jobs are! You become a slave! In the business world, everyone is paid in two coins - cash and experience. Take the experience first; the cash will come later - H Geneen
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Rank: New-farer Joined: 1/3/2014 Posts: 32
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Assuming that @kiwaru rates hold on (ie 15% for real estate) the house will be worth Ksh 100,699,828 in 20 years. This means the guy will have made Ksh 69,096,878.
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Rank: Elder Joined: 6/17/2008 Posts: 23,365 Location: Nairobi
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XSK wrote:Murang'a wrote:Option 1 is "25 years a slave".
If you read Robert Kiyosaki's books you will see a common phrase in all of them, Seeing your home as an asset is one of the most common blunders that people make. We always aim at acquiring assets and reducing liabilities, but you should ask yourself whether taking a mortgage would do so.
Mortgage is for salaried guys who only think of short term gains and dont like investing and instead spend all the salary on paying bills and loans. Muranga Even people in business take mortgages. Some wazuans in the past have claimed to pay their mortgages from proceeds earned from the NSE. BTW not everyone is cut out for entrepreneurship. Yet in Kenya we are talking of less than 30K mortgage accounts. ..."Wewe ni mtu mdogo sana....na mwenye amekuandika pia ni mtu mdogo sana!".
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Rank: Member Joined: 3/5/2008 Posts: 532 Location: Nairobi
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McReggae wrote:I agree with @Maichmweusi aboslutely, at the current rates a mortgage does not make sense. A friend working at Safcom took a mortgage through their company (about 6%) and the repayment per month was coming to around 54K. The other day he got another opportunity with another company and wanted to resign from Safcom, that is when he reazlized that to service the mortgage outside the company scheme he needed a further 44K net from the prospective employer before he could count any extra coin in his pocket......long story short, he did not resign!!!!! @McReggae, pretty true. Once you quit the market rate applies. Frankly scaling payments from 6% to market rates of 16% will sure choke you out of town. @Maichblack, thanks for the informative piece!
Strive not to be a success, but rather to be of value. –Albert Einstein.
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Rank: Member Joined: 8/5/2011 Posts: 125
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Murang'a wrote:Option 1 is "25 years a slave".
If you read Robert Kiyosaki's books you will see a common phrase in all of them, Seeing your home as an asset is one of the most common blunders that people make. We always aim at acquiring assets and reducing liabilities, but you should ask yourself whether taking a mortgage would do so.
Mortgage is for salaried guys who only think of short term gains and dont like investing and instead spend all the salary on paying bills and loans. Murang'a, while on the face of it, it is true that a house is not an asset per se, we are talking about life here. A family cannot live in a tree, so its a basic need that has cost implication. And the non-asset can act to 1) save cost 2)equity release. Of course the house should not be the only thing one has in a portfolio 
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Rank: Elder Joined: 3/18/2011 Posts: 12,069 Location: Kianjokoma
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asante maich, but as @kanobi notes, you are omitting the issue of incremental income/expenses ie you havent compared like for like. The guy who doesnt take the mortgage will continue paying rent which will increase maybe evry 2years. Even if the mortgage taker rents out his house, this needs to be factored in as income. Then the issue of the 20k max monthly mortgage relief on tax
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Rank: Member Joined: 3/3/2014 Posts: 131
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McReggae wrote:XSK wrote:Murang'a wrote:Option 1 is "25 years a slave".
If you read Robert Kiyosaki's books you will see a common phrase in all of them, Seeing your home as an asset is one of the most common blunders that people make. We always aim at acquiring assets and reducing liabilities, but you should ask yourself whether taking a mortgage would do so.
Mortgage is for salaried guys who only think of short term gains and dont like investing and instead spend all the salary on paying bills and loans. Muranga Even people in business take mortgages. Some wazuans in the past have claimed to pay their mortgages from proceeds earned from the NSE. BTW not everyone is cut out for entrepreneurship. Yet in Kenya we are talking of less than 30K mortgage accounts. Of course I know we cant all fit in salary jobs or in self business' As for business people taking mortgages, I wouldnt comment but I was sampling from the cases that I know. Most guys in Kenya are trapped in a rat race simply because their liabilities> assets. How else would you explain a guy paying loans for house, car etc all from monthly income without any passive cash The other day I was watching an Mpig who takes home 0.000kshs.( He could be lying but all in all it looked practical) IMITATION IS LIMITATION
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