A personal reflection on the financial implications of buying or building a house before the age of 40 has led to the conclusion that it may not be the most prudent decision.
Evaluating Financial Scenarios ¶
Assuming arbitrary incomes at different ages, the financial strain of taking on a mortgage or construction loan becomes apparent. For instance, a 25-year-old single individual with a net pay of Kshs 50,000, a 30-year-old newlywed with a net pay of Kshs 100,000, a 35-year-old with one child and a net pay of Kshs 150,000, and a 40-year-old with two or three children and a net pay of Kshs 200,000.
If one were to take a loan of Kshs 5 million to buy or build a house at an 18% interest rate, the monthly repayment would be approximately Kshs 78,000 for 20 years. This significant expense could limit financial flexibility and hinder the ability to adapt to changing circumstances, such as needing to move to a larger house.
Potential Consequences of Home Ownership ¶
Moving to a new house could result in letting out the original property for rent, potentially at a rate of Kshs 30,000, leaving the owner to cover the remaining Kshs 48,000 of the mortgage repayment. Furthermore, upgrading to a larger house might require paying rent, as qualifying for another mortgage could be challenging.
The total monthly expenditure on housing could increase substantially, potentially reaching Kshs 98,000, which is nearly half of the net pay. This leaves limited funds for other essential expenses, such as car maintenance, loan repayments, school fees, savings, and daily living costs.
Alternative Investment Strategies ¶
Rather than investing in a house, alternative options could provide more financial benefits. These include:
- Buying a parcel of land and planting trees, which can be harvested and sold as timber, potentially generating significant profits.
- Purchasing a plot and building rental properties, such as mabati houses, which can provide a steady income stream.
- Starting a small business that generates a daily income, which can be used to supplement other earnings.
- Investing in plots for speculation, with the potential to sell at a higher price in the future.
- Diversifying a portfolio by buying shares.
- Living in a rented house and using the freed-up funds for other investments or expenses.
Having readily available cash or liquid assets can also provide opportunities to capitalize on unforeseen circumstances.
Ultimately, it is essential to prioritize enjoying life and making the most of the present moment.
