Why home ownership is a bad investments (part 1) - A THREAD
Caveats 1:
1. Home ownership has some inherent values including:
- Psychological comfort.
- Societal validations.
- Aesthetics.
- Feelings of safety.
These things are important but difficult to quantify so this analysis does not discount the important of these factors.
1. Home ownership has some inherent values including:
- Psychological comfort.
- Societal validations.
- Aesthetics.
- Feelings of safety.
These things are important but difficult to quantify so this analysis does not discount the important of these factors.
Caveat 2.
Home ownership serves other purposes in society and in individual lives that are, once again, not amenable to investment modelling.
This is purely an investment analysis of home ownership versus other possible investment models.
Home ownership serves other purposes in society and in individual lives that are, once again, not amenable to investment modelling.
This is purely an investment analysis of home ownership versus other possible investment models.
Caveat 3:
I am NOT saying "don't buy a house" or that it's bad to buy houses.
I am saying.
1. Approach home buying as a rational investment decision.
2. Recognize you psychological needs.
3. Recognize the opportunity cost.
4. Then make the decision that is best for you.
I am NOT saying "don't buy a house" or that it's bad to buy houses.
I am saying.
1. Approach home buying as a rational investment decision.
2. Recognize you psychological needs.
3. Recognize the opportunity cost.
4. Then make the decision that is best for you.
Let's say you buy a house for $100,000 in
Lagos: N36m
Nairobi: Ksh 10m
Johannesburg: R1.5m
If you paid cash, your "opportunity cost" is the value the cash would have accrued to you if you had invested it instead.
Lagos: N36m
Nairobi: Ksh 10m
Johannesburg: R1.5m
If you paid cash, your "opportunity cost" is the value the cash would have accrued to you if you had invested it instead.
Investment opportunity cost (see this spreadsheet docs.google.com/spreadsheets/d…)
In 15 years, your cash @ 10% PA would be worth:
USD: $100k - 417k
Lagos: N36m - N150m
Nairobi: Ksh 10m - Ksh42m
Johannesburg: R1.5m - R6.2m
You can retire and live life on your own terms.
In 15 years, your cash @ 10% PA would be worth:
USD: $100k - 417k
Lagos: N36m - N150m
Nairobi: Ksh 10m - Ksh42m
Johannesburg: R1.5m - R6.2m
You can retire and live life on your own terms.
Business opportunity cost:
If you start a business instead that make nothing in year 1 and 2 and grows 20% (compounded) in subsequent years.
YearGrowth
00%
10%
220%
320%
420%
520%
620%
720%
820%
920%
1020%
1120%
1220%
1320%
1420%
1520%
If you start a business instead that make nothing in year 1 and 2 and grows 20% (compounded) in subsequent years.
YearGrowth
00%
10%
220%
320%
420%
520%
620%
720%
820%
920%
1020%
1120%
1220%
1320%
1420%
1520%
Business opportunity cost (cont):
In 15 years, your business would produce:
USD: $100k - $1.07m
Lagos: N36m - N385m
Nairobi: Ksh 10m - Ksh107m
Johannesburg: R1.5m - R16m
You can retire, buy the house of your dream and live life on your own terms.
See docs.google.com/spreadsheets/d…
In 15 years, your business would produce:
USD: $100k - $1.07m
Lagos: N36m - N385m
Nairobi: Ksh 10m - Ksh107m
Johannesburg: R1.5m - R16m
You can retire, buy the house of your dream and live life on your own terms.
See docs.google.com/spreadsheets/d…
There are lots of assumptions in the analysis.
1. Psychological comfort is impt.
2. Property appreciates.
3. Rental cost increases etc
It is NOT a definitive "buy"/"don't buy" guide. It just shows that the opportunity cost of putting a lump sum into home ownership is humongous.
1. Psychological comfort is impt.
2. Property appreciates.
3. Rental cost increases etc
It is NOT a definitive "buy"/"don't buy" guide. It just shows that the opportunity cost of putting a lump sum into home ownership is humongous.
Finally, buying vs renting is a personal decision.
My view is that the traditional notion that buying is the best model is flawed. Each individual should consider all psychological factor and DO THE NUMBERS for themselves before making a decision.
Investment = Maths + Logic.
My view is that the traditional notion that buying is the best model is flawed. Each individual should consider all psychological factor and DO THE NUMBERS for themselves before making a decision.
Investment = Maths + Logic.
I will answer some of your questions later today. I am off to a lecture.
Next week, I will do a similar analysis for mortgages.
Next week, I will do a similar analysis for mortgages.
*investment
My recommendations.
1. If you're young, business minded and active, starts a business.
2. If you're not business minded, build an investment portfolio.
3. If you desire psychological comfort, buy a home. Just understand that most investments will offer you more dividend.
1. If you're young, business minded and active, starts a business.
2. If you're not business minded, build an investment portfolio.
3. If you desire psychological comfort, buy a home. Just understand that most investments will offer you more dividend.
The spreadsheets
Link 1. Business Model
docs.google.com/spreadsheets/d…
Link 2. Investment Model.
docs.google.com/spreadsheets/d…
Link 1. Business Model
docs.google.com/spreadsheets/d…
Link 2. Investment Model.
docs.google.com/spreadsheets/d…
For an investment model.
Try this:
Try this:
This analysis deals with home ownership (real estate you live in) not rental properties.
I love and personally invest in rental properties.
I love and personally invest in rental properties.
Bottom line, your money/savings is your seed. Use it to generate a harvest.
Then use the proceeds of the harvest/investment to buy or build the house of your dream.
Then use the proceeds of the harvest/investment to buy or build the house of your dream.
