Homeownership is a significant financial decision most people look to make. And as you get older, start a family, find more stability in your career and look for an attractive long-term investment strategy, the thought of owning a home populates your brain more.
Homeownership can be an investment that helps you build wealth over time as you gain equity and your property increases in value, give you access to credit, save you money when your landlord hikes rent and ultimately improve your financial stability.
And it can also be a social investment that will help you and your family establish roots and provide permanent residence, an opportunity to build an emotional connection with neighbours, and long-lasting relationships with other homeowners in your community.
If you are struggling to make sense decision on whether to own a home or not, this article will explore nine reasons why you should and help you get closer to making a decision. Read on.
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Homeownership can bring financial and nonfinancial securities not just to you but to your whole family. It can give you the stability to focus on your career and a sense of permanence for your family.
Inflation and the high cost of living have seen rent skyrocket. Landlords are offering shorter leases, with almost every lease renewal coming with a rent increase, affecting the predictability that renting once offered. Homeownership offers financial security by providing you with control over your housing budget and freedom from rent.
With outright homeownership, you won't have to worry about monthly payments. And if you took a mortgage, the repayments are predictable if it is fixed interest rates, and you can plan for a variable mortgage if interest goes up. Furthermore, the principle borrowed won't increase. Only the interest rate and the amount paid will only increase your equity in the property, helping you build wealth.
For home maintenance costs, you can plan and save for significant home improvement, and having substantial emergency funds can help you pay for minor repairs.
Homeownership provides stability as you won't need to worry about constantly moving, dealing with stressful landlords who take months to do repairs, charging exorbitant fees for delayed rent, and more. All this can improve the quality of your life when you are no longer at anyone's mercy or have to worry about evictions.
Perhaps the most prominent social benefit is the control you get over your personal security and privacy from nosy neighbours. With the freedom to make any changes you see fit in your property, you can erect barriers, use translucent windows, install the latest security systems, etc., to ensure you are safe from all kinds of threats offering your family peace of mind.
Homeownership stability can also be visible in your children. Research from the US NLM shows that residential instability and constant moving can affect kids' emotional connection to friends, fragment their education and cause stress. A study by Habitat for Humanity also found stable and adequate housing can improve academic achievement and increase educational attainment.
Homeownership provides you with the freedom to renovate and personalise your home anytime you want to make changes. And when you make the right renovations to secure and modernise the house, your money won’t go to waste as it will just increase the property’s value.
Compare this to a rented house; you will need to solicit the owner's approval before undertaking any renovation to personalise your home. If the renovation you are making is to beautify the house and doesn’t concern the landlord, you will finance it from your pocket. You also risk losing your security deposit when moving out, as the building will need to be restored to its original form.
As inflation continues to hit the economy and the CBK reported that the inflation rate rose to 8.3% in July from 7.9% in June, homeownership can be a great option to protect your cash. For comparison, data shared by business daily shows that home prices in Nairobi have increased the fastest in 11 years. The average house price in the city was up 10.5%.
Homeownership can be considered a hedge against inflation as housing costs are among the first things to be hit when prices of other basic necessities increase. Rent goes up, and demand for houses rises, and as a result, home prices go up.
Homeowners can avoid paying high rents when inflation is high and capitalise on increasing property value to build wealth passively. Inflation can, however, work against homeowners who took variable/adjustable mortgages as interest rates tend to rise with high inflation.
Homeowners can enjoy up to Ksh300,000 per year in mortgage interest deductions on the amount borrowed to purchase a property or for home improvement. To qualify for this, you must use your house for residential purposes only, and you took the loan from a financial institution specified by Kenya Revenue Authority.
New homeowners who buy homes through the Affordable Housing Scheme can also receive tax relief at 15% of their gross employment income. Buying through the scheme also exempts first-time homebuyers from paying stamp duty which can be up to 4% of the house’s value.
Home equity refers to the percentage of your property value that you own. If you bought your house in cash or built it without any loan, you have 100% equity. If you purchased through other options like an off-plan, mortgage, or took a construction loan, you own as much equity as the amount you have paid. You own 60% of the house's value (equity) if you've paid 60%.
Homeownership provides a path to build wealth passively as you gain equity; in the long run, your money doesn't go towards enriching a landlord. However, unless you unlock it, the funds tied to your house are considered dead capital.
You can sell the property or borrow against it to access that dead capital. You can open a line of credit, take a loan or refinance the house and use the money to invest in other income-generating vehicles. You can use the income you earn from this investment to repay the loan and build more wealth.
Even though it can take some time to liquidate this type of investment, homeownership provides a source of ready cash when you tap into your home equity by taking a loan or opening a credit line.
You should, however, only borrow what you are confident you can pay back. Defaulting can lead to repossession, foreclosure, and loss of your property.
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Appreciation refers to the value your home has gained in the real estate market. As demand for houses continues to rise countrywide, homeowners have seen their property appreciate to an all-time high. Coupled with a relatively stable market, this phenomenon has made homeownership one of Kenya's most lucrative long-term investment vehicles.
As the value of your home grows over time, so do your net worth and creditworthiness. You will qualify for higher loans, and if you ever decide to sell, you'll recoup your investments and make a handsome profit.
But to take advantage of this, ensure the house you buy or build is located in a prime area. Homes located in rural and inaccessible areas rarely appreciate. You should also do renovations often so that the house's value isn’t affected.
Other factors such as insecurity, urban blight, and deterioration of sewage and drainage in your area can affect your home's value. Always conduct a feasibly study before you settle on a location.
As you build equity and your house appreciates, your net worth will increase, but you won't pay any taxes. Homeowners are excluded from paying capital gain tax when
Potential homebuyers are also exempt from paying capital gains when buying a property they have occupied continuously for a period of three years prior to the transfer.
You should note that you will pay yearly property tax, known as land rates.
Homeownership has been hailed as one of the best ways to create generational wealth, with many families holding much of their wealth in their properties. Appreciation and exclusion from paying capital gain tax when passing property to immediate family members make homeownership an attractive piece in estate planning.
Homeownership also guarantees your dependants won't need to worry about housing in case you lose your source of income or you pass on since they'll have a permanent roof over their head.
With your income constrained in your pension years, you’ll be looking to save as much as possible. Homeownership can take the single most considerable expense from your budget: renting.
To take advantage of this, you will need to own 100% equity in your home. If you took a mortgage or other loans to finance your home purchase or construction, you would need to pay it off before retiring. This way, you won’t have to withdraw much from your monthly retirement fund.
Considering your kids will have grown and moved out, you can even choose to rent out an extra room or become an Airbnb host and generate additional income. This could help you attend to minor repairs and maintenance without spending from your pocket.
Homeownership has some definite advantages, but like with all other investments, it isn’t a route suitable for everyone. Before investing in homeownership, there are some factors you ought to consider.
You should first answer questions such as: does your career involve moving around every few years, how is the real estate market (is it cheaper to rent?), can you afford homeownership without drawing in debt, and what are your retirement goals?
Talking to your financial advisor might help you make sense of your finances and advise you if homeownership is a good investment strategy for you, the downsides, and which homeownership path you should take to accomplish your dream.
Homeownership comes with a lot of responsibilities; before taking this route, you should take time to understand its advantages and disadvantages and how it compares to renting.
Also Read: Renting or Homeownership: How Do You Decide?