For years, it has been an inherent human desire to own a home - to date. Many often feel that it is one of life’s greatest accomplishments.
However, over the past two decades - there has been a growing debate on whether owning a home should be a great life accomplishment. A new school of thought has described home ownership as a liability.
Perhaps the most famous voice among those who describe home ownership as a liability rather than an asset is Robert Kiyosaki in his classic - Rich Dad Poor Dad. If you passed through the local education system, you must have come across this popular book in one of your libraries.
Kiyosaki’s view is that a personal residence only becomes an asset when you decide to sell it - otherwise, it remains a liability - taking money from you. He favours investing instead in creative business ideas that create an extra income, which he says can then give you the freedom to live anywhere.
The Kiyosaki school of thought is becoming a topic of discussion - especially among millennials and the subsequent generations who are more liberal. Some of the reasons cited are the high cost of real estate in Kenya, which some people feel makes renting cheaper than buying a house.
Regardless of your persuasion, here are important factors to consider when deciding whether to buy or rent:
Housing, like most other things in life, requires you to cut your piece according to your cloth. Personal finances will have a great role in deciding on whether to rent or own. It is advisable that you do some mathematics before committing. Renting a house often requires a few months' rental deposits and monthly payments to your landlord.
A common misconception is that owning a home means living off without the stress of monthly payments. However, depending on the type of home you wish to own, there may be regular payments that come with it.
As a homeowner, the house maintenance costs will be your responsibility. If you are taking a loan or mortgage, the cost of servicing the loan is also upon you. In some instances, the financier may require a down payment before approving your credit.
Some houses, such as apartments and gated communities, will also come with monthly service charges.
The personal financial considerations highlighted above may play out differently if, for example, you have access to below-market-rate financing for your dream home or you are able to finance home ownership without taking credit.
Read Also: The Hidden Costs of Homeownership in Kenya
Many Kenyans are interested in buying real estate but can only afford property in satellite areas where they feel their desired quality of life is compromised.
Consider the case of Alex - a mid-level corporate executive at a firm located in Westlands. He worked hard to buy a piece of land in Kiserian where he built a six-bedroom mansion and relocated from his rented two-bedroom apartment in Westlands.
In the first weeks, he was excited about living in his own home but soon got concerned by the changes he had to make in his new abode. While he would traditionally wake up and be in the office within ten minutes, he was forced to leave home at least three hours ahead of his usual time to cater for traffic and the longer distance.
In the evening, he would leave his office at 5pm and be home within 20 minutes - to assist his daughter with homework. Moving to Kiserian meant he had to leave work at his usual time but get home well past eight - barely minutes before his daughter’s bed time.
Alex eventually opted to rent out his mansion and relocated to a rented apartment near his workplace. He remains a property owner even though he lives in a rented apartment, and the rental income is higher than his residential home’s rent – leaving him with some property income.
Read Also: The 9 Routes to Owning a Home In Kenya
If you are unsure on whether to rent to buy, you may consider the opportunity cost with either choice.
Opportunity cost refers to the value you give up to have something else. In other words what else could you do with the money if you opted to make a different choice?
For example, imagine you are an entrepreneur who has just made some significant cash in your first successful startup. You are unsure whether to reinvest the money for future growth or use it to buy yourself a home. This dilemma could be resolved if you calculate the opportunity cost.
In this case, if you were to invest the cash back into the business, what would be the value of the investment in x number of years (after subtracting the cost of renting the same home)?
Compare it to the value of your house in the same x number of years (after subtracting the costs associated with home ownership).
Read Also: Value for Money: What Does it Really Mean?
Timing is critical in real estate and an important consideration in the decision to own or rent. Do you intend to relocate anytime soon? Are the rental prices likely to fall or hike anytime soon? How much time do you intend to utilize the house? These are important questions that you should answer before deciding whether to rent or own.
A renowned scholar on entrepreneurship, Dr Bitange Ndemo, awakened a national debate after penning an article that argued most middle-class Kenyans had invested dead capital in the form of palatial rural homes where they only spend a few days a year. Indeed, in some Kenyan societies, a man is not considered a complete man unless he has built a house in his ancestral home.
Ndemo’s thesis was that the decision to build a home upcountry is primarily cultural with little economic logic. There is nothing wrong with spending being driven by your cultural values. However, you would probably want to weigh how much you would be willing to spend on a culture-driven home – considering your plans on where you intend to spend most of your time.
The same consideration would perhaps also apply to urban dwellers who build mega homes as they head to retirement – even though they plan to retire elsewhere.
Housing is a basic human need – whether you live in your own home or rent one. There is no universal wisdom when it comes to a decision whether to rent or own a home. However, certain factors apply to different people in different contexts.
The most important thing is to strike a match between your personal desires and your financial position. The right balance will give you the financial freedom to unlock practical options to improve your life.