Sample this :-

INVESTOR A

Investor iNNOCENT bought a good investment plot 5 years ago for 300K bob, followed due process changed the title to his/ her name, commenced building shortly after by combination of mortgage and savings, finished the building 4 years after. He is a happy person because his plot (not house) is worth 3m Ksh and the 4 bedroom mansionette house is worth Ksh 14M at the going rate.

INVESTOR B
Investor DADA bought 3 of the investment plot same location 5 years ago for Ksh 900K at the same rate of 300K per plot.
Thereafter Dada perfected the titles, went to sleep, that is did not embark on any physical development for 4 years. On the 5th year, DADA sold two of the plots for 6 Million (the going price) and immediately use the 6 million bob to develop the third plot also a 4 bedroom mansionate whose market price is 14M Ksh.

QUESTION Who is wiser, the struggling INNOCENT or the smart DADA ?

The interesting thing is that DADA has been able to multiply his 900K 5 years ago to 14M while INNOCENT is bstill paying his/her mortgage loan.

This is the beauty of multiple investment plots.

Just an illustration

Very nice.

I need more info though to determine who's smarter here.

What was Dada's rent (for the 4 years waiting for the plot to appreciate + construction period)

And why did this Innocent chap take 4 years to build ? poor use of his mortgage

alot of assumptions here. what if the plots were worth 1m after the 5 years? do the math. but i generally agree with youngs principles

Holding all factors constant, I'm not sure who of the two is in a better position. Consider the below scenario.
3 years ago we bought some plots with my pal in the same vicinity. He bought one and started putting up self contained bedsitters within six months (with a slab on top). I bought two and later added another which was to be paid in six month installments.
Fast forward. Today he has 36 bedsitters on 3 floors, and a few other plots. I have continued buying a few plots here and there. The plots have since doubled in price but his idea seems to have worked better so far.
He can afford to buy a plot every 2 months from his rent only whereas I'm still on my salo. I only stand to benefit once I sell my plots. I hate to imagine what would happen if I lost my job suddenly and took time to find an equally good one.
So young, I think dada beats innocent in your scenario. But had innocent played his cards better then it would be a different ball game. 4 years to build on a mortgage is not prudent.
And it makes better sense to build rentals rather than a family house especially if you stay in a fairly cheap house (or upcountry). As someone else stated, "if you own a landrover, landcruiser and you are not a landlord then you need to check your priorities again"

@ young

i think innocent is smarter...why?

assuming innocent just borrowed enough to build the house and assuming that by the time he/she completed the house he owed nobody any monies, then this is the scenario....

by the start of the 5th year innocent's investment is worth 17m...any other income after that is purely disposable for him/her...innocent can invest in another plot..

by the start of the 5th year dada has the plot and 6m making it 9m in total...innocent is far ahead by 8m! next...although dada has 6m for construction, by the time he finishes the house he/she will have spent 30-40% more than innocent due to building materials cost increments and general inflation...

by the time dada finishes his/her construction probably innocent would have acquired more plots...

I think they are alot of assumptions here..i Honestly dont think the price rally of land will continue to sky rocket..we have probably a few more years left, also factor in the devalution of Kes and Incremental cost of construction...

Hybrid of both strategies is optimal when generating wealth...BTW owning multiple plots doesnt make you wealthy..it makes have a decent assest column...Income is Key!!!

Despite the many assumptions, i think in kenyan scenarios, Dada may be ahead of Innocent. Why?

Thinking that you can repay a mortgage in 6 years in kenya is a dream to many.... you will have to have an income good enough that you might not even need a mortgage in the first place. Last month, i enquired on a mortgage for a 4.2m house(inclusive of the plot - of course ). One would need to pay 59k monthly for 15 years. What is the average rent in the area? Kshs17k! Well, ask yourself, how many people will afford to be paying that with this sort of return on investment? And this, is actually the cheapest you can find of houses 35km radius from the city. Make that a repayment of 6 years and you will realise it is not realistic for many.

I doubt you can argue that innocent is saving on rent while dada is paying rent because then you have failed to factor in his opportunity cost of living in the house and foregoing the rental income.....(i would think you need to factor this in prudent accounting of your assets)...

ooooops, really? Then we need to just shut up and stop complaining....

Well, my argument is, if i can stay in a rented for say even 20k per month, I can do alot with 39k every month for the next 15 years and that is assuming any income increments just go to offset inflation effects in the economy....

In 2006 A colleague and I both obtained bank loans. My colleage bought 12 acres in Nyanza where he has been planting millet. He tried to convince me on that business line, but I bought 1/2 acre for 800K in Ronga. I have finished the loan and now I want to sell off 1/4 acre and build a house. My buddy has consistently made KES 0.96M every year...I feel jealous!!

I think so too. Maybe investor A could not afford 900K to buy the 3 plots but I agree this strategy of subdividing and selling to realise the goal of building a home has always made sense.