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Is Taking a Mortgage the WORST Decision Ever??
Rank: New-farer Joined: 5/7/2014 Posts: 40
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MaichBlack wrote:knight026 wrote:MaichBlack wrote:What's more @knight026 even with a modest return of 16% p.a. you still end up with 172 million!!! Or a 20 year old house
=FV(16%/12,20*12,-100000,0,0)
"Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it."
― Albert Einstein I quoted Kiwaru numbers, at an average of 15% return for real estate, the numbers remain the same. Your assumption is that the person paying the mortgage will just sit in the house he bought, and not sale it even though he knows that its worth more than Ksh 160M Are you kidding me??? Can you kindly illustrate how you get 15% returns from a house you bought on mortgage. Not possible. Not at all. Even if you rent it out, the rent cannot cover the mortgage so we are definitely talking about NEGATIVE returns! And kindly explain how the house worth 10m just became worth 60m - numbers please. And remember the discussion here is about mortgage. The value of the house is independent of how you financed it, mortgage or not. If we say that Real Estate property value will increase by 15% over time, then the value of the 10m house will be ~200m in 20 years: =FV((15%/12),20*12,0,-10000000) And since we know from your earlier calculation that the total mortgage payment will be ~31m, I will end up with ~170m of value at the end of the 20 years.
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Rank: Elder Joined: 7/22/2009 Posts: 7,910
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KenyanEconomist wrote:The value of the house is independent of how you financed it, mortgage or not. If we say that Real Estate property value will increase by 15% over time, then the value of the 10m house will be ~200m in 20 years:
=FV((15%/12),20*12,0,-10000000)
And since we know from your earlier calculation that the total mortgage payment will be ~31m, I will end up with ~170m of value at the end of the 20 years.
The value of a house [especially at current] cannot increase by 15% p.a. over a period of time. Land, yes if you get in early in a place that is just opening up. But not a 10m house! You need data to prove the 15% not "if we say...". We can say a lot of things! How much was the price of a house in Buruburu (for example) in the year 2000? How much is the same house going for now? Do the math. Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Elder Joined: 2/26/2012 Posts: 15,980
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MaichBlack wrote:KenyanEconomist wrote:The value of the house is independent of how you financed it, mortgage or not. If we say that Real Estate property value will increase by 15% over time, then the value of the 10m house will be ~200m in 20 years:
=FV((15%/12),20*12,0,-10000000)
And since we know from your earlier calculation that the total mortgage payment will be ~31m, I will end up with ~170m of value at the end of the 20 years.
The value of a house [especially at current] cannot increase by 15% p.a. over a period of time. Land, yes if you get in early in a place that is just opening up. But not a 10m house! You need data to prove the 15% not "if we say...". We can say a lot of things! How much was the price of a house in Buruburu (for example) in the year 2000? How much is the same house going for now? Do the math. Kwani that house is on the air or water? Any land that has been developed ie with water and sewer line in place even if the hse on it is run down is worth more than land with no infrastructure in place(access to roads etc). I recommend you search for a thread by Gordon Gecko*sp here on wazua, this topic was discussed then "There are only two emotions in the market, hope & fear. The problem is you hope when you should fear & fear when you should hope: - Jesse Livermore
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Rank: Elder Joined: 6/17/2008 Posts: 23,365 Location: Nairobi
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MaichBlack wrote:KenyanEconomist wrote:The value of the house is independent of how you financed it, mortgage or not. If we say that Real Estate property value will increase by 15% over time, then the value of the 10m house will be ~200m in 20 years:
=FV((15%/12),20*12,0,-10000000)
And since we know from your earlier calculation that the total mortgage payment will be ~31m, I will end up with ~170m of value at the end of the 20 years.
The value of a house [especially at current] cannot increase by 15% p.a. over a period of time. Land, yes if you get in early in a place that is just opening up. But not a 10m house! You need data to prove the 15% not "if we say...". We can say a lot of things! How much was the price of a house in Buruburu (for example) in the year 2000? How much is the same house going for now? Do the math. Highrise Mabagathi Way for a two bedroomed house: 1991 - Kes 700,000 2014 - Kes 3,500,000 15% pa ni ngumu kupata!!!! ..."Wewe ni mtu mdogo sana....na mwenye amekuandika pia ni mtu mdogo sana!".
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Rank: Veteran Joined: 2/3/2012 Posts: 1,317
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HassConsult research claims mortgage payments are twice as expensive as rents.
@Maich'Muiru' hebu do the comparison of the same between HFCK mortgage of 14% vs NSE 16% returns vs Faulu FD 9.5% pa.
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Rank: Veteran Joined: 11/2/2006 Posts: 1,206 Location: Nairobi
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@McReggae thanks for that.We need to know...what was the price of a house say 5-10yrs ago & the location Vs the current price?Anyone?Various locations? This will help us see whether a house can go up by 15% per year. Formally employed people often live their employers' dream & forget about their own.
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Rank: Veteran Joined: 2/3/2012 Posts: 1,317
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A mortgage financed house is a loss at current rates even when rented out. "The breakeven rate to create mortgage payments on a par with rentals is 4.7%." - Hass Consult Link
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Rank: Elder Joined: 7/22/2009 Posts: 7,910
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murchr wrote:MaichBlack wrote:KenyanEconomist wrote:The value of the house is independent of how you financed it, mortgage or not. If we say that Real Estate property value will increase by 15% over time, then the value of the 10m house will be ~200m in 20 years:
=FV((15%/12),20*12,0,-10000000)
And since we know from your earlier calculation that the total mortgage payment will be ~31m, I will end up with ~170m of value at the end of the 20 years.
The value of a house [especially at current] cannot increase by 15% p.a. over a period of time. Land, yes if you get in early in a place that is just opening up. But not a 10m house! You need data to prove the 15% not "if we say...". We can say a lot of things! How much was the price of a house in Buruburu (for example) in the year 2000? How much is the same house going for now? Do the math. Kwani that house is on the air or water? Any land that has been developed ie with water and sewer line in place even if the hse on it is run down is worth more than land with no infrastructure in place(access to roads etc). I recommend you search for a thread by Gordon Gecko*sp here on wazua, this topic was discussed then have you seen the houses guys are buying at 10m+ Huko 5th floor. Divide the total land area by the number of units and see how much land you can lay claim to! Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Elder Joined: 6/17/2008 Posts: 23,365 Location: Nairobi
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bird_man wrote:@McReggae thanks for that.We need to know...what was the price of a house say 5-10yrs ago & the location Vs the current price?Anyone?Various locations?
This will help us see whether a house can go up by 15% per year. I think Venom estate almost cracks it: 2004: 4.5M 2014: 16-18M!!!! ..."Wewe ni mtu mdogo sana....na mwenye amekuandika pia ni mtu mdogo sana!".
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Rank: Member Joined: 8/5/2011 Posts: 125
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a house is not an asset (fact - in fact when calculating net worth, you are asked not to include the value of your house). This statement applies to birrionaires like Kirubi... pent house Int'l hse, anyone???
For most Kenyans, rent is a real and an escalating cost, that contributes to inflation time and again. Families cannot live on trees. Of course residential houses have levels, kulingana na size ya bollingo!!!
so either...
1) GET A HOUSE, ELIMINATE THAT COST or
2) GET AN ALTERNATIVE INVESTMENT that for the rest of your life will cater for that escalating cost or buy you a house.
Am getting me a house...
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Is Taking a Mortgage the WORST Decision Ever??
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