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Renting vs. Buying
Rank: Veteran Joined: 6/2/2010 Posts: 1,066
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I have done my math and it points to the fact that if one is disciplined enough to invest each month in the stock market the equivalent of what they would pay in mortgage; they would eventually come out ahead. Let me illustrate. Sam and Tim both have the ability to invest Kshs 50,000 per month. Sam takes out a morgage which eats into the entire Kshs. 50,000 each month. Tim invests Kshs 30,000 each month without fail and rents for Kshs. 20,000. With Real Estate appreciating only single digit figures over the longterm whereas stocks appreciate by double figures. I can bet you that if Tim remains disciplined, he will own stocks worth much more than Tim's house in the long term. My 2 cents attached the following image(s):  buyrent.jpg (6kb) downloaded 7 time(s).
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Rank: Member Joined: 4/14/2010 Posts: 806 Location: Nairobi
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Tim's rent will keep increasing and reduce his investing surplus...so he will have less to invest over the years.
Also Tim's stocks will be subject to bulls and bears and 'Timing' of profit taking and entry/exit will be important to preserve/maximise his capital gains. This may require some skills.
Anyways...this reminds me of a thread on which is better: real estate or stocks?
of late the number of threads on real estate is starting to rival those on stocks.
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Rank: Elder Joined: 9/12/2006 Posts: 1,554
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My 2 cents wrote:I have done my math and it points to the fact that if one is disciplined enough to invest each month in the stock market the equivalent of what they would pay in mortgage; they would eventually come out ahead.
Let me illustrate.
Sam and Tim both have the ability to invest Kshs 50,000 per month.
Sam takes out a morgage which eats into the entire Kshs. 50,000 each month.
Tim invests Kshs 30,000 each month without fail and rents for Kshs. 20,000.
With Real Estate appreciating only single digit figures over the longterm whereas stocks appreciate by double figures. I can bet you that if Tim remains disciplined, he will own stocks worth much more than Tim's house in the long term. if both were on cash basis investing cash at the stock exchange and investing on house, i believe Sam would have been better off, but on the current senerio Tim is better off
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Rank: Elder Joined: 5/24/2007 Posts: 1,805
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It is very difficult for Tim to catch up with Sam while investing just about half of what Tim is doing. This would only work if the Bourse is giving three times returns above the growth of real estate consistently. In Kenya, believe it or not, the value of housing seems to double every four years or so; consistently especially if bought off plan or constructed. I do not see your theory holding especially if Sam got a property that was very well located. On the other hand, have you considered that the mortgage has an 'invisible' income of the rent due on it? I Think Therefore I Am
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Rank: Elder Joined: 6/23/2009 Posts: 13,497 Location: nairobi
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imo.. renting also has medical factors such as stress which will have to be accounted for! in addition, if there is a family involved, financial security will need to be considered, as stock volatility is for individuals to bear, not an entire family!
HF 30,000 ABP 3.49; KQ 414,100 ABP 7.92; MTN 23,800 ABP 6.45
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Rank: Elder Joined: 6/27/2008 Posts: 4,114
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My 2 cents wrote:....Sam and Tim both have the ability to invest Kshs 50,000 per month.
Sam takes out a morgage which eats into the entire Kshs. 50,000 each month.
Tim invests Kshs 30,000 each month without fail and rents for Kshs. 20,000.
With Real Estate appreciating only single digit figures over the longterm whereas stocks appreciate by double figures. I can bet you that if Tim remains disciplined, he will own stocks worth much more than Tim's house in the long term. Which stocks is Tim investing in? Would he have been savvy enough to buy ARM @ sh4.53 and EACBLS @ sh0.69 in year 2000 and cash out at sh156 and sh18.50 today? Hindsight is such a good thing... What if he had picked Kenol & Uchumi? Oops!!! Nothing is real unless it can be named; nothing has value unless it can be sold; money is worthless unless you spend it.
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Rank: Elder Joined: 6/19/2008 Posts: 4,268
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consider the risks of investment too.
consider time of entry into the market. Houses that were going for 6m in kilimani/kileleshwa etc areas is now worth more than double that right now..... not sure if Shares would have given that return considering 360k investment every year.
For an 8% rise in value of house you will require roughly a 13.33% rise in your share value....
In some instances, when you want to pull out of the market, you might find it easier pulling out of the real estate market than in shares. Let me explain.... though it may take some months, in the current market, you can still find someone to buy your house, and a higher value than you bought it.... you can even decide to rent it out and move to a cheaper house if need be.... with the shares, if you invested in AK @35, you can only burn your fingers by pulling out if there was no averaging down... and even with averaging, you could just recoup the capital if the market is not bullish enough...
Well, i bet there are many factors to consider for both markets. Stocks have their positive side too.
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Rank: Veteran Joined: 5/23/2010 Posts: 868 Location: La Islas Galápagos
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You need to make this comparable by making Tim live in Sam's house. If the rent Tim pays Sam is lower than the monthly interest accruing to Sam for the mortgage, then Tim is better off. In reality, Tim will always be better if the mortgage market is overheated and worse off if the houses are fairly priced. I have given the case of buy-live A bad day fishing is better than a good day at work
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Rank: Elder Joined: 9/15/2006 Posts: 3,905
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I personally just can't get enough of this issue - always turning in my mind. Just a quick reference to when it last came up... Do our perspectives change with time? Jun16, 2010 SHARES versus REAL ESTATEApr06, 2010 Best long run investment
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Rank: Member Joined: 3/17/2008 Posts: 567 Location: Nairobi
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The fallacy that makes investing in the stock exchange look good is that youre not comparing like with like. Housing has intrinsic leverage.
Example
In 2 yrs the NSE investor has put in 720k assuming it even does 100% in 2 years you have made 720k profit. (actually much more than 100% as not all is invested at the start)
Return = 100% or even 150% or so
On the other hand Assuming 10% down on a 10M house and a 25% growth p.a. In 2years the house will be worth at least 15M. 5M Profit. The cash put in is the 1M deposit and 20k per month (difference between the morgage payment and the rent he would pay if no mortguage).
Net Profit 5M (house increase in value) less 480k effective mortguage. = 4.52
Return over 2 years = 4.52M/1M = 452%
Ofcourse there are all these assuptions but the house there is significant leverage that make it much much more lucrative.
Those who convince themselves that stocks are better that houses are escapists who dont want to stress themselves in the hassnes needed.
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Rank: Veteran Joined: 6/2/2010 Posts: 1,066
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@ Pablo, I actually bought property in 2005 for 8M. market price is know about 13/14M. So ia have made annualised retuns of about 10 -12% on the property. At the same time I have been buying stocks, and bought quite a lot last year when the market was down. the stocks I bought last years (all combined) are already at 70% gain.
So I am not just talking theory. I have real experience. Though i have necer ever regretted buying the property; it havs saved me rent for 5 years. I still sometimes wish I had sold it last year to buy even more stocks.
Now if my own experience above favours stocks despite the fact that my property was not leveraged at all; imagine what the comparison would be like if I had use leverage of about 14% p.a for the property. Stocks would have won ten times over......
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Rank: Elder Joined: 6/20/2007 Posts: 2,037 Location: Lagos, Nigeria
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@All, If you say stocks is the best then you are wrong If you say land is the best then you are wrong If you say mixture of stocks and real estate then that is balanced and fair.Real State Look beyond plots, think of developing your land for rent to sell at a premium. Buy dipilated building renovate rent to appreciate and sell at a premium. Stocks Look at money and capital market in general. So split your investment into savings (Ksh / forex), bonds, fixed deposit, treasury bills. It is also good if you can also invest in other markets, to leverage your risk. My local bourse (Nigerian Stock Exchange is current in a basic mess. Beyong global conomic meltdown first scandal in the financial sector , second allegation of fraud and consequent removal of the CEO of Nigerian Stock Exchange. Those that depended on Nigerian bourse for years are in big trouble. Handful of us that diversified to other markets are luckier as the impact is minimal. Just as you should not be married to a particular counter, 21st century equity investor should not be married to a particular stock exchange. Things are changing we need to change with the changing times.The wazua spirit as members is to educate and inform and learn from others within the limit of what we know in any chosen area irrespective of our differences in tribes, nationalities, etc. .
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Rank: Veteran Joined: 7/8/2008 Posts: 947
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This issue has been discussed for years to add to the list Am tired of paying rentHas interesting insight from tusker baridi.
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Rank: Veteran Joined: 7/8/2008 Posts: 947
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young wrote:Have decided to diversify . I am considering :-
Stocks 60%
Property 40%
As usual I am digging deep to learn the nitty gritty of property investment and my horizon is African countries. Have pencilled down Nigeria (my country),Ghana and Uganda.
Nigeria Charity begins at home,is a familiar terrain
Ghana Imminent Economic Boom due to new oil discovery
Uganda Small Land Locked East African Country to watch in the future,petroleum producer in 2010. Good Economic growth propspects.
This purely my opinion.
AFRICAN INVESTOR I have been digging through the very resourceful SK archives and i found this post written Sunday, April 26, 2009 5:53:00 PM and was titled What Have You Learnt From Global Stocks Slide? I have a few question which I would be glad if you entertained them. Have you succeeded in your diversification? Have you diversified your property into Naija, Uganda and Kenya. Out of curiosity is your "amazing" mutual fund manager still performing as well as he was 2-3 years ago?
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Rank: Elder Joined: 6/20/2007 Posts: 2,037 Location: Lagos, Nigeria
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@Tony Stark, I believe you mean diversification instead of 100% stocks to real estate. I will tell you a capital YES is the success story so far. Where ? Strictly titled plots in Nigeria and neighbouring Ghana because of Proximity. In Nigeria two cities Lagos (the former capital ) and Abuja (the current Capital). In Ghana Accra (the capital city) and Tema (the Port City). GHANA www.redrowghana.comwww.falconcrestghana.comBecause of limited funds I am into buying serviced plots at the moment hoping to develop or sale them in future. I always pick up installmental payment plans. A good flash is suncity marketed by www.falconcrestghana.com at an offer price of USD 10,000 in 2009 (3 years payment plan) now goes for USD30,000 for new subscribers. I only acquired a plot for holiday home in Kampala ie Kakungulu Satelite City marketed by www.akright.biz, and they will build our small bungalow for us (installmental plan) in years ahead. I have been priced out of Kenya, you understand what I mean. The wazua spirit as members is to educate and inform and learn from others within the limit of what we know in any chosen area irrespective of our differences in tribes, nationalities, etc. .
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Rank: Elder Joined: 6/20/2007 Posts: 2,037 Location: Lagos, Nigeria
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@ tony STARK ON MANAGED FUNDS My Ghana Accra managed fund managers Databank Group are still superb. I first invested in this product called EPACK (95% on equities in 11 African Countries) I have also diversified into their other products MFUND (100% money market in Ghana) BFUND (50% Equities in Afri countries , 50% Money market) www.databankgroup.comBe aware they are about to unvail the new site but the old site wite with full info is still available. The wazua spirit as members is to educate and inform and learn from others within the limit of what we know in any chosen area irrespective of our differences in tribes, nationalities, etc. .
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Rank: Veteran Joined: 7/8/2008 Posts: 947
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Asante sana for the insightful posts!!
Cheers
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Rank: Elder Joined: 6/20/2007 Posts: 2,037 Location: Lagos, Nigeria
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AN EXTRACT FROM MY POST IN 2009 RELEVANT TO THIS
TOPICStock investment is my No1 but it is extremely perfect to back up with Real Estate. The most difficult thing with real estate especially in Africa is the fear of being conned especially if you are overseas,also the huge amount of Capital involved. But I have discovered that for a salary earner like me I can still decipher a reliable way to start small without being conned even without having huge capital. To avoid being conned you have to see what you want to buy (by travelling there) and you must conduct due diligence to establish the authenticity of the land or house to buy. More importantly buy a house or serviced plot from a planned estate and don't cut corners (pay the right legal fees / commission) and follow due diligence The wazua spirit as members is to educate and inform and learn from others within the limit of what we know in any chosen area irrespective of our differences in tribes, nationalities, etc. .
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Rank: Elder Joined: 6/23/2009 Posts: 13,497 Location: nairobi
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this may be slightly off topic, but would it be advisable to own a car while renting a house? iv been considering this for some weeks but im in doubt of the appropriate financial decision..
HF 30,000 ABP 3.49; KQ 414,100 ABP 7.92; MTN 23,800 ABP 6.45
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Rank: New-farer Joined: 6/18/2010 Posts: 95
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mukiha wrote:My 2 cents wrote:....Sam and Tim both have the ability to invest Kshs 50,000 per month.
Sam takes out a morgage which eats into the entire Kshs. 50,000 each month.
Tim invests Kshs 30,000 each month without fail and rents for Kshs. 20,000.
With Real Estate appreciating only single digit figures over the longterm whereas stocks appreciate by double figures. I can bet you that if Tim remains disciplined, he will own stocks worth much more than Tim's house in the long term. Which stocks is Tim investing in? Would he have been savvy enough to buy ARM @ sh4.53 and EACBLS @ sh0.69 in year 2000 and cash out at sh156 and sh18.50 today? Hindsight is such a good thing... What if he had picked Kenol & Uchumi? Oops!!! You are right on the mark. In 2001 I invested in KQ which gained value and at the same time invested in Uchumi which lost all value. Buying into the stock market is gambling, too many unknowns. Anyway, buying a prebuilt home in Kenya right now is not wise since those houses are overvalued. We saw this cycle in the states. It lasted a decade and the market painfully corrected leaving many with mortgages more expensive than the value of the houses being serviced. Best investment is government backed securities. Slow secure growth with minimal risk.
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