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Good problem, please help!
Rank: Member Joined: 6/15/2010 Posts: 126
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Am wrote:tycho wrote:I have been wondering whether one can build a city through sharing, and giving.
How can one gain the whole world but lose his soul?
Is your soul contented? The problem is a symptom.
Otherwise the flow is flawless, doing without decision. To act without acting.
The way that is unatterable.
Have never Understood you an Inch. Neither me ..... what has this to do with the post "The trouble with not having a goal is that you can spend your life running up and down the field and never score". - Bill Copeland
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Rank: Member Joined: 12/21/2009 Posts: 602
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Wachaneni na Tycho....He or She is wazua's metaphysicist/ metaphysician or is it mystic? I enjoy how his posts pop-up unexpectedly....ni wetu! Wakanyugi: is your mortgage interest tax deductible? Edyj wrote:Am wrote:tycho wrote:I have been wondering whether one can build a city through sharing, and giving.
How can one gain the whole world but lose his soul?
Is your soul contented? The problem is a symptom.
Otherwise the flow is flawless, doing without decision. To act without acting.
The way that is unatterable.
Have never Understood you an Inch. Neither me ..... what has this to do with the post
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Rank: User Joined: 8/15/2013 Posts: 13,237 Location: Vacuum
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Wakanyugi wrote:Dear Wazuans,
I have what some would call a good problem, but it is still a problem and I hope you can help.
In a few months I expect to come into some Ksh 2M. I am debating whether to use the money to start constructing a rental project or to pay down an existing mortgage. Here are the facts:
1. The commercial project will cost Ksh 5M and will take about a year to finish, based on my cash flow projection. I’ll put up the balance from earnings, but I must pay off the mortgage first in order to do so.
2. If I go the route of paying down the mortgage it will be fully repaid in 8 months, freeing cash for the construction project. But this will delay the construction by more than one year.
3. I can’t do both activities at the same time as my cash flow doesn’t allow it.
4. The mortgage is overseas based, so the interest rate is not a big factor.
5. No, I do not wish to borrow or invest in another business.
What would you do if you were in my shoes?
Doing simple analysis,The latest finish time will be two years i.e if you pay down the mortgage first.Thus find the net cash flows for the first two years for each of the options and go with the optionwith the highest net cash inflows or lowest net cash outflows. If Obiero did it, Who Am I?
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Rank: Veteran Joined: 7/5/2010 Posts: 2,061 Location: Nairobi
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I think we are headed for a phase of heavy domestic borrowing by the gavmint... credit crunch etc etc, the interest rates might start reaching for the sky..so two scenarios, banks fiddle with mortgage interest rates and debt becomes expensive. Are you borrowing to finance your project? Which one leaves a smaller hole in your pocket?
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Rank: Veteran Joined: 2/3/2010 Posts: 1,797 Location: Kenya
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Wakanyugi wrote:Dear Wazuans,
I have what some would call a good problem, but it is still a problem and I hope you can help.
In a few months I expect to come into some Ksh 2M. I am debating whether to use the money to start constructing a rental project or to pay down an existing mortgage. Here are the facts:
1. The commercial project will cost Ksh 5M and will take about a year to finish, based on my cash flow projection. I’ll put up the balance from earnings, but I must pay off the mortgage first in order to do so.
2. If I go the route of paying down the mortgage it will be fully repaid in 8 months, freeing cash for the construction project. But this will delay the construction by more than one year.
3. I can’t do both activities at the same time as my cash flow doesn’t allow it.
4. The mortgage is overseas based, so the interest rate is not a big factor.
5. No, I do not wish to borrow or invest in another business.
What would you do if you were in my shoes?
if the mortgage interest is not an issue then construct immediately. let OPM work for you I may be wrong..but then I could be right
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Rank: Veteran Joined: 7/3/2007 Posts: 1,635
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Dear All, I want to thank you all again for your good advice. Here is what I have decided to do: I will pay off the mortgage, as some of you have suggested. This means I postpone the construction project start date by at least one year. Here are the reasons, many drawn from your good advice: 1. Although I will be forgoing rental income, finishing off the mortgage early shields me from the unknown. 2. There is also the satisfaction of completing one thing before starting another. And the ‘feel-good’ factor of paying off a mortgage early is not to be disdained. 3. If I started construction now, I would have to interrupt the project midway when money runs out. This might end up costing me more in the end in terms of wear due to the elements, price changes and having to assemble a new work team (plus the time value, which I think I understand now). I feel it is better to start when I have a chance of finishing without too much interruption. 4. Finally - regarding that unknown. I have just been informed that my variable mortgage rate is about to go up (I know I said interest rate was not a factor, I was wrong). Thank you once again. Wazua should charge an entry fee. This advice alone is worth a goat or two. Please remind when the next one is due. "The opposite of a correct statement is a false statement. But the opposite of a profound truth may well be another profound truth." (Niels Bohr)
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Rank: Elder Joined: 3/29/2011 Posts: 2,242
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@Wakanyugi, Great you have benefited from the forum. Remember the best things in life come for free except(Ujinga). Freely you have received, freely give it to others. "Things that matter most must never be at the mercy of things that matter least." Goethe
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Rank: Elder Joined: 2/16/2007 Posts: 2,114
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@Wakanyugi,
Out of curiosity,how did you manage to get the
overseas based mortgage?
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Rank: Elder Joined: 9/15/2006 Posts: 3,907
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Aisshh, @Wakanyugi I missed your feedback/queries on this thread but you indeed made the most secure long term decision.For the sake of posterity though, variables in your case were interest rate, and time of construction/getting a tenant. Variables are unknowns, and the first already reared its ugly head. The 2 million in 24 months would have earned: a) For Investment: 400k with 2m principal, no house, salary paying mortgage b) For Build: 240k, new house, salary paying mortgage for year 2 c) For Pay-Off: 0k, new house, salary free Wisdom"Suppose one of you wants to build a tower. Will he not first sit down and estimate the cost to see if he has enough money to complete it? For if he lays the foundation and is not able to finish it, everyone who sees it will ridicule him, saying, 'This fellow began to build and was not able to finish.' Luke 14 Wakanyugi wrote:muganda wrote:I'd think this is a case of good debt. Hence it makes sense to do the construction right away.
The issue is to realise that construction is not an end in itself so you need a definite timeframe (just as in the case of the mortgage) for concluding constructing and obtaining rental income.
If time to conclude construction and obtain rent is stretched more than 1.5 years for example, time value of money is lost, so it may be better to pay off the mortgage instead. Likewise, if your true motivation is land appreciation rather than enterprise.
Good advice, thanks a lot Muganda. I didn't quite get this: "If time to conclude construction and obtain rent is stretched more than 1.5 years for example, time value of money is lost, so it may be better to pay off the mortgage instead."Secondly, is there an easy to use formula for estimating time value of money in a situation like this? (I am estimating a rental income of 30K pm after 12 months. The cost of not paying off the mortgage for 12 months is aprox 120K ).
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Rank: Elder Joined: 7/11/2012 Posts: 5,222
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muganda wrote:Wisdom
"Suppose one of you wants to build a tower. Will he not first sit down and estimate the cost to see if he has enough money to complete it? For if he lays the foundation and is not able to finish it, everyone who sees it will ridicule him, saying, 'This fellow began to build and was not able to finish.' Luke 14
@Mugunda, wise words right there! It always amazes me that the Bible has all the answers to all the questions we can ever have. A life manual.
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