Why you need to own a home now

Why you need to own a home now

As the New Year approaches, many people will be jotting down resolutions in a bid to transform their lives for the better. If you are tired of dealing with cantankerous landlords and paying rent, owning your own home in the near future has perhaps made it near the top of your resolution for 2017.

“It should make a lot of sense that those in the middle class in Kenya are rushing to either build or buy their own homes as instead of renting,” says Ms Joy Kagika, a personal finance coach and real estate tax consultant based in Thika.

She says when you pay rent, the money only lines the pockets of your landlord, while you have nothing to show for it come the beginning of the next month.

“If one were to commit the money they pay as rent to building a home or repaying a mortgage, they would save more money in the long run as they would be buying a solid, long-term investment for the future,” she adds.

“The value of a home always appreciates, and the appreciation rates are bound to continue being usurious for the next couple of years in Kenya,” she asserts while assuaging fears of an eminent burst of the country’s perceived real estate bubble. “If one were to take a bank loan to build a house today, the price of that house would be several times higher by the time they finish repaying the loan. The individual can then choose to put the house back on the market, cash in their profit, and get another loan to develop another house.”

Ms Kagika says that apart from financial gains, there are many reasons why owning a home makes so many people happy. She says communities usually develop more as the number of people owning homes in an  area rises. As home owners develop interpersonal relationships with their neighbours, they invest more in the community and thus campaign for reliable support systems such as access roads, parks and better security in the neighbourhood.

FINANCIAL BURDEN

If you’ve been looking to boost your self-esteem, then owning a home by the end of 2017 will go a long way in elevating your personal image. Ms Kagika says: “In many instances I advise couples on financial issues for several years. I have noticed that once a couple has acquired a place to call home, their sense of pride increases, making them more confident and ready to take on investments that they would have previously considered too risky.”

“Besides, when you finally put your name on that title deed, you have something that you can pass on to your kids as inheritance,” the finance adviser says.

However, do not expect saying goodbye to your landlord to be a walk in the park. Owning a home is a decision that will see you and your family make a lot of sacrifices along the way. Buying or building your home often turns out to be the biggest financial decision that many people make in their lifetimes. You will need to think about aspects such as how to raise the necessary capital, whether to buy or build, and the location of your home.

Even if you can get money and afford to buy a large house, can you really afford to keep it in the long run? Budget for house maintenance costs such as repairs, furniture, insurance, security and land rates.

“I have learnt that the biggest cause of arguments between couples is often about how money is handled. So, when deciding how to contribute to your shared dream of owning a home, each one of you should be ready to compromise for the sake of harmony,” she says.

While sorting out your finances, take a good look at your combined debt and look for ways of reducing, if not or eliminating  them altogether. Ensure that you begin on a solid financial foundation by settlling all your debts such as previous car loans  and study loans. This, Ms Kagika points out, will go a long way in improving your credit score should you require financing to build or buy your home.

“Potential home buyers and mortgage seekers should understand how lenders access their credit history,” says Ms Kagika. “Banks in Kenya always consult with credit reference bureaus to assess an individual’s credit history before deciding whether to give them a loan or not. Your credit record also plays a big part in determining the amount of interest you pay on the credit advanced.”

Notably, this year the President signed into law a constitutional amendment that places a limit  on how much interest banks can charge on loans. Because of this, Ms Kagika predicts that as we go into 2017, many Kenyans will seek to finance their home ownership through mortgages, which had all along been unaffordable due to the high interest rates.

MORTGAGE BROKERS

“Expect a lot of competition from banks as they try to undercut each other in providing attractive home financing packages. Borrowing to buy or build a house will be seen by banks as a much safer investment than borrowing for a start-up business or to buy a car,” she says.

Meanwhile, Mr Eliud Kipkorir, a real estate valuer with Daima Prime Management Agencies in Nakuru, advises those who opt for the mortgage route to use the freely available online mortgage calculators to estimate how much they can borrow, and what the repayments are likely to be.

While shopping around for a mortgage provider, Mr Kipkorir says, it is not advisable to approach the banks directly. Instead, he suggests that one should approach property valuers who act as mortgage brokers.

“When you walk into one bank and apply for a mortgage, it puts you at a disadvantage because you will not be able to compare their terms with other lenders. However, when you approach a broker, you are guaranteed access to a number of lenders. Mortgage brokers will not only ensure that you get the best deals, but will also give you a lender that tailors their product to your specific needs,” he offers.

However, Ms Kagika strongly cautions against this approach, instead suggesting that potential home-owners visit different banks and compare the offers on their own without involving property agents, who act as mortgage brokers. She argues thatsince brokers usually get a commission when they refer their clients to certain banks, some brokers might send their clients to lenders offering unfavourable terms but who give them generous commissions.

Both professionals, however, agree that before approaching the lenders, you should have saved at least 20 per cent of the total value of your intended home; this is the money that you will use to pay the deposit.

“Mortgage seekers should know that the smaller the down payment  they make, the higher the interest they will pay in the long run,” notes Ms Kagika.

What if you want to own a home in 2017 but do not qualify for a mortgage and you don’t have enough money to buy your home cash? Is building or buying a home with little or no money of your own really possible?

Mr Eliud Kipkorir, a valuer, believes it is , as long as you are prepared to get a little creative in your financing.

OTHER PEOPLE’S MONEY

“People have always found ways to invest in real estate with little or no money of their own. They have achieved this by leveraging other people’s capital and have managed to turn handsome profits. I believe an aspiring home owner can use the same methods to put up their own home,” he says.

One such option, Mr Kipkorir says, is seller financing. So, instead of approaching a bank for financing, you can hold discussions with the property seller, after which the two of you can sign an agreement that enables you to acquire the property but on the understanding that you will pay for it later. You can legally agree on favourable interest rates, flexible repayment schedules and the possible  consequences in case you default.

“Many individual sellers will be open to this option, especially if you convince them that they can make more money this way,” says Mr Kipkorir.

You can also approach a home seller and ask for a “lease option.” A lease option, Mr Kipkorir expains, can see you move into your house in 2017 even if you intend to pay for it much later at the current market prices. What happens is that the seller signs a document that grants you the option of buying the house in future. Meanwhile, you  pay rent to the seller until you can afford to buy the house, and the owner cannot sell the property to anyone else during this period.

If you already own land in a prime area but do not have enough  funds, Mr Kipkorir says, you can partner with an investor to provide the  money for building your home in exchange for a stake in your land.

To make the offer more appealing, you can build a multi-family unit on the same piece of land so that you occupy one of the units and rent out the others. Rental income from the additional units can then go towards repaying the investors.

Do you know a friend who is struggling to pay their mortgage and is probably facing  eminent fore-losure? If it is clear that they are about to lose their house, you can ask them to transfer their mortgage to you, thus effectively transferring its  ownership.

FINANCIAL IMPLICATIONS

Whether buying or building, one should pay attention to the location. You should always get the least expensive home in the best location if you intend to sell the house in future. GRAPHIC | NATION

Planning your home

The first step is budgeting for your home, and I usually advise couples to do this together. Sit down with your significant other and track your day-to-day expenses, noting the amount of money that you can save each month by eliminating unnecessary expenditure.

Compare your incomes and decide how much each of you should save towards your housing project. In this regard, you might discuss options such as taking the kids to a cheaper school or selling one of your cars. You should not be so frugal in your budgeting that you forget to put aside money for a rainy day and other expenses such as holidays,” says Ms  Joy Kagika, a personal finance coach.

In your financial planning, it pays to over-estimate the costs in order to avoid surprises later on. Ms Kagika says that once you finish drawing up your budget, you should inflate the total by 15 per cent to cater for unexpected expenses. This can also offer you a financial cushion if the building costs or mortgage interest rates end up  higher than originally estimated.

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BETTER OPTION 

To buy or to build?

That’s the million dollar question that home-seekers constantly mull over. If you find yourself in such a situation Mr Eliud Kipkorir suggests a third option: get a reputable construction company to build the home for you. That way, you can avoid the hassle of having to deal with managing the construction and still have  the house designed and built to your specifications.

If you choose to buy a home, be careful not to use your heart rather than your head and, therefore, buy a house simply because you like it.

“Some home-buyers fall in love with a property and disregard other factors such as location, only to find out when it is too late that the property is hard to resell,” he says. “Always consult with professional valuers to understand the true value of a property and avoid overpaying for the home.”

Whether buying or building, one should pay attention to the location; Mr Kipkorir says that you should always get the least expensive home in the best location if you intend to sell the house in future.

Ms Kagika adds that before you settle in an area, you should familiarise yourself with the neighbourhood.

“Spend time driving or walking about the area and ask the neighbours questions regarding the level of security, access to educational institutions  and churches, drainage facilities, etc. Keep in mind that it is not only the home that you are purchasing, but the neighbourhood as well,” she advises.

 

-Credit:DN2

 

November 12, 2019 / by / in
To build or to buy a house?

Are you looking for a house but cannot decide whether to build or to buy? The debate on whether the pros and cons of each is endless. DN2 spoke to two couples, one that built and one that bought, who provide insights into the pros and cons of each.

Building worked for us
Mr and Mrs Omurunga, both 47, live in Valley View Estate in Mlolongo, a gated community with more than 400 homes. Theirs is a three-bedroom bungalow with a living room and a kitchen. Here’s how they went about it.

What attracted you to this place? The location; it is close to the highway and, therefore, easily accessible.

Why did you buy instead of building? When we started looking for a house, we were open to either open. However, we realised that most of the affordable pieces of land were in remote locations.

We were also tired of paying rent and buying meant we would be able to stop paying rent and instead focus on paying for the house, unlike building, where you have to wait for years while still paying rent as you build.

What was the cost?
We bought this house for 2.5 million in 2006, but it is now worth Sh6 to Sh7 million. We also paid a 13 per cent interest to the bank and spent about Sh300,000 on renovations and customisation.

Do you think it was cheaper than building?
If we were to use the same materials as those by the contractors, we would have spent much less.

How did you finance it?
We got a mortgage. We reasoned that the money we were using to pay rent, combined with our earnings and any extra cash, was enough to pay for a mortgage rather than continue paying rent.

The most convenient thing about the mortgage is that we began to pay off only after moving into the house. Besides, the financier explained all the options to us, including what would happen if we were unable to pay and we thought it was worth the risk.

Were their hidden charges?
There were no hidden costs because we asked all the necessary questions and the experts we worked with were very professional and supportive.

Which experts did you work with?
We mostly worked with a financier for the mortgage, an insurance company, and a lawyer.

What challenges did you experience?
One was the substandard materials used in certain parts of the house. For instance, the kitchen cabinets so weak that they collapsed when we placed our utensils in them. The ceiling was also leaking, and some parts of the house had cracks.

The other major challenge was losing my job when we still had a balance of Sh500,000. We risked losing the house, but we finally managed to repay the debt.

How did you deal with these problems?
The developer had given us a one-year warranty covering maintenance costs and any issues arising and honoured this deal. However, I would advise anyone seeking to buy that renovation and repairs are part of the process. Any home buyer should set aside a reasonable amount of money for this purpose.

What are the main advantages of buying over building?
The most obvious is convenience. After booking your house, all you have to do is wait for the construction team to do their work, unlike building, where you have to buy the materials, hire experts and oversee the process. Besides, you can move into your house much sooner than if you build.

When building, you might have to wait for years for the house to be ready. When buying, you can move in even before you finish paying for the house. It’s like moving house, only that the house belongs to you.

What was your strategy and did it work?
We used several strategies, the most important of which was team work. When we first approached the bank for a mortgage, we did not qualify. But after we combined our payslips, we succeeded. Our teamwork enabled us to pay the mortgage in seven years instead of 15.

The secret was prioritising; we took any extra cash from side hustles and salary increments straight to the financier. In addition, we opened a retail shop whose proceeds catered for household needs, making it easier to focus on paying for the house with our salaries.

The final strategy was minimising expenditure. For instance, we stopped using our car and used public transport; we used the car only when it was absolutely necessary. That way, we saved money that would have been used on fuel.

What advice would you give someone considering buying a house? It is a risk, but so is everything else in life, so don’t be afraid to take this bold step. Finally, if you were to get a house again, would you still buy rather than build? All things being equal, yes.

Mosagwe Nyakundi, lives in Katani in Mavoko, Machakos County. In 2012, he bought a 1/8 acre plot and began building in 2013. Later that year, Nyakundi, 34, moved into his three-bedroom bungalow from his one-room house in Pipeline in Nairobi County.

What made you build rather than buy?
I wanted a home with a personal touch; building allows you to customise your home to your taste.

What was the total cost?
I paid Sh400,000 for the plot although its value has appreciated tremendously now, and around Sh2.5 million for the construction.

Was this within your estimated budget?
Interestingly, I did not have a predefined budget. I did not have Sh2.5 million so I refrained from setting a budget because it would have been discouraging just thinking of how much I needed.

Which parts of the building were more costly?
The roofing cost a little more than the other parts. And I had to get the money at once since it was not possible to do it in phases. The finishing and interior design also took a big chunk of cash.

How did you fund it? I used my personal income but for the roofing, I had to take a loan.

What is the value of the house today? About Sh5 million.

Which experts did you engage?
I first worked with a lawyer. I bought my plot and needed a lawyer to draft legal documents such as the sale agreement, a transfer form required by the Land Control Board and an addendum – in case I was unable to pay up as agreed. The lawyer also held the title until I finished paying for the land.

I also had an architect draw the house plan although I had a draft that we went through together. Then I had a physical planner who drafted a brief for change of use and planned for the amenities to be included in the compound such as a septic tank and drainage channels.

I also worked with casual labourers (between three and five) and a construction expert, commonly known as a fundi. An electrician and a plumber came in during the final stages of the construction.

Which legal processes were involved?
I did a search at the lands registry and bought a zoning map. The search showed details of the plot’s owner while the map highlighted the social amenities, accessibility, location of the plot and the local terrain. The search and the map cost Sh500 each. I also did a change of use from agricultural to residential by publishing a notice in the newspaper at a cost almost Sh5000.

As for the construction, I submitted my architectural designs for approval. I started at Mavoko, where they checked whether I had paid the land rates. I then went to the physical planning office in Machakos County where they checked the design details and the accompanying amenities.

I also went to the lands office in Machakos to confirm the location of my plot. I then finalised the process at the Athi River District office, where I was given the final approval. In Athi River I visited the public health office, where things like waste disposal, drainage channels and the presence of a septic were checked.

What challenges did you experience? I had to dedicate a lot of time supervising the work.

What sacrifices did you have to make?
First was commuting from Pipeline in Nairobi to the construction site daily, before or after work, to supervise the workers to ensure that the work was going according to plan. Other sacrifices revolved around finances. For instance, I had to minimise expenditure on weekend outings.

The other sacrifice was to avoid paying high amounts of money on rental houses. I believe that a rental is a rental, regardless of the neighbourhood or location. A rental house can never belong to you, irrespective of the rent. (How is this a sacrifice?)

What was your strategy and did it work?
I divided the construction into at least four phases and spent within my means. I built a skeleton structure within a year and moved in. From there I started working on the fourth phase, which was the finishing and interior décor. This strategy worked very well for me.

Have you had to do any maintenance? So far, no.

What are the main advantages of building over buying?
First is the financial freedom and ability to build to your specification. No one pushes you to finish building by a particular time, unlike buying, where you have to pay within a certain period. Second, you can make money using your compound. I can plant crops or rear animals for sale to get extra income. Finally, when you build, you own an asset that appreciates and you can pass it down generations.

What would you advise a person who hasn’t started the journey?
Well, I can tell them to start by owning a piece of land. There is nothing like a remote area. Places like Buruburu, Kayole and Donholm were once considered remote, but look at them now. The other thing is that before starting, talk to people who have done it, know what you want and what building entails. It is advisable to work with referrals.

You also have to be actively involved in the process. Do not sit back and wait for the workers or experts to do everything for you. In this process you cannot trust anyone. Lastly, people need to challenge themselves and be ambitious. Before you embark on the journey, have a long-term view. Your needs and the needs of your family evolve over time.

Finally, if you were to do it again, would you still build? Yes.

Credit: Daily Nation

 

November 12, 2019 / by / in
What is a property valuation and how do you calculate it?

In practical terms, a property is worth what someone will pay for it. But sometimes you need a ballpark figure before the negotiations get underway. 

A property valuation is a detailed report of a property’s market value. This is defined as the estimated sale price “between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.

As the careful wording of that definition implies, the final sale price is usually different from the valuation contained in the report, as it’s near impossible to predict how people’s emotions, market knowledge and other motivations might affect negotiations.

When would I need a property valuation?

A property valuation offers benefits to both buyer and seller. In providing a clear indication of a property’s market value, it reduces a buyer’s risk of paying over the odds for a property; in offering a detailed analysis of a property’s weaknesses, it can help a seller decide which renovations to make to enhance a property’s value.

That said, the most common reason why people need a property valuation is because their mortgage lender (usually a bank) requests one.

The property valuation serves as a “risk report” for the lending institution, to ensure the security value of the property covers the loan.

The bank needs to be confident that it can recover any outstanding amount owned on the property, should the buyer default on their mortgage.

Some lenders still have in-house valuers, or use internal algorithms or desktop assessments. However, in the majority of cases, [the property valuation] is outsourced to independent valuation companies who are recognised on the lender’s panel.

Property valuations are also often required for financial reporting, for tax compliance, for family law mediation and for determining the amount of compensation given to land owners for easements or land acquisition.

How is a property valuation calculated?

A direct comparison with recent comparable sales forms the backbone of most residential property valuations, though valuers will also take into account the following attributes:

  • the size of the property
  • the number and type of rooms
  • the fixtures and fittings
  • the structure and condition of the building(s)
  • the standard of the fit-out and the property’s architectural style
  • ease of access to the property
  • planning restrictions
  • the property’s location and level of amenity
  • the size of the land
  • the aspect, topography and layout of the block

First, valuers use a handful of recent comparable sales to give them a ballpark figure for the property in question, and then they make adjustments to that figure based on any significant differences found between the above attributes of the properties.

The sales are analysed in terms of land attributes, improvements, location and planning controls… [and are then] compared to the property being valued.

However, other property types can require different approaches. For example, commercial property requires more financial analysis and development sites can require more planning consultancy.

Valuers will also visit the property in question, so that they can assess the condition of the building and make a note of any structural faults and nuances that might affect its market value.

 

November 6, 2019 / by / in