By Livingstone Mukasa
Over the last few days we have had a raging debate on the pro and cons of owning a home as soon as you can. It seems the majority (including yours truly) are in favour. Now lets turn our attention on the hows of owning your first door.
Your first door doesn’t need to be residential only. You could also use it as a rental. In fact building it as rental is recommended as you are more likely to upgrade to a better home in years to come as you start making serious money.
The first door in your life is very important. It demonstrates that you are serious with life and that you will be a man of means (capital). The majority of people in Uganda use the following to acquire their first home.
1. The overwhelming majority use incremental building strategy. Here you save/raise enough to buy a plot. You chose a location and make sure you buying genuine land. Most common plots are 100X50 feet but we increasingly seeing smaller plots especially on Kabaka’s Land.
The next step is to design and agree on a house plan. Here the choices start at 1,2,3 4 bedrooms etc but the most preferred is 3 bedrooms because its within striking distance for many.
After the plan approval, you start building. Most people will take some form of financing but these loans will not be attached to the house they are building but mostly as some form of salary loans.
Its easier to build when you have recurring income. No wonder one group people with a high density of home ownership are Bodaboda operators. We estimate that close to 40% of Boda operators in Kampala, own a home. It may be out of town but at least they are able to build.
In one major corporation in the city, we found out that all their drivers had homes and yet among officers, the ratio was way below 50%. So its not how much you make but rather the commitment and persistence to pursue your home ownership dream.
2. Mortgages. Here you buy/build with a bank loan. The bank takes the house as security and it essentially becomes your Landlord until the mortgage is fully paid up. This is not a common approach among Ugandans as there are barely 30,000 mortgages in the country.
One major reason is that interest rates are damn expensive at above 18% per year and the chances of loosing your investment is pretty high. Should you use this option make sure that your mortgage is no more than 50% of the value of the property you are acquiring.
3. Inheritance In few rare cases parents gift their adult children homes. In my financial advisory journey I have met a number. For those that have the means, planning to gift each of your children a door (read home) is smart planning.
I am on record advocating the use of rentals (Mizigo) as a school fees insurance plan. If the child finishes school, the house could be donated to them as part of their life starter pack.
Home ownership is increasingly becoming puet of reach for the majority of the working population as the cost of building a home escalates amidst stagnant incomes and declining purchasing power. But this should not be an excuse to give up.
The writer is the CEO/Co-Founder, Four One Financial Services Limited, Author of The Great Financial Rebuild & Investing for the Future.