Five Simple Things To Consider When Buying a Home
An ambassadorial house in Nairobi’s upmarket suburb of Karen would be a prestigious pleasure to own. Sitting on half an acre, just a stone’s throw away from the deputy president’s home (please – I am not talking to the opposition demonstrators) and coming at a bargain price in a depressed property market would be as alluring as the aroma of a barbecue cookout in the leafy garden. However, if you are not a morning person, reiterating the 28-kilometre drive to your shop on Mombasa Road every day, in ponderous Nairobi traffic may not be your cup of tea.
The penetration of developments into previously thinly populated areas has become fairly common as finding cheap land becomes difficult. The lack of proper roads, numerous portholes or the presence of crude marram roads that are far from appealing is the norm in such locations. Thinking of what a pleasure it would be to drive or walk on those pathways is worth considering as are the security concerns. Chugging laboriously in your vehicle down an offshoot that lacks streetlights or the presence of life on either side, offering ample space for criminals to hide in lush shrubbery, will not imbibe everyone’s appreciation of the local county government.
Nowadays, multi floor apartments without a lift have started becoming fairly common with developers sacrificing the cost of a lift for several other offerings such as a prime location and superior quality finishing. Falling in love with such a development is easy, especially due to the higher floors offering extensive views on a tight budget. Buyers should consider whether the long-term tax of multiple trips up and down the stairs, especially in times of sickness, is a good trade-off for the view and elevated position in the plan. On the plus side, free and mandatory physical exercise can help one keep fit. The fourth floor is the maximum recommended.
2. Cost and target price
It’s very hard to gauge the market price of a property due to the vast variety and number of listings. A good technique is to pretend one owns a potential catch and try showing it to realistic agents in order to siphon information about the market price.
Buying on cash offers obvious advantages to bargaining. Buying on a loan for those with stable employment income allows one to access something worth more than they can technically afford. The latter requires careful consideration of job security and promotion scope. One should not pay more than half their income towards servicing loans. This may require more austerity in other areas such as buying a cheaper car or sacrificing a few vacations. Long term expected outflows should also be anticipated; for example, it is not cheap educating children these days. Kenya currently has less than 25,000 mortgages despite the reduced interest rate of 14%. The cost of credit calculator can help one plan for their dreams.
A bargain is something acquired below market price. This can often be done during the construction phase or by buying off-plan. Taking advantage of cash-strapped developers is not adultery.
Property should not be kept indefinitely. Exit should be contemplated upon entry. A good period to keep a property is 10 years.
One should add all purchase and acquisition costs, including stamp duty as well as any repairs, upgrades and renovations (not maintenance and running costs) and thereafter set a target price. A good guideline in 2017 is a 50% return in 10 years. Houses on land can be 100% even if the target is set extremely cautiously. Most holding strategies are up to retirement age for such properties. Liquidation can yield handsome returns with scope to downgrade to a cosier and cheaper dwelling while investing most funds into fixed income instruments.
The type of ownership is imperative. An apartment with a 99-year lease should be disposed of when it is depleted to 90 years while property on prime land can be kept even up to the point where 40 years are remaining. Property with 999-year leasehold and freehold titles have no limits on holding.
Those who buy homes on a loan may pay more over the loan period of the investment than disposal value. Acquisition in this manner is for those who don’t intend to dispose of the property in their lifetimes or are expensing the monthly mortgage payments from employment income by considering them as unearned income.
Not only should the satellite developments be inspected but the sounds and smells must also be investigated. The proximity of the apartment next door should be considered; nobody wants the smell of fish cooking wafting into their window and leaving their dwelling smelling like limburger cheese.
Kids create a melee more often than not, playing in the common areas of apartments and the offspring of rabble even going as far as insulting people passing by! Cultured neighbours with decency and respect are essential to peace of mind and comfort. Distance of these so called common areas should also be conveniently clear from the windows to prevent the migration of irritating yells and competitive cries of kids playing sports. Most apartment blocks have rules for which types of games can be played by brats and cycling is one of the most common sports where restrictions are eased.
Checking for commercial developments around the property is an essential element of a neighbourhood reconnoitre exercise. You don’t want casuals breaking metal with blunt objects in a scrap yard next to you or a constant stream of trucks coming in and out of an empty plot touching yours. Talk to neighbours or their house helps about the problems they experience before hand and analyse the nature of activities and their effects, including visible garbage dumping, and thereafter walk into the clutches of a binding agreement.
Religious places of worship can specifically be noisy and without blaspheming, I would not pray for their proximity. The county governments in Kenya often fail to address noise complaints and betting on their action and assistance is like betting on a listed company’s share price to trade with a PE ratio of 100.
One must only buy property with a large number of trees and greenery in the environment as this will make the daytime air oxygen rich and promote peace and tranquillity as well as aesthetics and perceived prestige.
4. Quality and state
Inspect for visible cracks and choose brick over wood, for the former outlasts the latter. Inquire about the type of piping, check water pressure and usability of fixtures, paint persona, whether the toilets, showers and sinks are usable and drainage effectiveness.
Availability of water through a borehole, without reliance on the oscillating mains supply is crucial. Some investors like to buy rundown properties at a bargain and then renovate to perfection. This is a great strategy but plausibility must be assessed by a competent contractor prior to pen hitting paper, even for seemingly perfect developments that have been newly built.
5. Maintenance and running costs
Service charge is a monthly outflow paid by owners of apartments and houses in gated communities. These outflows cover security and cleaning of the common areas. They also cover variable costs on the said areas such as electricity and heating. A reasonable amount is practicable. Exorbitant amounts, such as those charged on beach apartments are not wise perpetuities to commit to. While they are necessary for the undeterred enjoyment of the asset, one must be frugal in spending money to build wealth. Average monthly income helps decide on what is a reasonable service charge one can afford; it should not represent more than 10% of total income.
Maintenance is normal but some places require more than others. Proximity to the sea promotes rust and degradation; this will require regular replacement of some items. The same applies with regard to mineral rich borehole water.
Houses can be very cash intensive, with normal wear and tear going as far as roof replacement to as little as gardener labour. We should not live beyond our means to bring meaning into our lives. Creating wealth requires a lot of sacrifices and taming monthly commitments and curbing impulse spending are the key pillars of increasing one’s spending threshold in the longer term.
By Mihr Thakar