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Buying or building a home to "have a roof over your head in case you lose your job" is endearing yet flawed reasoning.
It's a bit like saying you want to buy a car so you have a means of transport in case you lose your job.
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It's a bit like saying you want to buy a car so you have a means of transport in case you lose your job.
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There are a lot of great reasons to buy or build a house. And having a place to call home if you get laid off is not one of them.
It sounds so utmostly wise and justified, but it is simply not so. It is just one of the many rationalizations we use to get stuff we desire.
It sounds so utmostly wise and justified, but it is simply not so. It is just one of the many rationalizations we use to get stuff we desire.
Robert Heinlein said, man is not a rational animal; he is a rationalizing animal.
And there are few instances in life where rationalization dominates decision making more than the highly emotive, and idealistic area of home ownership.
And there are few instances in life where rationalization dominates decision making more than the highly emotive, and idealistic area of home ownership.
First of all, if you lose your job, a place to stay will be just one of the things to worry about, not the only thing. You will have to eat, to meet medical expenses, to incur transportation expenses, to pay school fees etc etc
It is true that rent is the most significant expense for most people, but
1. It doesn't necessarily have to be that way for you
2. If you lose your job, nobody is holding a gun to your head, saying you have to keep living in your current quarters. You are not an immovable asset.
1. It doesn't necessarily have to be that way for you
2. If you lose your job, nobody is holding a gun to your head, saying you have to keep living in your current quarters. You are not an immovable asset.
Second, assuming rent is not an outsized expense for you personally, we should extend the argument of homeownership as a hedge to job loss to other areas of life as well. What's good for the goose is good for the gander.
Hence we would say, let me buy a shamba and plant my food and raise some animals so that I have something to eat if I am laid off
Let me start a homeschooling my kids so they can still be in school if I lose my job.
Asinine, right?
Let me start a homeschooling my kids so they can still be in school if I lose my job.
Asinine, right?
Some might say these examples are unrelated and extreme. Let me tell you what's extreme: You earn a 250K salary and you take out a mortgage to buy a 13 million shilling house so you are assured of a place to "lay your head" if things go bad. That's extreme.
Now since I can feel emotions swelling at this point, to be clear, I don't have an issue with the transaction per se. I have no issue with the investment value, returns, interest, payback location and so forth.
My only problem is with the reasoning behind the transaction. That you are engaging in such a significant, life altering undertaking, ostensibly to "have a place to call home if things go south"
There is a good reason why personal finance practitioners tell you to have at least 6 months living expenses in liquid assets. They dont tell you to have a place to live for at least 6 months, at least not explicitly. Because when it comes down to the wire, cashflow is king.
They understand that after a job loss, a place to live is just one of the things to worry about. Focusing obsessively on a home as "a safe haven" and doing "whatever it takes" might mean not allocating enough attention to other bills that have to be paid, job loss notwithstanding
For one, most people rent for much cheaper than the commensurate home ownership "rent". If I live in a 30K house and i wish to own a home, I will probably construct/buy a house that affords me a standard worth 50-80K rent, not one that matches the standard of my current quarters
That is a major flaw of the homeownership as a hedge against income loss argument. So, to avoid the sky falling down once you are fired, you willfully move into a higher standard of living. It's counterintuitive, and self defeating.
What might end up happening in the unfortunate event you lose your income, you will go, wait a minute, so i am living in a digz worth 60K in rent while i can go get something for 20K and rent this out. Cashflow wins again!
You will end up being the tenant you invested millions trying to avoid being.
But that's besides the point. The point is that most of us can rent for cheaper that the rent we would implicitly pay ourselves to live in our own homes. I believe this is true for +90% of us.
But that's besides the point. The point is that most of us can rent for cheaper that the rent we would implicitly pay ourselves to live in our own homes. I believe this is true for +90% of us.
Second, living in our own homes is not cost free. Just because you are not paying rent doesn't mean you are living there for free. There are implied and outright costs to home ownership. And the absense of cashflows doesn't mean the absense of an expense.
Implicit costs include depreciation, inflexibility, and opportunity cost of the capital invested. Outright ones include repairs, service charges, rates, mortgage related expenses, etc
In fact, if you take out a mortgage and you are fired from your job a while later, you are likely to be in a worse situation than if you were renter, since unlike a renter who can quickly downgrade, mortgage payments are fixed and usually significantly higher than rent.
You will be living in a financed house worth 60K in rent, and you have to come up 100- 150K in mortgage instalment. Of course you can rent out your house or forfeit the property to the bank but all this has the potential to turn your life topsy turvy quite rapidly.
The bottomline is, if you get fired/ business goes south, you will need a place to live, but it doesn't need to be your place.
Just the same way you will need to eat, but it doesnt have to be food you wi be harvesting from your shamba.
Just the same way you will need to eat, but it doesnt have to be food you wi be harvesting from your shamba.
You will have to take the kids to school, it doesn't have to be your school
You will need to take the matatu, but it doesn't need to be your matatu.
You will need to use electricity, it doesn't have to be self generated.
You will have plenty to take care of.
You will need to take the matatu, but it doesn't need to be your matatu.
You will need to use electricity, it doesn't have to be self generated.
You will have plenty to take care of.
You will need the resources, and not necessarily the hard assets to make all these things possible until you get back on your feet, including having a roof over your head.
What's more, rental houses are coming up in every corner of this country. The spectrum of monthly rent is wide. You have a rental house virtually for any imaginable price point. Concerns that rents will somehow spiral out of control soon across the board are misplaced.
This is in no way a condemnation on home ownership. But it's certainly a condemnation on using income loss fears as the primary reason to buy or build. That reasoning has been advanced enough times and it needs to go. Because, frankly, there's a lot of better reasons to own homes
Finally, home ownership doesnt come from thin air. There is a capital investment and opportunity costs that go with that. If you have a few millions, there is a variety of assets you could invest it in. I get the some folks in the comments don't fully appreciate this fact.
Adding another tweet will make this too long. Let me just open a consultancy!
