Should one invest in a family home or a business first?

What you need to know:

  • While investing in your home first will not give you money, the satisfaction it gives is undeniable. However, a successful investment can enable you to get the home of your dreams. 

Owning a home is a very pressing matter in the Ugandan setting for too many reasons, the foremost being our culture. However, the need to make money is an unquestionable desire, driving many to work for several hours or more than one job. With two equally important needs, one wonders which one takes pre-eminence between buying your first home and buying an investment.

Shem Bageine, a real estate expert, says one can get into an investment that will eventually give them enough capital to build their own house. Alternatively, he says it depends on the individual, such as their needs and desires at that point because they can build the house first then look into investment. 

“Ideally, looking at it from a human perspective, you want to be able to have a place you call home. So essentially, the prudent thing would be to ensure that first you are living in your own house before going in for investments. That is because there is the possibility of the investment failing, which would be disaster if you do not have a home yet. Therefore, my recommendation is to first get stable where you are with a house of your own and then look at investment opportunities. You could even use the house as collateral to get a loan facility to invest in other real estate,” he advises.
Moses Lutalo, the managing director of Broll Uganda, says the decision is dependent on whether one has a family or not. 

“If you have a family, it is prudent that you first ensure the security of owning a home is catered for. However, if one is single, they lose nothing by investing the money and out of the proceeds pay rent,” he says.
Simon Muhangi, of Fountain Real Estate says an investment is an asset while a home is a liability. 

“From bills, maintenance charges, you will simply spend on a home. Conversely, buying an investment gives you a promise of increasing your income and it gets easier to acquire a home because you can get a mortgage and finance it over time with less pressure. Take a scenario of two people earning Shs5m per month then one gets a mortgage of Shs300m while the other gets a loan to invest in another business. After a given period, the one who got a loan will have more income on their account while the other one will be servicing the mortgage and maintaining the house, thus more expenses,” he shares. 

However, there are also people that opt to build with the idea of taking up residency in one unit while renting out the others. Bageine says this is hitting two birds with one stone; a combination of having a home and an investment around you. However, he cautions that one ought to do due deligence because the investment put into those residential real estate may not be as good as that of commercial real estate.

 “Besides residential rent not being as high as you would garner from commercial real estate, world over, owing to the sensitive nature of citizens living in their own homes, there is a tendency of the rental income to reduce with time. In some instances, it is created by government intervention where there is a cap above which one cannot charge in residential rent. However, in most instances, it is demand driven, where the people who would have paid that rent eventually move out, either building their own homes or getting mortgages. That causes the market to start dwindling because even those that stay are usually not financially stable, so you cannot charge profitable rate,” he explains.

Building with the idea of taking up residency in one unit while renting out the others, is hitting two birds with one stone. Photo | Ismail Kezaala

Lutalo adds that with commercial real estate, one tends to offset all their operating costs through service charge unlike in residential real estate. 
“That charge will take care of maintenance, insurance and other bills. That is not so common in residential save for serviced apartments, which is also still low in yields,” he notes.

He also notes that real estate investment is long-term because Uganda has not reached the point where real estate is listed as property funds. 
“Once you go in, it will take two to three years to get your money worth back,” he advises.
Because of its long term nature,  Bageine urges investors to take extra precaution when investing in real estate. For an investment to make profit, these are some of the key factors to consider.

Location
 The ultimate principle of real estate is location as this determines what you will fetch from your investment and if it is worth the effort. 
“For example, a three bedroom apartment on ground floor in Bugolobi Flats will fetch more than the one above it inasmuch as they are on the same block. Other location factors are where the facility is, in the sense of locale. For example, are you in Kampala, Kasese, Mbarara or Mbale? That is because the turnover of say a mall in Kampala is far more lucrative than if it were in Kasese,” he shares. 

Muhangi adds that location in terms of usability is also worth looking into when buying an investment. “Strategic location is important in real estate. For example, some buildings have lost tenants owing to lack of parking, being in the wrong corner, or are near traffic lights. In such instances, one cannot get the anticipated returns,” he mentions. 

Bageine adds that location also affects what you can do because the cost of  a plot in some areas could build you structures in another. 
“For example, with Shs500m, you can build a house or two in Ntinda. However, the same amount is not enough to get you just a plot of land on Kampala Road owing to its location and what happens around it,” he clarifies

Cost vs. expected income
If you are buying an apartment say at Shs2bn, Muhangi says you need to work out your expected returns. 
“Most people predict to earn 10 to 15 per cent per year so that in 10 years they are getting their investment back.

 For example, a property of Shs10b should be giving Shs10m per month. With this projection, you are certain that you will get back your capital but also easily sell it off should you wish to because it can easily fetch income. Anything that goes beyond 10 years before you can get your investment is not worth it,” he shares.

Opportunity hub 
Inasmuch as one may have the investment appetite, not many know where the market is, so Lutalo says  every upcoming town with activity is a hub for commercial real estate but also needs a bit of residential to support it. 

“Areas such as Kyanja and Namugongo are great places for commercial real estate yet in their outskirts, residential real estate thrives. However, the amount of money available for investment will guide you because one with Sh1b and another with Shs10b have their eyes set on different investment areas,” he shares.
Muhangi says it makes business sense to buy a Shs1b apartment rather than a Shs1b home. 

“From these, you will get income to comfortably transition into your preferred house,” he argues. On the flip side, Bageine says one cannot invest in an office block yet still rent in an apartment because there is no sustainability in case something goes wrong. 

“While investing in your home first will not give you money, the satisfaction of having it matters a lot because you will have it where and how you want it. Contrastingly, when doing an office block, you must factor in several preferences, which is not an exact science. Failure to gauge these preferences may cause you to fail to generate the necessary returns for you to earn from it,” he says.