First house or dream house, which one comes first

As much as we would all love for life to be easy and less stressful, the decision of owning a home can be complicated. However, whether one would want to build or buy his/her dream house or first house, depends on the individual’s financial strength and proper planning.

The question is, which choice will provide you and your family with the most rewarding results in the end?
Perhaps, we would want to find out what is the difference between a first house and a dream house.

What is a first house?

Typically, a small and modest home can be a one, two, or even a three-bedroom house. This serves the basic needs of the owners. This type of home doesn’t feature all the beautiful facilities one dreams of having someday, but it’s a good-enough home for the foreseeable future.

What is a dream house?

A dream house is, however, one that will meet your needs for many years. It is classic, modern, luxurious and mostly in prime and serene vicinities. It comes in all sizes and styles. Depending on the vision of the owner, these homes can be very sophisticated and costly. Some come with features such as a swimming pool, gym, and car lounge among others.
NB: Someone’s dream house may be a simple 2 or 3-bedroom, which may be regarded as the first home of another person. This could be a personal decision or based on the individual’s financial capacity, taste or preference.

The Harsh Reality

The fact is everyone would want a comfortable home to live in, except that it isn’t cheap. My checks reveal that the average 2-bedroom home in Ghana will cost not less than Gh¢300,000, i.e., approximately ($27,000). Others could cost between Gh¢575,000 ($50,000) and 805,000 ($70,000) or even more depending on the location.
This makes it almost impossible for the ordinary worker or trader who sells in the market to afford it. Unfortunately, building on your own isn’t easy either, but will obviously be the only option for the regular person.

When is the appropriate time to build?

I’m not sure anyone could determine the right time to own a home. However, I think it all boils down to planning our lives and sticking to the plan.
The most miserable part of life is ageing. This is because, as we grow, we take up many more responsibilities on our shoulders. We marry, take care of our dependents, invest in our education, and support external family members and acquaintances – yet, we still have a greater responsibility of providing shelter for at least our immediate family.

This will save us the stress of paying exorbitant rent in our old age. We need to plan for our retirement the very day we start receiving regular paycheques. Unfortunately, we don’t have government-sponsored aged homes or hospitals in our part of the world as exists in many developed countries. Some old folks tussle and hassle the younger folks for survival even after going on retirement.

According to a paper published on the website of the National Institutes of Health (NIH) of the United States, the population of older adults is increasing globally; by 2050, the number of people aged 65 and older will reach 1.5 billion, up from 524 million in 2010. The majority of this population will reside in urban areas of the developing world, where sharp increases in morbidity and mortality from non-communicable diseases have been recorded.

Juggling between taking care of your health in your old age and paying suffocating rent could send one to his or her early grave.

There is the need to commence quickly with our first house, i.e., whether we buy or build, once we have the means. A house is considered a house so far as it gives you some level of comfort and alleviates the burden of paying lump sums of money as rent. Then after this first house, the individual can focus on the dream house if you have the financial muscle.

Investment Purpose

Your building is an asset and an investment at the same time. Fortunately, the market value of most properties appreciates with time. There is no need to rush to live in a house all for the reason of owning a house and struggling to maintain it with your meagre income. We can do the following by way of investment:

• Commercialise your building: Instead of building your first home for your immediate use, you can rather turn it into any viable commercial use, i.e., guest house, crèche etc., and plough back the proceeds to build a new house. The house can also be rented to an individual or company and the proceeds invested into building another house.
• Equity Release

Individuals who have the right documentation (land title) with a lease beyond 15 years and within the right age bracket, mostly not above 50 years, have the appropriate income to meet the monthly repayment, can go for this facility from any bank which offers this service.

“Equity release refers to a range of products letting you access the equity (cash) tied up in your home if you are older. You can take the money you release as a lump sum or, in several smaller amounts, or as a combination of both”. (https://www.moneyhelper.org.uk). The cash can thereafter be used to acquire another home or invest in a business venture, etc.

• Resell your building

After completion of your building project, you can add a good margin to your total amount invested and resell it, especially, when you are living in a free space (willed or family house). You can buy or rebuild an upgraded one, which may probably qualify for your dream house. The proceeds can also be used as initial capital for a real estate business over the period.

• Investing in money market instruments

You can equally put your proceeds in any high-yielding money market instrument. Although it’s dicey these days, especially in Ghana, if you sell the house and then you don’t immediately buy another one, you will need a safe place to invest your money in the interim. A money market instrument (e.g. T-bills) offers safety, and a reasonable interest rate (currently around 23% p.a).

Doing this investment is good if your target is to purchase a mortgage home. , This is because the return on investment will help you to push towards your next down payment over a period of time. In general, you would want to aim for a 20% down payment or more.

Nevertheless, individuals whose income gives them no option to buy any sophisticated home can start a small (i.e., 1-2 bedroom) expandable home. As opportunities avail themselves, such homes can be expanded to meet the needs of the owner.

Moreover, some financial institutions have introduced a home mortgage scheme that enables workers to use their tier-2, tier-3 or personal pension schemes to get 100 per cent affordable home loans to purchase, build or complete their dream homes. This provides workers with a good and easy way of owning their homes.

Conclusion

Whether we will be able to buy or build a home depends on the opportunities that may come our way. Furthermore, whether we build our first home or dream home, may not necessarily be the preference of our kids in the future, especially if the focus is to leave them an inheritance.

Of course, such achievements can serve as a stepping stone or motivation for them to achieve their own goals. Even so, we should also be keen on developing our children to be independent and be able to succeed.

More so, someone’s dream home is like the first home of another, therefore the first home or dream home depends on the individual’s financial capacity, taste or preference. Such ones could just consider expanding their first home to cater for the rest of the family. We must therefore make expansion provisions in our building plan.

A 3-bedroom is good, but a 4-bedroom or more may be perfect. Note that, if you have more than 3 kids, as they grow, you would want their privacy, especially if you have a blend of both males and females.

Some may as well have to start life from their parent’s home depending on their location to reduce the burden of rent advance payments to landlords in Ghana.

Notwithstanding, nothing stops anyone who is fortunately blessed with enough wealth to live in the house of their dream. After all, life is short and must be enjoyed to the fullest. The truth is that every choice comes with its associated risk, so make the best choice.

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The Author, Felix Ekow Eshun is a Banker and Supply Chain Professional. He is also an entrepreneur and holds a Master of Science (MSC) in Supply Chain Management and a Bachelor of Science Degree (BSc) in Banking and Finance. He can be contacted via email at [email protected].