'I want to own a house in a hurry'

Oran A. Hall, Contributor

I am a 30-year-old female and have just depleted all my savings in paying for my tuition in acquiring a first degree in business administration. In addition, my income has been reduced by all of J$10,000 due to change of job because of my redundancy. At present, I earn J$58,000.00, with a loan payment of $14,000 - taken out to assist with construction of parent's house - to be deducted monthly.

My monthly expenditure amounts to $38,000, excluding miscellaneous spending of J$3,000. I own a 2004 motor car, which I assume values J$850,000. I have no other source of income, and I have been desperately trying to find any form of weekend job. I plan to sell the car as I don't see any means of generating any form of savings at present. My goal is to acquire my own place. Fortunately for me, I do not pay any rent; however, that equates to my monthly contribution to my parent's house.

What is your view on how to go about investing the proceeds from the sale of the vehicle to have at least enough cash to purchase a lot as I do not qualify to access all of my NHT by myself to purchase a home, nor do I have anyone I can team up with to take advantage of the benefits offered?

My objective is to try and acquire a residential lot not exceeding J$2 million within the next year. I hope to get J$1.5 million from the NHT and the other J$500,000 from my savings. I hope to use my savings, plus gains received from investing to construct a two-bedroom house by then. I hope to gain at least half of the $850,000 by next December. If that is possible, what are the best instruments to invest in to get that kind of return with minimal risk?

- Simone

PFA: You clearly want to move ahead. You have used all your savings to fund your tertiary education and now want to own your own home very soon. Unlike many persons your age, you are prepared to surrender ownership of your car to realise a bigger goal.

Although you are clear about your major goal, there are some matters that do not seem clear to me. In one sense, you suggest that the J$14,000 loan payment is to be taken from your salary, but later seem to say that it is a current expense.

How much really is your monthly expenditure? By the way, the miscellaneous spending of J$3,000 has to be counted as a part of your monthly expenditure to create an accurate picture of your finances.

What is the term of the loan, and how much is your car really worth? Only a valuation by a professional valuator will tell you. It seems that, if nothing else, you want to buy a lot, but you want to build a house as well, within a year.

It appears that you do not wish to use the proceeds from the sale of the car to realise any of your goals, but are relying solely on your savings and gains from your investments.

If your monthly expenditure includes the J$14,000, your surplus is J$17,000 per month, or J$204,000 per annum. If it does not, your surplus is J$36,000 per year. Funding the rest of the spending from investment gains seems a pretty tall order.

High returns and low risk do not go well together. Generally, the higher the risk, the higher the return, and the greater the loss if things do not go well. Low-risk investments tend to give low returns.

Interest income generally attracts tax

Such investments tend to be interest-earning, and interest rates are now quite low. Bear in mind that interest income generally attracts tax. The situation is not very encouraging.

Nothing is wrong with wanting to own your own home. Considering its potential for capital appreciation, it can turn out to be a valuable asset. If you are thinking that it is much better to pay mortgage than rent, you are right.

You need to revisit the timeline you have set to achieve that goal, although it is true that the longer you wait, the more it will cost. Be realistic.

In the meantime, read all you can about investment instruments, and save all you can. If at all possible, buy the lot as a first step, and when you are able to build, consider doing so in stages.

Many huge houses have been built that way.

Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of "The Handbook of Personal Financial Planning", offers free counsel and advice on personal financial planning. Email: finviser.jm@gmail.com.