Treasury Bonds Investments vs Residential Family home Investments.

Jan 31, 2025

Doug replied to me: Kakande, You can't build a house or a home on 'bonds'

I know my view is not popular especially among the older generation because they tend to misinterpret it or want things to continue as is. They think that I don't want people to build residential family houses, but!!!

Please read to the end.- +256 771 404377

My view is that many Ugandans have jeopardized their financial future and failed to achieve financial freedom by building residential houses at a time when they were not financially ready.

There are categories of people meant to build residential houses, and there are those who should wait and build them later. Part of our financial mistakes, and this is mistake number one and mostly driven by societal pressures.

Someone runs a business and sees the capital grow to, let's say, UGX 300 million shillings. This person forgets that this is actually capital for the business. They take UGX 150 million, buy land, and start constructing. After the foundation, the person gets stuck. The money is no longer there, and even in the business, the money is not enough because they withdrew the capital and injured the business. Suppliers begin demanding, and the money is not there. Customers begin asking for products, and the products are not there. The business dies. We have seen it before, pre-mature impact to what would have been a potentially successful business all in the name to construct a house to sleep in.

You have invested in over UGX 100 million plus including land and now its just a shell thing out there.

Remember, this house, which is just a foundation, cannot be sold as a house. This person begins looking for people to buy the land. Do you know what people will tell you? They will say, "I want to buy empty land." So demolishing your foundation is another cost. They will cut the price by UGX 20-30 million or ask you to demolish it yourself and give them just empty land.

You rushed to construct when you didn’t money.

(We almost always see such houses on the market for cheap)

Kampala Formal Employed People

Now we have the Kampala elite group, the formally employed people in different jobs, especially in Kampala. We are cash flow poor, living paycheck to paycheck because of poor planning. Part of that is due to the majority of us rushing to construct residential houses.

You find someone sleeping in a UGX 200-400 million UGX house, yet they do not even have savings of 20 million UGX somewhere.

If they had invested that money better, they could have turned it into something significant and possibly become billionaires by Kampala standards.

For those of us who are fully and gainfully employed, earning UGX 1 million, 2 million, 3 million UGX net and above, but not so much above to give us financial security, our primary source of income is our employment.

How do we break away from the over-dependency on salaries so that no matter what, we can survive and thrive until we create a second or third level of income? Do not construct your house yet. There is nothing wrong with renting; it's cheaper.

If you have saved up around 30 million UGX and want to buy land just to construct a residential house, no—invest it. Put it in a unit trust. Every single month, dedicatedly put more money there. If you are married, combine efforts and put money together.

See your income grow where you are earning an extra million from a treasury bond or a treasury bill. Double that money with the unit trust. Be patient enough to rent and live cheaper. As my friend always says, sometimes you need to accept that you are not yet there, and it is going to take concerted effort.

For us, especially the fully employed, withdrawing and using our salaries to fund the construction of residential houses is one of the financial mistakes we are making. We are sitting on our capital in a house that is not going to bring any money. Yet, you can easily take that exact amount and invest it better, allowing it to grow and compound. Then, after 5-6 years, you can use the profits to fund your dream house.

Think of yourself right now. Imagine you have 35 million to buy land, and it can afford you a very decent plot of land somewhere in Gayaza, on Masaka Road, or on Entebbe Road—whichever way you want to buy land. You want to start construction right now. No, do not, even if you can, especially if you do not have all that cash.

This money has been withdrawn from your business or saved from your salaries, and maybe somehow, every single month, you can save 500,000 and add to your investments. If that was the plan for you to construct, and you increase your contribution to UGX 600,000 to 700,000, instead of deploying all this money into a house and starting from the foundation, then for the next five years, you are extremely unhappy because all your cash flows are tied into your residential house that will never bring you any money. Just go buy a treasury bond. Start with UGX 35,000,000.

Every single month, you get the UGX 500,000, buy another treasury bond, and keep accumulating it. If you do it for just 10 years, by the time you are 40, you'll have close to 400 million in a treasury bond. If you appreciate enough to wait until you are 45, you'll have close to 600 million in capital. Even if you just withdraw half of that and go buy a house at that point, you still have more money that can take care of you no matter what happens to your job. The goal is to use your primary source of income to reinvest, bring in more cash flows, compound it, and continue reinvesting further.

For example, take a closer look at a friend of mine who is known to most of us thanks to his social media presence. About 3-4 months ago, when I first started heavily commenting on when people should be investing most of their salary earnings, we ended up having a candid conversation.

Their biggest incomes are still from their salary plus a few side hustle work they do as part of their social influencing. Somehow, over the past 4 1/2 years, they had deployed over 200 million in a house that had not yet been completed because they have higher tastes. They started in 2020, and for the last 4 1/2 years, every single coin was being deployed into the house.

For the first time, when they started being comfortable investing in treasury bonds, all they could raise was 10 million.

They can't sell their house for a cheaper cost, they can't do anything—they are trapped. How old are they? They are 34, with no child and no other responsibilities. This is the danger of pushing the narrative that we have to own a residential house early on when our cash flows are still trapped. The goal is to one day own that house, but first double or triple your income streams. If you are fully employed like the majority of us, you want to deploy your capital so that it doubles and increases. Then, when you are constructing that house or buying it, you are not using your salaries; you are using your profits.

I have seen people who have worked, run businesses, and first accumulated their cash flow. When they became financially free, they built the houses they desired, building from profit without affecting their businesses.

Do you know that to build a house, many people in the middle class, who have smartphones and are working, need about 200 million shillings and above? If you're renting a house right now, to build a house worth 200 million, you need the equivalent of your current rent for 17 years (If you are renting a house of 1 million) and 33 years if you are renting a house of UGX 500K.

Do the Math. Most people buy a plot for like UGX 35-50 million and use another 150 million to build a decent house, maybe a two-bedroom house. Divide that 200 million by what you are paying now. It will give you the number of months of rent you need to build the same house. So, the rent you would have paid for years, you need it all now to build or buy a house worth 200 million shillings.

To me, it makes better sense for somebody to rent until they are financially free and have good financial and cashflow capacity. Then, when you are financially better and earning from different sources, build or buy a house without struggling.

I monitor the real estate daily, I can tell you that a week can hardly pass without at least five people publishing to sell their residential houses. They struggle to get even half of what they put in. Many of these houses are not complete. If it is still a shell house, buyers will not give you half of what you put in. They will wonder if you used the right materials because you didn't have enough money.

I have seen people struggle for five to ten years to complete a house. They fail, go to the bank, get a loan, and still fail to pay it back. In the end, the bank takes the house, or they sell it at a throwaway price due to bank pressure. Why? Because they tried to build or buy a residential house before the right time.

What is the right time? When you are financially independent with significant cashflows coming in. Financial freedom means you have invested enough to earn the lifestyle of your choice. You can buy your house without killing your source of income, business, or depleting your investment.

A residential house is like a car. Some people say, "Monthly rent is killing me, I want to save." But buying a car doesn't save on transport costs; it buys independence and comfort. The same goes for a residential house. It feels good to have a house, but it is for emotional reasons, not saving.

Someone who is renting is saving better than you. You need more money than what you'd need to pay rent to build a house. So, we should build residential houses when we have reached financial freedom and won't struggle.

Now those who take a salary loan to construct residential houses, leveraging their future income, No, invest small and build your capital slowly, bonds are here to give you exactly this.

Now, some people truly desire to have real estate and that’s all they believe in, and wont invest in bonds no matter what, and if you are one of those people, still build or buy rentals with multiple units. Stay in one unit and rent out the others. You'll own a home, have security, and earn from the rentals. This is a smart concept, and I encourage people to take it up. But do not kill your source of income just to be in a house.

Many houses are on the market today. Check social media, and you'll see many houses being sold. A house where someone put in 200 million is being sold for UGX 130 million. Even 150 million, you are lucky.

For those who are fully employed and can save UGX 500,000 per month, consider investing in treasury bonds and unit trusts for the long term. Over 10 years, with an annual return of around 12% compounded, your savings can grow significantly. If you save UGX 500,000 per month for 10 years at a 12% annual return, your investment will grow to approximately UGX 115 million. This is a smart way to build cash flow and achieve financial freedom without the immediate burden of owning a residential house.

Happy Investing Everyone

Alex Kakande