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Mortage a House for Rental Purposes
Rank: New-farer Joined: 1/27/2011 Posts: 14
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Hey,
Has anyone ever taken a mortgage for a house with the purpose of renting it out? Need some advice. There's a house going for sale in Kampala at Ushs 350mn (about Kshs 11, 666,666)in a good area - the current tenants have been there for a long time and are paying Uhs 1.25mn, (about kshs 41,700) per month but probably because they have been staying there for long, but it could probably fetch between Ushs 2mn - 2.5 mn (about between Kshs 66,700 and 83,300) per month.
Problem with this, current mortgage rates in Uganda are 21%-22% which means to repay back the mortgage, one would probably be paying Ushs 6mn (about Kshs 200,000 per month)
Does anyone know any source of cheaper financing - or how you would go about getting a loan such that it makes financial sense to buy the house and rent it out?
Thanks
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Rank: Veteran Joined: 8/30/2007 Posts: 1,558 Location: Nairobi
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Yeah I have but that time interest rates were more bearable at 11.5% and the interest was more or less equal to the rent. 22% abit on the higher side but then again, when the intest drops, the price of the house may rise. Your money, your call.....don't contemplate and ask too many people though, u will end up getting too confused. Go with your gut, and if u can afford the 200k per month with relative comfort, . Weigh all options but don't procrastinate too much. Good luck
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Rank: Chief Joined: 1/3/2007 Posts: 18,129 Location: Nairobi
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Which bank in Uganda lends at 22% for mortgages? Please let me know. Do not get conned. The real (Annual Percentage Rate) is closer to 26-30%. The BoU is paying high interest rates (like CBK was at one point over 20%) thus banks will not lend for less than the BoU rate. Even if you get 83,000 in rent but have to pay 200,000 there is a 120,000 cashflow deficit. Please answer the following: What is your downpayment? What is the term of the loan? What is the initial principal/interest for the first year? Are you sure you can evict the current tenant & find a new one with relative ease? Do you need cash to improve/renovate the house before you re-rent it? Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Elder Joined: 2/10/2007 Posts: 1,587
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Mitone wrote:Hey,
Has anyone ever taken a mortgage for a house with the purpose of renting it out? Need some advice. There's a house going for sale in Kampala at Ushs 350mn (about Kshs 11, 666,666)in a good area - the current tenants have been there for a long time and are paying Uhs 1.25mn, (about kshs 41,700) per month but probably because they have been staying there for long, but it could probably fetch between Ushs 2mn - 2.5 mn (about between Kshs 66,700 and 83,300) per month.
Problem with this, current mortgage rates in Uganda are 21%-22% which means to repay back the mortgage, one would probably be paying Ushs 6mn (about Kshs 200,000 per month)
Does anyone know any source of cheaper financing - or how you would go about getting a loan such that it makes financial sense to buy the house and rent it out?
Thanks Unless you are expecting huge capital gains for the house, rental income alone will leave cash-strained.
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Rank: Veteran Joined: 5/23/2010 Posts: 868 Location: La Islas Galápagos
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PKoli wrote:Mitone wrote:Hey,
Has anyone ever taken a mortgage for a house with the purpose of renting it out? Need some advice. There's a house going for sale in Kampala at Ushs 350mn (about Kshs 11, 666,666)in a good area - the current tenants have been there for a long time and are paying Uhs 1.25mn, (about kshs 41,700) per month but probably because they have been staying there for long, but it could probably fetch between Ushs 2mn - 2.5 mn (about between Kshs 66,700 and 83,300) per month.
Problem with this, current mortgage rates in Uganda are 21%-22% which means to repay back the mortgage, one would probably be paying Ushs 6mn (about Kshs 200,000 per month)
Does anyone know any source of cheaper financing - or how you would go about getting a loan such that it makes financial sense to buy the house and rent it out?
Thanks Unless you are expecting huge capital gains for the house, rental income alone will leave cash-strained. I take it you are contemplating buying an old house. Also remember that if Kenya taxes rent, UG / TZ will follow suit (if not already) so actual rental income will be UGX 1.4m - 1.7m. A bad day fishing is better than a good day at work
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Rank: New-farer Joined: 1/27/2011 Posts: 14
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Well @Vituvingisana, will confirm the interest rates, and other details and let you know - the down payment is 20%. It's a secure area with high demand so getting tenants wont be much of a problem. The house needs minimal work before getting new tenants - it's in good condition. Does anyone know of a alternate means of financing with interest rates that make the plan feasible - because at 22%, no matter what the length of the term of the loan - it does not make financial sense.
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Rank: Member Joined: 4/18/2011 Posts: 459
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PKoli wrote:Mitone wrote:Hey,
Has anyone ever taken a mortgage for a house with the purpose of renting it out? Need some advice. There's a house going for sale in Kampala at Ushs 350mn (about Kshs 11, 666,666)in a good area - the current tenants have been there for a long time and are paying Uhs 1.25mn, (about kshs 41,700) per month but probably because they have been staying there for long, but it could probably fetch between Ushs 2mn - 2.5 mn (about between Kshs 66,700 and 83,300) per month.
Problem with this, current mortgage rates in Uganda are 21%-22% which means to repay back the mortgage, one would probably be paying Ushs 6mn (about Kshs 200,000 per month)
Does anyone know any source of cheaper financing - or how you would go about getting a loan such that it makes financial sense to buy the house and rent it out?
Thanks Unless you are expecting huge capital gains for the house, rental income alone will leave cash-strained. Like has been said by several Wazuans such a property would only be Viable if you are expecting Huge capital gains on it and if you are able to service the difference between the rent and monthly mortgage repayment comfortably upto maturity. However what you are thinking could be applied in another locality which will be cheaper and probably within your reach and less stress. With oil money in the pipeline I think there should be lots of potential in many areas.
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Rank: New-farer Joined: 1/27/2011 Posts: 14
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VituVingiSana wrote:Which bank in Uganda lends at 22% for mortgages? Please let me know.
Do not get conned. The real (Annual Percentage Rate) is closer to 26-30%.
The BoU is paying high interest rates (like CBK was at one point over 20%) thus banks will not lend for less than the BoU rate.
Even if you get 83,000 in rent but have to pay 200,000 there is a 120,000 cashflow deficit.
Please answer the following:
What is your downpayment?
What is the term of the loan?
What is the initial principal/interest for the first year?
Are you sure you can evict the current tenant & find a new one with relative ease?
Do you need cash to improve/renovate the house before you re-rent it? @vituvingisana - Housing Finance mortgage rate at the moment is actually 20% - confirmed it.
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