Comparison on Return on Investment at Southern Sunshine hotel vs other projects vs stock exchange

The Southern Sunshine Hotel is located along the Southern Bypass in Nairobi, near Thogoto town.

The rooms are being sold at kes 1,740,000 with discount for early buyers as below
http://www.a4architect.c...ass-nairobi-sale-price/

Assuming 70% occupancy rate and kes 1,400 as room charges per night, this will generate a monthly revenue of kes 1,400 x 30 days x 70%=kes 29,400 per month.

This will be kes 29,400 x 12=kes 352,800 per year.

For a cost of kes 1,740,000, the investment will give you a return of kes 352,800 per year. This occupancy rate has the possibility of increasing to 100%, as in the case of hotels currently in the nearby Kikuyu town which have 100% occupancy daily.

This cost per night of kes 1,400 also has the possibility of increasing to kes 5,600 as in the case of the nearby Wida Highway motel.

This represents a return on investment of kes 352,800 devide by kes 1,740,000 x 100%=20.2%.

This return on investment is only for the rental income.

Capital Gains.

The investment is also gaining and appreciating over the years. Property in Kenya generally has a 10 to 20% annual price increase.

Assuming an annual price appreciation of 20% since the land is next to a busy international highway and available land for sale is scarce since most land is owned by Kenya Forest Service/Ngong Forest, PCEA Thogoto teachers college, and Alliance High school, the scarcity of land for sale along the highway will push prices up very fast.

The kes 1,740,000 sale price will appreciate by 20% annually to kes 2,088,000.
This represents a kes 348,000 capital gain per year.

Total return on investment.

The total return on investment of accrued rent plus capital gain will be kes 352,800 from rent plus kes 348,000 from the property appreciation.

This totals to kes 700,800 per year.
In short, a purchaser of a room within the Southern Sunshine hotel will increase in wealth at a rate of kes 700,000 per year.
The total return on investment annually is therefore kes 700,800 devide by kes 1,740,000 x 100%= 40.2%.

Nairobi Stock exchange.

The 5 year average return on investment at the Nairobi stock exchange is 20% according to this report.

http://www.investinginaf...ock-market-performance/

Therefore, the Southern Sunshine hotel investment is a good option compared to investing in the Stock exchange.

Comparison to other Nairobi apartments.

The usual middle class apartments for sale around Nairobi eg Syokimau, Kikuyu, Kitengela etc sell for an average of kes 5.5 million for a 2 bedroomed.
This can fetch a maximum of kes 25,000 to kes 30,000 per month in rent.

This works out as kes 30,000 x12 =kes 360,000 per year.

The return on investment works out as kes 360,000 divide by kes 5,500,000= 6.5%.

If you compare the kes 360,000 annual rent derived from these apartments with the rent accrued from the Southern Sunshine hotel at kes 352,800, its very clear that for 1/3rd the investment, the annual rent is equal.
The kes 1,740,000 investment in the Southern Sunshine hotel is roughly 1/3rd of the kes 5.5million investment in the average middle class apartment.
The kes 352,800 annual rent accrued from the kes 1.7m Southern Sunshine hotel is nearly the same as the kes 5.5m apartment unit.

See more here

http://www.a4architect.c...jects-vs-stock-exchange/

@sparkly, the restaurant/bar rent will go to offset the maintenance costs. The remainder of the cost will be offset from the rental income, on average around 10%. Hotel overheads are
1. labour. This is very low cost in Nairobi.
2. Electricity. Phone/laptop charging plus LCD TV
3. Periodic repair and maintenance.
4. Water. Abundantly available from Kikuyu town council water supply.
5.Insurance, Govt rates, security etc

These costs cant be over 10% of room collection revenue plus bar/restaurant rent.

All the 33 owners will make decision as to offsetting the overhead costs.

In a hotel room, all a customer does is sleep so the running costs are mainly in cleaning the room/bedsheets/floor etc and administration.
The overhead costs are higher in the bar /restaurant which will be rented out to established restauranters.

@A4 the hotel is a noble idea...simple to clear the confusion...just post the figures here i.e P/L estimates of the hotel...here are my concerns

1. On a given day, month or year...there are rooms which will outperform others...how are you planning to compensate the holders of rooms which dont perform? dont overlook this cos someone might buy a room & the occupancy in that room turns out to be 50% while the rest are 70-90%...

2. You should work with net figures...ebu calculate the returns minus the overheards (10 %) i.e net rental income we see the Internal rate of return...

@4achtct if it has better returns why are you selling the rooms? who owns the land? if Ali baba decided to destroy his lower room how will wanjiku hold the room above? A mean how does that agreement read "group hotel owned" or represented"so and so owns a room" it's confusing id rather buy the collective ownership as opposed to owning a room.

i recently met a friend of mine who owns and runs an hotel in town. he told me this business is not as easy as it appears. on the expenses one can get in expecting those that you have indicated but you would realised several things:
i) staff - they steal from you, they under perform and the good ones will move to better hotels paying more, they will tie you up with labour issues and they can decide to just stop coming to work without notice;
ii) thefts and breakages - this would come from both staff and clients;
iii) upgrading costs - to maintain the look and ambience of the hotel, every three years or so you really need to invest into renovations and upgrade;
iv)marketing - another money guzzler for hotels;
v) licensing and compliance - there are thousands of competence authorities that have their list of things to comply with. some like city council would rock up one day and serve you with a notice to repair floors or repaint the building where such are not necessary and by the time you prove your innocence in court they would be laying in wait with more notices;
vi) the operational costs are almost always underrated.

he said that whereas you may actually see the money come in, a good part of it usually ends up being re-invested in running the business.

just talked to UAP insurance. They can insure the building for fire at a cost of kes 72k per year.

The income figures are based on the assumption of 70%+ occupancy. This would be predicated on a strong, competent, experienced management team who'll be committed to the project for a considerable amount of time (at least 3 yrs). So will we be introduced to this management team prior to investment?

I have looked at this in detail...its a noble idea but what the returns he is promising might only be achieved in the 3rd year of operations...I think occupancy rates will average 30-50% in the first 2 years like most new hotels do then rise to 70% after intense marketing...expect the restraunt to be a poor perfomer during this phase...I think he needs a tax opinion too...KRA's rental tax at 28-30% can knock ROI to 11.8% since its on the Southern bypass KRA is planning to introduce a betterment tax...another tax which could knock off returns....in short the hotel business is tough...

I am not an expert in property but I feel that county is the way to go for guestrooms. I frequent Nakuru a lot and a clean decent guestroom goes for between 1200-1500 per night. And the places are almost always full and one has to book and pay in advance. There is nothing out of the ordinary in the rooms, just that they are clean and there is ample parking. Am sure the construction costs per room are less than half of the 1.7M. I would be open to invest in a guest room in Nakuru anytime and my ultimate goal is to put up one

count me in in any Nakuru project