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Buying low cost property for rental...whats your take?
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KulaRaha
#1 Posted : Wednesday, May 07, 2014 3:39:12 PM
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Joined: 7/26/2007
Posts: 6,514
So, have been shown a property in Umoja which is a block of flats with rental income of 156,000. Seller wants 20m.

Anyone here with experience in this? What would be the main challenges?
Business opportunities are like buses,there's always another one coming
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MaichBlack
#2 Posted : Wednesday, May 07, 2014 3:48:34 PM
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Joined: 7/22/2009
Posts: 7,838
KulaRaha wrote:
So, have been shown a property in Umoja which is a block of flats with rental income of 156,000. Seller wants 20m.

Anyone here with experience in this? What would be the main challenges?

How are you planning to pay for it? Cash or mortgage?

ROI:

(156,000 * 12) / 20,000,000 * 100 = 9.36%

Mortgage = 16%

16% - 9.36% = 6.64% will have to come from your pocket for the next 20 yrs if you go the mortgage route. And that is before K.R.A. comes for you and maintenance cost!

I don't know if you have seen this discussion.
Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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KulaRaha
#3 Posted : Wednesday, May 07, 2014 3:51:14 PM
Rank: Elder

Joined: 7/26/2007
Posts: 6,514
Thanks for the link. Obviously part cash, part facility. Idea is to find the sweet spot for holding and sell to buy the next one.
Business opportunities are like buses,there's always another one coming
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kendata26
#4 Posted : Wednesday, May 21, 2014 7:35:58 AM
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Joined: 5/30/2013
Posts: 56
Location: Mini Apple
20Mill is not very low cost for that level of rental income. At that rental yield, the house should be between 10-12Mill to assure a 15%+ return.

You would need 40% cash if you finance at 14% to get the rent to be higher than the mortgage.

You get a 10% mortgage and all you need is 20% cash to get positive cash flows. If you get 10% somewhere, let me know too so I can grab some!
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a4architect.com
#5 Posted : Wednesday, May 21, 2014 9:39:03 AM
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Joined: 1/4/2010
Posts: 1,668
Location: nairobi
@kularaha, the value of the property should be kes 156k x 12 months x 15 years=28m. The 20m asking price is ok since the rent will offset this within 15 years.
As Iron Sharpens Iron, So one Man Sharpens Another.
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KulaRaha
#6 Posted : Wednesday, May 21, 2014 9:43:49 AM
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Thanks!!
Business opportunities are like buses,there's always another one coming
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Angelica _ann
#7 Posted : Wednesday, May 21, 2014 9:46:19 AM
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Joined: 12/7/2012
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That assumes 100% occupancy which will not be the case in a calander (12 months) year!

plus maintenance costs ... rates, rent, caretaker et all
In the business world, everyone is paid in two coins - cash and experience. Take the experience first; the cash will come later - H Geneen
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KulaRaha
#8 Posted : Wednesday, May 21, 2014 9:48:14 AM
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Joined: 7/26/2007
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I am assuming 80% of full rental on an annual basis.
Business opportunities are like buses,there's always another one coming
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kendata26
#9 Posted : Wednesday, May 21, 2014 1:52:17 PM
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Joined: 5/30/2013
Posts: 56
Location: Mini Apple
a4architect.com wrote:
@kularaha, the value of the property should be kes 156k x 12 months x 15 years=28m. The 20m asking price is ok since the rent will offset this within 15 years.


Payback is important but let's l0ok at the returns too and compare with other alternatives.

If as an investor I require a 15% I should not pay a dime over 12Mill! If I pay 28Mill, my returns will be 3%!!!This does not include the asset appreciation which may make it worthwhile anyway.
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a4architect.com
#10 Posted : Wednesday, May 21, 2014 3:23:02 PM
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Joined: 1/4/2010
Posts: 1,668
Location: nairobi
@kendata26, how are you arriving at returns of 3% for the 28m cost?
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