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Buying low cost property for rental...whats your take?
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XSK
#11 Posted : Wednesday, May 21, 2014 3:42:23 PM
Rank: Veteran

Joined: 12/8/2009
Posts: 975
Location: Nairobi
kendata26 wrote:
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.


why would you ignore it? ama its the icing on the cake?

Personally that would be as important as the rent yield because sooner or later you may want to sell it.
You will know that you have arrived when money and time are not mutually exclusive "events" in you life!
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dunkang
#12 Posted : Thursday, May 22, 2014 7:05:04 AM
Rank: Elder

Joined: 6/2/2011
Posts: 4,824
Location: -1.2107, 36.8831
a4architect.com wrote:
@kendata26, how are you arriving at returns of 3% for the 28m cost?

Am not @Kendata26 but i can help explain.
Assuming that you bought the property for KES 20M.
Also, assuming your rental income for 15 years is KES 28M.
Now, the gross profit for the entire 15 years is KES 8M. That is, KES 0.533M annually.

This translates to 2.67% annually (on gross rental income).
Receive with simplicity everything that happens to you.” ― Rashi

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KulaRaha
#13 Posted : Thursday, May 22, 2014 7:16:16 AM
Rank: Elder

Joined: 7/26/2007
Posts: 6,514
The idea is not to hold for the full 15 years.

And if you do hold, remember statistics show the average Kenyan mortgage runs for only 6 to 7 years, due to prepayments. After that, its all cream!
Business opportunities are like buses,there's always another one coming
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mawinder
#14 Posted : Thursday, May 22, 2014 7:21:22 AM
Rank: Elder

Joined: 4/30/2008
Posts: 6,029
dunkang wrote:
a4architect.com wrote:
@kendata26, how are you arriving at returns of 3% for the 28m cost?

Am not @Kendata26 but i can help explain.
Assuming that you bought the property for KES 20M.
Also, assuming your rental income for 15 years is KES 28M.
Now, the gross profit for the entire 15 years is KES 8M. That is, KES 0.533M annually.

This translates to 2.67% annually (on gross rental income).

What of a 15 year bond? I also hear rents in Umoja and Eastlands rarely go up and have stagnated for the past 6 years.
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Gordon Gekko
#15 Posted : Thursday, May 22, 2014 8:32:15 AM
Rank: Elder

Joined: 5/27/2008
Posts: 3,760
30% taxes on rental income.......
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KulaRaha
#16 Posted : Thursday, May 22, 2014 8:55:14 AM
Rank: Elder

Joined: 7/26/2007
Posts: 6,514
Tax on residential rentals even if you're paying a mortgage?
Business opportunities are like buses,there's always another one coming
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Gordon Gekko
#17 Posted : Thursday, May 22, 2014 11:01:40 AM
Rank: Elder

Joined: 5/27/2008
Posts: 3,760
KulaRaha wrote:
Tax on residential rentals even if you're paying a mortgage?

Yes, but you can reduce taxable income by deducting interest payments on the mortgage as a legitimate expense. Principal payments are not deductible.
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a4architect.com
#18 Posted : Thursday, May 22, 2014 11:04:51 AM
Rank: Veteran

Joined: 1/4/2010
Posts: 1,668
Location: nairobi
dunkang wrote:
a4architect.com wrote:
@kendata26, how are you arriving at returns of 3% for the 28m cost?

Am not @Kendata26 but i can help explain.
Assuming that you bought the property for KES 20M.
Also, assuming your rental income for 15 years is KES 28M.
Now, the gross profit for the entire 15 years is KES 8M. That is, KES 0.533M annually.

This translates to 2.67% annually (on gross rental income).

@dunkang, thanks. In real estate investment, investors are usually more concerned about the passive income after the return on investment period eg after the 15 year payback period, the perpetual rent income and capital gain is what is of concern.
As Iron Sharpens Iron, So one Man Sharpens Another.
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Mucene
#19 Posted : Thursday, May 22, 2014 3:55:47 PM
Rank: Member

Joined: 8/4/2012
Posts: 155
Location: Kenya
Gordon Gekko wrote:
30% taxes on rental income.......


That's for non-resident taxpayers. Residents are taxed at the graduated rates just like income tax on salaries.
If you don't want to go to plan B have a good plan A.
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KulaRaha
#20 Posted : Thursday, May 22, 2014 4:08:47 PM
Rank: Elder

Joined: 7/26/2007
Posts: 6,514
Mucene wrote:
Gordon Gekko wrote:
30% taxes on rental income.......


That's for non-resident taxpayers. Residents are taxed at the graduated rates just like income tax on salaries.


I am a resident, and will deduct interest as an expense.

Business opportunities are like buses,there's always another one coming
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