Wazua
»
Investor
»
Property
»
Rental houses- one of the worst investments
Rank: Member Joined: 9/14/2011 Posts: 834 Location: nairobi
|
i have concluded that building houses for rent is one of the worst investments other than for those people who do money laundering
i know this may have been discsused under mortgage topic but would appreciate anyone who can share their experience
With Ksh 15M one can build 8 houses of 2 bedrooms each giving a rent of about sh 22k hence kshs 176K per month assuming 100% occupancy
after monthly agents costs, security, garbage, etc you can end up with net rent of Kshs between 140-150K
However, factoring in financing costs. assuming the kshs 15M was borrowed at 12% for a period of 15 years , the total mortgage repayment is Kshs 181K. Monthly interest alone is kshs 97K
Theoretically therefore one would have to pay about kshs 40K each month from the pocket
The returns are very low and to me i fail to understand how rental houses can ever be considered to be a business!
the actual return on the investment is about 3% per year ignoring the houses value appreciatiation
|
|
|
Rank: Elder Joined: 2/26/2012 Posts: 15,980
|
heri wrote:i have concluded that building houses for rent is one of the worst investments other than for those people who do money laundering
i know this may have been discsused under mortgage topic but would appreciate anyone who can share their experience
With Ksh 15M one can build 8 houses of 2 bedrooms each giving a rent of about sh 22k hence kshs 176K per month assuming 100% occupancy
after monthly agents costs, security, garbage, etc you can end up with net rent of Kshs between 140-150K
However, factoring in financing costs. assuming the kshs 15M was borrowed at 12% for a period of 15 years , the total mortgage repayment is Kshs 181K. Monthly interest alone is kshs 97K
Theoretically therefore one would have to pay about kshs 40K each month from the pocket
The returns are very low and to me i fail to understand how rental houses can ever be considered to be a business! What if you are a civil servant and your mortgage is at 5% for 20 years? "There are only two emotions in the market, hope & fear. The problem is you hope when you should fear & fear when you should hope: - Jesse Livermore
.
|
|
|
Rank: Member Joined: 9/14/2011 Posts: 834 Location: nairobi
|
murchr wrote:heri wrote:i have concluded that building houses for rent is one of the worst investments other than for those people who do money laundering
i know this may have been discsused under mortgage topic but would appreciate anyone who can share their experience
With Ksh 15M one can build 8 houses of 2 bedrooms each giving a rent of about sh 22k hence kshs 176K per month assuming 100% occupancy
after monthly agents costs, security, garbage, etc you can end up with net rent of Kshs between 140-150K
However, factoring in financing costs. assuming the kshs 15M was borrowed at 12% for a period of 15 years , the total mortgage repayment is Kshs 181K. Monthly interest alone is kshs 97K
Theoretically therefore one would have to pay about kshs 40K each month from the pocket
The returns are very low and to me i fail to understand how rental houses can ever be considered to be a business! What if you are a civil servant and your mortgage is at 5% for 20 years? @murchr yes that would change the equation quite a bit since monthly repayment at 5% over 15 years would be Kshs 120K but still don't you think it is a very bad investment decision especially for those who cannot get the mortgage at those 5% rates. I presume the majority of the rental property owners borrow at anything from 12% mind you i have not even factored any taxes on the net rent
|
|
|
Rank: Elder Joined: 2/26/2012 Posts: 15,980
|
heri wrote:murchr wrote:heri wrote:i have concluded that building houses for rent is one of the worst investments other than for those people who do money laundering
i know this may have been discsused under mortgage topic but would appreciate anyone who can share their experience
With Ksh 15M one can build 8 houses of 2 bedrooms each giving a rent of about sh 22k hence kshs 176K per month assuming 100% occupancy
after monthly agents costs, security, garbage, etc you can end up with net rent of Kshs between 140-150K
However, factoring in financing costs. assuming the kshs 15M was borrowed at 12% for a period of 15 years , the total mortgage repayment is Kshs 181K. Monthly interest alone is kshs 97K
Theoretically therefore one would have to pay about kshs 40K each month from the pocket
The returns are very low and to me i fail to understand how rental houses can ever be considered to be a business! What if you are a civil servant and your mortgage is at 5% for 20 years? @murchr yes that would change the equation quite a bit since monthly repayment at 5% over 15 years would be Kshs 120K but still don't you think it is a very bad investment decision especially for those who cannot get the mortgage at those 5% rates. I presume the majority of the rental property owners borrow at anything from 12% mind you i have not even factored any taxes on the net rent It all boils down on the interest on borrowed money. Those who can get better rates (bankers, public servants, etc) can hack it...for those who can only qualify for a mortgage of 12+% they need to sell the houses to make money. The wazua landlord @Kaigangio can teach us on how to handle the taxman "There are only two emotions in the market, hope & fear. The problem is you hope when you should fear & fear when you should hope: - Jesse Livermore
.
|
|
|
Rank: Member Joined: 9/14/2011 Posts: 834 Location: nairobi
|
murchr wrote:heri wrote:murchr wrote:heri wrote:i have concluded that building houses for rent is one of the worst investments other than for those people who do money laundering
i know this may have been discsused under mortgage topic but would appreciate anyone who can share their experience
With Ksh 15M one can build 8 houses of 2 bedrooms each giving a rent of about sh 22k hence kshs 176K per month assuming 100% occupancy
after monthly agents costs, security, garbage, etc you can end up with net rent of Kshs between 140-150K
However, factoring in financing costs. assuming the kshs 15M was borrowed at 12% for a period of 15 years , the total mortgage repayment is Kshs 181K. Monthly interest alone is kshs 97K
Theoretically therefore one would have to pay about kshs 40K each month from the pocket
The returns are very low and to me i fail to understand how rental houses can ever be considered to be a business! What if you are a civil servant and your mortgage is at 5% for 20 years? @murchr yes that would change the equation quite a bit since monthly repayment at 5% over 15 years would be Kshs 120K but still don't you think it is a very bad investment decision especially for those who cannot get the mortgage at those 5% rates. I presume the majority of the rental property owners borrow at anything from 12% mind you i have not even factored any taxes on the net rent It all boils down on the interest on borrowed money. Those who can get better rates ( bankers, public servants, etc) can hack it...for those who can only qualify for a mortgage of 12+% they need to sell the houses to make money. The wazua landlord @Kaigangio can teach us on how to handle the taxman Do bankers , civil servants get mortgages at 5% to build/buy one house or they can get mortgage at 5% to build a block of flats?
|
|
|
Rank: Elder Joined: 2/26/2012 Posts: 15,980
|
heri wrote:murchr wrote:heri wrote:murchr wrote:heri wrote:i have concluded that building houses for rent is one of the worst investments other than for those people who do money laundering
i know this may have been discsused under mortgage topic but would appreciate anyone who can share their experience
With Ksh 15M one can build 8 houses of 2 bedrooms each giving a rent of about sh 22k hence kshs 176K per month assuming 100% occupancy
after monthly agents costs, security, garbage, etc you can end up with net rent of Kshs between 140-150K
However, factoring in financing costs. assuming the kshs 15M was borrowed at 12% for a period of 15 years , the total mortgage repayment is Kshs 181K. Monthly interest alone is kshs 97K
Theoretically therefore one would have to pay about kshs 40K each month from the pocket
The returns are very low and to me i fail to understand how rental houses can ever be considered to be a business! What if you are a civil servant and your mortgage is at 5% for 20 years? @murchr yes that would change the equation quite a bit since monthly repayment at 5% over 15 years would be Kshs 120K but still don't you think it is a very bad investment decision especially for those who cannot get the mortgage at those 5% rates. I presume the majority of the rental property owners borrow at anything from 12% mind you i have not even factored any taxes on the net rent It all boils down on the interest on borrowed money. Those who can get better rates ( bankers, public servants, etc) can hack it...for those who can only qualify for a mortgage of 12+% they need to sell the houses to make money. The wazua landlord @Kaigangio can teach us on how to handle the taxman Do bankers , civil servants get mortgages at 5% to build/buy one house or they can get mortgage at 5% to build a block of flats? Their choice. As long as they pay the money back "There are only two emotions in the market, hope & fear. The problem is you hope when you should fear & fear when you should hope: - Jesse Livermore
.
|
|
|
Rank: Elder Joined: 3/18/2011 Posts: 12,069 Location: Kianjokoma
|
Rentals(esp residential) offer very low returns. Good thing is, you will 'eat' from them for long. Did you factor in rent escalation after 2 years?
|
|
|
Rank: Member Joined: 9/14/2011 Posts: 834 Location: nairobi
|
Lolest! wrote:Rentals(esp residential) offer very low returns. Good thing is, you will 'eat' from them for long.
Did you factor in rent escalation after 2 years? For residential houses, the rental increments may not be that big. For a house in my case going for Kshs 22K maybe in 2 years the rent could be say Kshs 24K ( about 9% growth) But considering that am starting off with a return of merely about 3% per year from the rents earned, the growth in rent over time would still not make the business attractive But as said above the financing cost is the main problem
|
|
|
Rank: New-farer Joined: 4/15/2013 Posts: 15
|
I guess rentals like the ones @heri mentioned are for a specific category of investors:
- Those with access to very low cost loans
- Those with huge amounts of idle cash looking to park it in real estate.
-Those without the need for current cash flow but considering future (read retirement) cash flow after completion of the mortgage.
In my opinion, for one starting off, businesses which generate ready cash flow are the way to go, then once the capital piles up, one can invest in rentals for a secure and steady future income.
|
|
|
Rank: Member Joined: 1/15/2015 Posts: 681 Location: Kenya
|
murchr wrote:heri wrote:murchr wrote:heri wrote:murchr wrote:heri wrote:i have concluded that building houses for rent is one of the worst investments other than for those people who do money laundering
i know this may have been discsused under mortgage topic but would appreciate anyone who can share their experience
With Ksh 15M one can build 8 houses of 2 bedrooms each giving a rent of about sh 22k hence kshs 176K per month assuming 100% occupancy
after monthly agents costs, security, garbage, etc you can end up with net rent of Kshs between 140-150K
However, factoring in financing costs. assuming the kshs 15M was borrowed at 12% for a period of 15 years , the total mortgage repayment is Kshs 181K. Monthly interest alone is kshs 97K
Theoretically therefore one would have to pay about kshs 40K each month from the pocket
The returns are very low and to me i fail to understand how rental houses can ever be considered to be a business! What if you are a civil servant and your mortgage is at 5% for 20 years? @murchr yes that would change the equation quite a bit since monthly repayment at 5% over 15 years would be Kshs 120K but still don't you think it is a very bad investment decision especially for those who cannot get the mortgage at those 5% rates. I presume the majority of the rental property owners borrow at anything from 12% mind you i have not even factored any taxes on the net rent It all boils down on the interest on borrowed money. Those who can get better rates ( bankers, public servants, etc) can hack it...for those who can only qualify for a mortgage of 12+% they need to sell the houses to make money. The wazua landlord @Kaigangio can teach us on how to handle the taxman Do bankers , civil servants get mortgages at 5% to build/buy one house or they can get mortgage at 5% to build a block of flats? Their choice. As long as they pay the money back For civil servants , plans must be for only single residency only. No flats. Talk of follow up from treasury or whoever on 'lonees'. Others sijaangalia.
60% Learning, 30% synthesizing, 10% Debating
|
|
|
Rank: Member Joined: 1/15/2015 Posts: 681 Location: Kenya
|
heri wrote:Lolest! wrote:Rentals(esp residential) offer very low returns. Good thing is, you will 'eat' from them for long.
Did you factor in rent escalation after 2 years? For residential houses, the rental increments may not be that big. For a house in my case going for Kshs 22K maybe in 2 years the rent could be say Kshs 24K ( about 9% growth) But considering that am starting off with a return of merely about 3% per year from the rents earned, the growth in rent over time would still not make the business attractive But as said above the financing cost is the main problem Do people ever ponder that rent and land like any other asset can either appreciate or depreciate? But either way I would go for the 'kamùgùnda na kaburati' at 3% any day. Not withstanding there is a gok bond going for 11% pa for 11 yrs.....
60% Learning, 30% synthesizing, 10% Debating
|
|
|
Rank: Member Joined: 9/14/2011 Posts: 834 Location: nairobi
|
Actually the situation i described above of 8 rental houses constructed at a cost of Kshs 15M and rent of Kshs 176K ( net of kshs 140K after expenses) is not the worst
I know in Nairobi it is common to see a house costing Kshs 15M but whose rent is just about Kshs 80K per month
With a repayment of Kshs 181K per month and rent of only 80K, how can such investments ever make sense to people who are making clean money?
|
|
|
Rank: Member Joined: 6/14/2010 Posts: 521 Location: Nairobi
|
heri wrote:i have concluded that building houses for rent is one of the worst investments other than for those people who do money laundering
i know this may have been discsused under mortgage topic but would appreciate anyone who can share their experience
With Ksh 15M one can build 8 houses of 2 bedrooms each giving a rent of about sh 22k hence kshs 176K per month assuming 100% occupancy
after monthly agents costs, security, garbage, etc you can end up with net rent of Kshs between 140-150K
However, factoring in financing costs. assuming the kshs 15M was borrowed at 12% for a period of 15 years , the total mortgage repayment is Kshs 181K. Monthly interest alone is kshs 97K
Theoretically therefore one would have to pay about kshs 40K each month from the pocket
The returns are very low and to me i fail to understand how rental houses can ever be considered to be a business!
the actual return on the investment is about 3% per year ignoring the houses value appreciatiation Quite an eye opener. I think rentals are better off when not financed.
|
|
|
Rank: Member Joined: 9/14/2011 Posts: 834 Location: nairobi
|
The optimist wrote:heri wrote:i have concluded that building houses for rent is one of the worst investments other than for those people who do money laundering
i know this may have been discsused under mortgage topic but would appreciate anyone who can share their experience
With Ksh 15M one can build 8 houses of 2 bedrooms each giving a rent of about sh 22k hence kshs 176K per month assuming 100% occupancy
after monthly agents costs, security, garbage, etc you can end up with net rent of Kshs between 140-150K
However, factoring in financing costs. assuming the kshs 15M was borrowed at 12% for a period of 15 years , the total mortgage repayment is Kshs 181K. Monthly interest alone is kshs 97K
Theoretically therefore one would have to pay about kshs 40K each month from the pocket
The returns are very low and to me i fail to understand how rental houses can ever be considered to be a business!
the actual return on the investment is about 3% per year ignoring the houses value appreciatiation Quite an eye opener. I think rentals are better off when not financed. @optimist, whether the money is borrowed or not is not really the issue since either way, you still need to factor in the cost of capital when evaluating the return on the investment. Even if you did not borrow the money, you would be forgoing a return of say 10% from just buying bonds with the Kshs 15M as an example
|
|
|
Rank: Member Joined: 7/2/2014 Posts: 123
|
Thitifini wrote:murchr wrote:heri wrote:murchr wrote:heri wrote:murchr wrote:heri wrote:i have concluded that building houses for rent is one of the worst investments other than for those people who do money laundering
i know this may have been discsused under mortgage topic but would appreciate anyone who can share their experience
With Ksh 15M one can build 8 houses of 2 bedrooms each giving a rent of about sh 22k hence kshs 176K per month assuming 100% occupancy
after monthly agents costs, security, garbage, etc you can end up with net rent of Kshs between 140-150K
However, factoring in financing costs. assuming the kshs 15M was borrowed at 12% for a period of 15 years , the total mortgage repayment is Kshs 181K. Monthly interest alone is kshs 97K
Theoretically therefore one would have to pay about kshs 40K each month from the pocket
The returns are very low and to me i fail to understand how rental houses can ever be considered to be a business! What if you are a civil servant and your mortgage is at 5% for 20 years? @murchr yes that would change the equation quite a bit since monthly repayment at 5% over 15 years would be Kshs 120K but still don't you think it is a very bad investment decision especially for those who cannot get the mortgage at those 5% rates. I presume the majority of the rental property owners borrow at anything from 12% mind you i have not even factored any taxes on the net rent It all boils down on the interest on borrowed money. Those who can get better rates ( bankers, public servants, etc) can hack it...for those who can only qualify for a mortgage of 12+% they need to sell the houses to make money. The wazua landlord @Kaigangio can teach us on how to handle the taxman Do bankers , civil servants get mortgages at 5% to build/buy one house or they can get mortgage at 5% to build a block of flats? Their choice. As long as they pay the money back For civil servants , plans must be for only single residency only. No flats. Talk of follow up from treasury or whoever on 'lonees'. Others sijaangalia. It's true, even those car loans are strictly for personal vehicles, not commercial. ,
|
|
|
Rank: Elder Joined: 5/1/2010 Posts: 3,024 Location: Hapa
|
murchr wrote:heri wrote:i have concluded that building houses for rent is one of the worst investments other than for those people who do money laundering
i know this may have been discsused under mortgage topic but would appreciate anyone who can share their experience
With Ksh 15M one can build 8 houses of 2 bedrooms each giving a rent of about sh 22k hence kshs 176K per month assuming 100% occupancy
after monthly agents costs, security, garbage, etc you can end up with net rent of Kshs between 140-150K
However, factoring in financing costs. assuming the kshs 15M was borrowed at 12% for a period of 15 years , the total mortgage repayment is Kshs 181K. Monthly interest alone is kshs 97K
Theoretically therefore one would have to pay about kshs 40K each month from the pocket
The returns are very low and to me i fail to understand how rental houses can ever be considered to be a business! What if you are a civil servant and your mortgage is at 5% for 20 years? So is the problem with the investment or the borrowing rate? Float like a butterfly, sting like a bee. - Muhammad Ali🐝
|
|
|
Rank: Elder Joined: 6/23/2009 Posts: 13,519 Location: nairobi
|
be careful about dream killers.. they exist on the net and are mostly the work of dark forces. in reality, most big projects such as flat constructions cannot be done minus loans. the end
HF 90,000 ABP 3.83; KQ 414,100 ABP 7.92; MTN 23,800 ABP 6.45
|
|
|
Rank: Member Joined: 9/11/2014 Posts: 228 Location: Nairobi
|
heri wrote:The optimist wrote:heri wrote:i have concluded that building houses for rent is one of the worst investments other than for those people who do money laundering
i know this may have been discsused under mortgage topic but would appreciate anyone who can share their experience
With Ksh 15M one can build 8 houses of 2 bedrooms each giving a rent of about sh 22k hence kshs 176K per month assuming 100% occupancy
after monthly agents costs, security, garbage, etc you can end up with net rent of Kshs between 140-150K
However, factoring in financing costs. assuming the kshs 15M was borrowed at 12% for a period of 15 years , the total mortgage repayment is Kshs 181K. Monthly interest alone is kshs 97K
Theoretically therefore one would have to pay about kshs 40K each month from the pocket
The returns are very low and to me i fail to understand how rental houses can ever be considered to be a business!
the actual return on the investment is about 3% per year ignoring the houses value appreciatiation Quite an eye opener. I think rentals are better off when not financed. @optimist, whether the money is borrowed or not is not really the issue since either way, you still need to factor in the cost of capital when evaluating the return on the investment. Even if you did not borrow the money, you would be forgoing a return of say 10% from just buying bonds with the Kshs 15M as an example @Heri, what you are not taking into account is that quite a big %age of people build incrementally; perhaps sacrificing weekend drinking money for cement. The money may eventually add up to 15M, but that same person would not have the discipline to save that amount of money if s/he was not constructing.
|
|
|
Rank: Member Joined: 9/14/2011 Posts: 834 Location: nairobi
|
obiero wrote:be careful about dream killers.. they exist on the net and are mostly the work of dark forces. in reality, most big projects such as flat constructions cannot be done minus loans. the end @obiero nothing here about dream killers. I have constructed myself and am just sharing my experience and learnings. it is just to motivate a discussion and be clear on the kind of returns especially once you factor in the financing costs /cost of capital
|
|
|
Rank: Elder Joined: 3/29/2011 Posts: 2,242
|
@heri, every investor is assumed to make a rational choice in the choice of the investment vehicle that is preferred.eg whereas a young and information savvy investor may opt for stocks based on ability to analyze publicly available information and intelligence on companies, a retiree with a huge retirement payoff may settle for rentals to "park" his cash and release it in monthly bits as rental income with minimal hussles. Borrowing to finance rentals esp with the current interest rate regime generates negative returns in most cases. "Things that matter most must never be at the mercy of things that matter least." Goethe
|
|
|
Wazua
»
Investor
»
Property
»
Rental houses- one of the worst investments
Forum Jump
You cannot post new topics in this forum.
You cannot reply to topics in this forum.
You cannot delete your posts in this forum.
You cannot edit your posts in this forum.
You cannot create polls in this forum.
You cannot vote in polls in this forum.
|