That is very true. But i wonder whether all the houses i see being sold for rent are bought by retirees.

I agree every investor has to make his /her choice

What an interesting topic!

Another example, i have a lady friend who is a member of staff at Barclays Bank, she took a loan of 5 million to buy an apartment in Pangani area of Nairobi with a monthly rent of 30k. Assuming that the loan repayment is so flexible and that she will only be allowed to use the income from rent to offset the loan,(thats the 30k), it then means that, at an interest rate of 5%, she will be using all the money she gets as rent to pay the loan for a period of 17 years!!!!! she will start enjoying her rent at the 18th year, if at all she will still be alive!!

Example 2: in Zimmerman there is what we call Toa-Tugawe where 10 people contribute in equal share to buy a 50 by 100 plot. The whole plot goes for abt 10 million, so this means each buyer will contribute 1 million to own one tenth of an eight (simply, the 50 by 100 plot is divided equally among the buyers). with this, you can construct 4 units of one bedroom each with an income of between 10 - 12k per month. To build one unit, as per local estimates, costs about 700k. So total invested amount = (1 million for land and 2.8 million for construction) equals almost 4 million. If u had taken a loan at an interest of 15%, you will be required to repay the loan for about 120 months! 10 years, and this assumes that all the income goes to repaying the loan. So you will have to suffer for 10 years before you realize the fruits of your labor.

But depending with the nature of the building, its functionality, design, location and finishes, you could get potential buyers within several months of constructing the houses, and if you can manage to sell them all within, lets say 2 years after construction, you might get an overall profit of 25-30%, so this means that after selling your investments valued at 15 million, you might end up having between 18-20 million. After clearing your 15 million loan, you will have like 3 or 4 million on top!!

People still opt to invest in rental properties with loans because its the only investment that guarantees returns, regardless of how little they could be. Unlike other investments where you have to always watch over, you can have rental properties then go and live in Jamaica as you wait for your meager monthly returns. Farming is risky, retail business, wholesale business, hotel industry, stocks all posses a form of risk which doesn't exist in rental units.

If your rental property is giving you 3% returns and a stock investment is giving you 3% div yield...which investment option would you prefer?

@heri take note here!

Guys i am not at all advocating for even one moment that we all stop borrowing to buy or build rental houses. Far from it

i am giving my own experience to share what i have experienced and also allow us to discuss. Most important is to allow us appreciate the investment and the returns one can expect

i have constructed and God willing i will do it again and again. I also have shares and fully appreciate that banks stocks give me good returns by lending at those ridiculous rates ( eg CFC which is 50% of my shares portifolio has given me 98% returns after holding for 2 years)

For those advocating for investments that bring positive social and environmental impacts- well that is a different angle to look at it . Am looking at this from purely personal point of view of how i appraise the investment

@mainat, what i understand about cashflow is that investing the Kshs 15M in rental properties gives one a monthly cashinflow of about Kshs 140K which is a very good thing as this gives you power to borrow and power to do other investments etc

also if the same Kshs15M is used to buy land in kitengela and wait for it to appreciate with a view to disposing it in 5-10 years, there will be no cashinflow

But also realise that if the Ksh15M was borrowed, there will be a cashoutflow of kshs 181K per month to finance the mortgage

Cashflow is ofcourse very important but i think one cannot divorce cashflow from return on investment

This one i agree the returns are much higher. i have seen those houses and even know someone who did exactly as you say

Only that some people ofcourse will accuse you of contributing to development of slums buy squeezing families/people in such small houses. i have seen some of those houses in pipeline area where some units do not even have ventilation, sewer flowig freely

Yes i could ofcourse after considering other available investment opportunities

But for me the issue is not whether i have Kshs15M in cash or am borrowing it

The issue is either way, i need to factor in the cost of capital to properly appraise the investment returns. I think most people do not consider the cost of capital when looking at returns

ofcourse for example if am borrowing but at 5% like bankers or civil servants, then the returns dramatically improve

am not clear what you mean here. The return here would a negative 22%

Quite an enlightening discussion. I am building without finance and have been doing the numbers and keep wondering if am doing the right thing. My consolation is that am looking at early retirement and hoping that the returns will take care of my expenses at that time.