Wazua
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Low End Housing: High Risk, High Return
Rank: Elder Joined: 3/29/2011 Posts: 2,242
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Fellow Wazuans, Is a residential apartment block, in a low income neighbourhood investment of 12M Kshs fully financed by SACCO loan at 12% per annum for 20 units each at a rent of Kshs 12,000 per month, assuming 85% occupancy rate a good investment decision? Note, cost of land not included in the total cost ( assume land is freely available or at nominal cost) "Things that matter most must never be at the mercy of things that matter least." Goethe
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Rank: Veteran Joined: 6/2/2010 Posts: 1,070
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Gathige wrote:Fellow Wazuans, Is a residential apartment block, in a low income neighbourhood investment of 12M Kshs fully financed by SACCO loan at 12% per annum for 20 units each at a rent of Kshs 12,000 per month, assuming 85% occupancy rate a good investment decision? Note, cost of land not included in the total cost ( assume land is freely available or at nominal cost) All your figures are too optimistic. - That it will cost only 12M to put up 20 units - That these units will fetch 12k per month - That occupancy will be at 85% Use more realistic figures and then ran the maths again. Personally, I wouldn't. I would rather invest the 12M in a blue chip stock that pays 10% dividend and then net 100k per month without having to hassle with tenants, maintenance, KRA etc. Another alternative is the soon to be announced IFB interest free bond that will probably net 13.5% , that is 135k per month risk free and hustle free.
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Rank: Member Joined: 11/15/2010 Posts: 454 Location: Nairobi
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My 2 cents wrote:Gathige wrote:Fellow Wazuans, Is a residential apartment block, in a low income neighbourhood investment of 12M Kshs fully financed by SACCO loan at 12% per annum for 20 units each at a rent of Kshs 12,000 per month, assuming 85% occupancy rate a good investment decision? Note, cost of land not included in the total cost ( assume land is freely available or at nominal cost) All your figures are too optimistic. - That it will cost only 12M to put up 20 units - That these units will fetch 12k per month - That occupancy will be at 85% Use more realistic figures and then ran the maths again. Personally, I wouldn't. I would rather invest the 12M in a blue chip stock that pays 10% dividend and then net 100k per month without having to hassle with tenants, maintenance, KRA etc. Another alternative is the soon to be announced IFB interest free bond that will probably net 13.5% , that is 135k per month risk free and hustle free. 12M cannot complete 20 standard bedsitter units. unless there won't be tiles, sanitary wares, cabinets etc. Any Sacco or bank will start charging interest 30 days after disbursement. Building 20 units takes a minimum of 1 year, how will you be repaying your loan during construction stage. ....He who began a good work in you will carry it on to completion..
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Rank: Elder Joined: 3/29/2011 Posts: 2,242
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Thanks @My 2 cents, @tinker. Good insights @ My 2 cents 1. All your figures are too optimistic: Quite to the contrary the figures are accurate, and the math’s correct. I am a bean counter, so numbers are to the dot. The unit rental rates are for occupied units and the 85% occupancy is based in total units occupied as a percentage of all the units. The lesson here is that most costs are exaggerated by contractors, but self-builds save quite some penny. The downside is it takes time and energy, and one cannot do it for long. 2. Alternative investments. That’s a good perspective depending on a investor’s preference. But I think for one to get a 10% Div one would really need to diversify. IFB looks quite appealing. Will research more on it. @tinker 3. 12M can indeed do 20 standard bedsitter units. Again the emphasis is basic, ie basic tiles flooring, basic kitchenettes, open wardrobes, and decent plumbing. Nothing top range but decent for the market category. Downside would be higher repairs/replacement costs due to wear and tear. 4. SACCO charging : This is indeed a pain. Lesson is to stagger the loan disbursements as per need to avoid high initial cash disbursed which would lay idle for some time. Most SACCOs would allow this. 5. Duration : 1 year is on the lower end. At least one year and a half for decent work and site management "Things that matter most must never be at the mercy of things that matter least." Goethe
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Rank: Elder Joined: 6/23/2009 Posts: 13,559 Location: nairobi
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Gathige wrote:Thanks @My 2 cents, @tinker. Good insights
@ My 2 cents
1. All your figures are too optimistic: Quite to the contrary the figures are accurate, and the math’s correct. I am a bean counter, so numbers are to the dot. The unit rental rates are for occupied units and the 85% occupancy is based in total units occupied as a percentage of all the units. The lesson here is that most costs are exaggerated by contractors, but self-builds save quite some penny. The downside is it takes time and energy, and one cannot do it for long.
2. Alternative investments. That’s a good perspective depending on a investor’s preference. But I think for one to get a 10% Div one would really need to diversify. IFB looks quite appealing. Will research more on it.
@tinker
3. 12M can indeed do 20 standard bedsitter units. Again the emphasis is basic, ie basic tiles flooring, basic kitchenettes, open wardrobes, and decent plumbing. Nothing top range but decent for the market category. Downside would be higher repairs/replacement costs due to wear and tear.
4. SACCO charging : This is indeed a pain. Lesson is to stagger the loan disbursements as per need to avoid high initial cash disbursed which would lay idle for some time. Most SACCOs would allow this.
5. Duration : 1 year is on the lower end. At least one year and a half for decent work and site management
Hopefully this was executed to the bitter or sweet end. An idea that remains only on paper, is useless. Fail first, or succeed fast
COOP 70,000 ABP 15.20; KQ 414,100 ABP 7.92; MTN 23,800 ABP 6.45
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Rank: Elder Joined: 6/23/2009 Posts: 13,559 Location: nairobi
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Fyatu wrote:Fullykenyan wrote:obiero wrote:winmak wrote:obiero wrote:kayhara wrote:What's the definition of low class? I just met a Mombasa guy with
28 Swahili houses, he tells me each cost him an average of 3.5 million to build including a borehole for each. so that's about 98 million.
each house has 10 small one bedroom going for 8,000 each including water,
so each house income per month is ksh. 80,000/-
all 28 houses is ksh. 2,240,000
assuming he built them all in one year? (he built over 5 years) it will take him only 3.5 years to recoup his investments, that's assuming the rent is constant.
well.... Low end refers to the target market not the landlord.. There are 4 different seven storied bedsitter units in Pipeline with 10 houses per floor owned by the immediate former Governor that earn him an average of KES 2,380,000 monthly from rent of KES 8,500 per flat Wow, now I didn't know he had interests in such.. Now @Obiero, I am prospecting, I want an 8th in areas of Kasarani or such like neighborhoods to build a rental flat in the next 3 years. How much do the high traffic areas go for? and would you advice me to go for this area or are there other lucrative areas? (I had been adviced on Kinoo , Gachie... but I fear those areas) @winmak last I checked, from Sunton, Clayworks, Seasons going to main centre at Kasarani you will need KES 8,500,000 for a plain 1/8 acre. Mwiki headed down to Kangundo road budget for KES 3,500,000 to KES 6,000,000 Kitengela there is no land for sale from 1st to 3rd row all the way upto Yukos. Fourth row is available at KES 5,500,000, but being a victim of an intricate land fraud in the county dating back to 2009, I will not lead anyone to invest in the area. Im still in court! These prices are equivalent to the price of land in Germany, where you have all the roads tarmacked, electricity and water on site. Something is wrong in kenya. Hii ndio ujinga iko Kenya. I advice you not to buy those "points" (30 by 60 plots) being hawked everywhere in the mavi stinking slums of Nairobi(Kasarani, mwiki huko kwote ni slums). Ni wizi tupu na hujuma kwa wananchi.Kids living in these flats are dying daily of pneumonia and other diseases associated with simple stuff like lack of sunshine(vitamin D). Yes, i intend to build rentals one day but will not be part of the collective Kenyan mediocrity and greed of building 10 bedsitters on one floor. Juzi a senior colleague was trying to explain to me over a drink his vision of building 20 (14 by 14 ft) one bedroom units on his 33 by 66 plot....sasa kama hii si hujuma, hujuma ni nini? 11 projects later.. 3 in Nairobi, 1 Kajiado, 6 Kakamega, 1 Kisii, I feel like I am just getting started
COOP 70,000 ABP 15.20; KQ 414,100 ABP 7.92; MTN 23,800 ABP 6.45
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