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Buying low cost property for rental...whats your take?
Rank: Elder Joined: 7/26/2007 Posts: 6,514
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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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Rank: Elder Joined: 7/22/2009 Posts: 7,455
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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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Rank: Elder Joined: 7/26/2007 Posts: 6,514
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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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Rank: New-farer Joined: 5/30/2013 Posts: 56 Location: Mini Apple
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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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Rank: Veteran Joined: 1/4/2010 Posts: 1,668 Location: nairobi
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@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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Rank: Elder Joined: 7/26/2007 Posts: 6,514
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Thanks!! Business opportunities are like buses,there's always another one coming
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Rank: Elder Joined: 12/7/2012 Posts: 11,908
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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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Rank: Elder Joined: 7/26/2007 Posts: 6,514
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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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Rank: New-farer Joined: 5/30/2013 Posts: 56 Location: Mini Apple
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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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Rank: Veteran Joined: 1/4/2010 Posts: 1,668 Location: nairobi
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@kendata26, how are you arriving at returns of 3% for the 28m cost? As Iron Sharpens Iron, So one Man Sharpens Another.
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Rank: Veteran Joined: 12/8/2009 Posts: 975 Location: Nairobi
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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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Rank: Elder Joined: 6/2/2011 Posts: 4,818 Location: -1.2107, 36.8831
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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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Rank: Elder Joined: 7/26/2007 Posts: 6,514
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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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Rank: Elder Joined: 4/30/2008 Posts: 6,029
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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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Rank: Elder Joined: 5/27/2008 Posts: 3,760
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30% taxes on rental income.......
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Rank: Elder Joined: 7/26/2007 Posts: 6,514
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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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Rank: Elder Joined: 5/27/2008 Posts: 3,760
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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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Rank: Veteran Joined: 1/4/2010 Posts: 1,668 Location: nairobi
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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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Rank: Member Joined: 8/4/2012 Posts: 155 Location: Kenya
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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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Rank: Elder Joined: 7/26/2007 Posts: 6,514
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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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