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Rental houses- one of the worst investments
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iris
#41 Posted : Wednesday, April 15, 2015 1:16:18 PM
Rank: Member

Joined: 9/11/2014
Posts: 228
Location: Nairobi
heri wrote:
Mainat wrote:
You are paying 180 and receiving 140, correct. So what is your return then?
You are not paying 15m today, correct, but 180k? What will 15m cash outlay today be worth in 15/20yrs.

Put it another way, if you had borrowed 15m in 2002 for rental house building...


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


@Heri, reading this, I am getting frustrated with you smile smile. I am not an accountant but even I can work out that if you borrowed 15M 15 years ago and have been paying out 180k while getting 140k, your overall returns are unlikely to be negative. First you received 15M, then you have paid out (180-140)k monthly from your pocket, which amounts to 40x12x15=7.2M. In addition you have your block of flats which is now perhaps 30M. And of course the rent is unlikely to have remained the same over 15 years..
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Mainat
#42 Posted : Wednesday, April 15, 2015 1:54:40 PM
Rank: Veteran

Joined: 11/21/2006
Posts: 1,590
Pray (hope you get this time Heri)
Objective: Build 15m worth of rental houses.
Masembe Borrowed 15m
Githendu Spent own 15m

Masembe’s cost and returns
Cost vs Return
Cashflow Month 1 180k 140k
Month 2 180k 140k


Githendu’s cost and returns
Cost vs Return
Cashflow Month 1 15m 140k
Month 2 15m 140k

I.e. cashflow-wise, you are so worse off spending your own cash to invest
Sehemu ndio nyumba
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kaifastus
#43 Posted : Wednesday, April 15, 2015 2:07:55 PM
Rank: Member

Joined: 8/17/2011
Posts: 207
Location: humu humu
It amuses me every time someone bash RE. your math is wrong. The capital structure of most RE biz (as in many other biz) is a mix of own capital/equity & debt.Why do banks love financing RE.(One of very few start up biz that generate profits/returns quickly,low risk, stable cash flows. there are sooo many biz in the world. however a high % of investors always have RE in their portfolios why. stable cash flows,hedge against inflation,and unbelievably high returns when disposed off,less mangmnt hussle etc. by the way evidence shows that inheritance bequethed in form of RE outlasts all other forms!
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Rongla
#44 Posted : Wednesday, April 15, 2015 3:56:43 PM
Rank: Member

Joined: 10/3/2008
Posts: 101
How funny most RE bashers are probably holding HFCK shares firmly. Talk of Nestle and Cadbury bashing Cocoa farmers. Or Michael Joseph talking of Kenyans peculiar calling habits!
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Mike Ock
#45 Posted : Wednesday, April 15, 2015 4:16:44 PM
Rank: Member

Joined: 1/22/2015
Posts: 682
heri wrote:
Bigchick wrote:
My take:-for middle to upper class housing,then it could be a "bad investment"

But for low end housing,returns are good.

Example:-The same 15M will buy you a 33 by 66 around Embakassi for 5M then use 10M to do at least 4 floors of bedsitters 8 per floor.
Total units 32.Rental income 9000 per unit
Total 9000×32=288,000.

There is a possibility of doing 40 units(5 floors)hence Kes360,000 or even 48(6floors)hence Kes 432,000 though not advisable.Hizi ndio zina anguka.

So for me its low investment,high returns but of course high risk too.


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


would that be an accusation or a reality? Google "slum Lord"
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Wakanyugi
#46 Posted : Wednesday, April 15, 2015 4:28:39 PM
Rank: Veteran

Joined: 7/3/2007
Posts: 1,635
Interesting conversation.

But me thinks we are missing something. In Kenya investing in real estate is not just a question of costs and returns.

In a society like ours, with no social safety net to speak of, real estate is about security and peace of mind. This applies even when the mjengo is done with an eye on rental income. It is not without good reason that many people will call their construction project 'my pension plan.'

When you factor in such intangible considerations a pure calculation of return on investment (for a product that many Kenyans will never sell anyway) is likely to lead you to the wrong conclusions.

Plus real estate investment in Kenya is a fantastically lucrative business, even by World standards. If you don't believe me, ask one Mukesh Ambani.
"The opposite of a correct statement is a false statement. But the opposite of a profound truth may well be another profound truth." (Niels Bohr)
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maka
#47 Posted : Wednesday, April 15, 2015 4:32:42 PM
Rank: Elder

Joined: 4/22/2010
Posts: 11,522
Location: Nairobi
Wakanyugi wrote:
Interesting conversation.

But me thinks we are missing something. In Kenya investing in real estate is not just a question of costs and returns.

In a society like ours, with no social safety net to speak of, real estate is about security and peace of mind. This applies even when the mjengo is done with an eye on rental income. It is not without good reason that many people will call their construction project 'my pension plan.'

When you factor in such intangible considerations a pure calculation of return on investment (for a product that many Kenyans will never sell anyway) is likely to lead you to the wrong conclusions.

Plus real estate investment in Kenya is a fantastically lucrative business, even by World standards. If you don't believe me, ask one Mukesh Ambani.


Yep sentimental value...Personally I wouldn't go for it...thats just me I can get better returns elsewhere.
possunt quia posse videntur
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MaichBlack
#48 Posted : Wednesday, April 15, 2015 5:52:11 PM
Rank: Elder

Joined: 7/22/2009
Posts: 7,884
Rongla wrote:
How funny most RE bashers are probably holding HFCK shares firmly. Talk of Nestle and Cadbury bashing Cocoa farmers. Or Michael Joseph talking of Kenyans peculiar calling habits!

Link: Should we mix morals with money?
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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S.Mutaga III
#49 Posted : Wednesday, April 15, 2015 6:09:42 PM
Rank: Member

Joined: 3/26/2012
Posts: 830
I think if you wish to be a landlord, own commercial property. Those stalls measuring 6ft by 6ft and renting at 15k in Thika...The building had over fifty, with the from ones renting for almost 30k. That is just the ground floor. I believe commercial real estate is very rewarding. For me, the only real estate I would venture in is commercial real estate or buying my own home...otherwise I would rather wait for a bear market and get blue chips yielding 10% in dividends...with capital gains as a bonus.
A successful man is not he who gets the best, it is he who makes the best from what he gets.
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MaichBlack
#50 Posted : Wednesday, April 15, 2015 6:10:52 PM
Rank: Elder

Joined: 7/22/2009
Posts: 7,884
Quote:
"I'll tell you why I like the cigarette
business. It cost a penny to make.
Sell it for a dollar. It's addictive. And
there's a fantastic brand loyalty."

-- Warren Buffett


@Rongla - Warren Buffet is the biggest philanthropists in the World!!! 99% of his wealth will go to charity during his lifetime or death. He has already given tonne loads!!!

Some of the charities deal with vices which include smoking! But guess what. Warren Buffet through Berkshire Hathaway owns stock in companies that deal with cigarettes in one way or the other.

As long as people are willing to work for banks (repaying loans), we will own banking stock! Sisi sio mama ya mtu hapa!! Biachara ni Biachara.

I don't think the owner of Lee Funeral wishes death on anyone. But there was a market gap that has made him a very wealthy man. People will die no matter what he does or wishes! And when they do, he gets paid!

Capitalism 101.
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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