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Rental houses- one of the worst investments
MaichBlack
#51 Posted : Wednesday, April 15, 2015 7:21:44 PM
Rank: Elder

Joined: 7/22/2009
Posts: 7,872
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.

Wrong example!!!!

Read the title of this thread. It has the word "rentals". That as actually part of the basis of the argument (the other being financing [read mortgages]).

Ambani and crew don't rent out. Everything they have built, they have SOLD!
Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
premio
#52 Posted : Wednesday, April 15, 2015 8:29:54 PM
Rank: Member

Joined: 5/31/2009
Posts: 226
How many people accumilate wealth without borrowing. My friend borrowed 25m from member added his own 5m 2007 and bought a 1/2 Acre in upperhil. I thought he was mad he lost weight repaying the morgage in 2011 his home was almost seized he was given a restructured payment. By 2013 brokers were hunting for him he was cornered and offered 175m. Today he is a landbroker in Kajiado unless otherwise he will never know poverty. Assume he tried to save his 225k repayment from 2007 h8ow much worth of land would he get in upperhill
sparkly
#53 Posted : Wednesday, April 15, 2015 8:50:24 PM
Rank: Elder

Joined: 9/23/2009
Posts: 8,083
Location: Enk are Nyirobi
Dos and donts-

www.investopedia.com/art...mpaign=fb-automated-post
Life is short. Live passionately.
MaichBlack
#54 Posted : Wednesday, April 15, 2015 9:07:51 PM
Rank: Elder

Joined: 7/22/2009
Posts: 7,872

Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
MaichBlack
#55 Posted : Wednesday, April 15, 2015 9:09:35 PM
Rank: Elder

Joined: 7/22/2009
Posts: 7,872

Eish vane!!! Wrong examples. The stuff in that link does not apply in Kenya.

Quote:
In this time of historically low interest rates, it makes sense to consider investing in rental property. If the biggest chunk of the monthly cost of ownership – the mortgage payment – can be frozen for 30 years while rents gradually increase, the resale value of the property escalates and......

Interest rates for a 30-year fixed mortgage are currently (April 2015) in the 3.5–4.0% range, and they haven’t been so low in at least 40 years. And the tax code is really tilted in favor of home ownership and investment.
Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
Rongla
#56 Posted : Thursday, April 16, 2015 12:39:16 AM
Rank: Member

Joined: 10/3/2008
Posts: 101
@MaichBlack Thank you for the informative links. One thing I have noted from Warren Buffett excerpts is that he isn't bashing nor talking down other investors who have chosen a different investment vehicle. He isn't saying " look, I am riding on your backs" and as you've put it, he is a philanthropist and will give away 99% of his wealth and this is how he is taking the social responsibility I was talking about.
I am in no way suggesting you give away any of your wealth or be a philanthropist or not to invest in any company for that matter, But as I said, for us to develop as a country we shouldn't tie our investments approach to super profits, mega profits and nothing else but profits
YES, both of you are 101% capitalist, But there is only one Warren Buffett and can only be one at a time. If there was room for another WB of his generation, we wouldn't talking about him as he wouldn't have been that wealthy anyway.
sanity
#57 Posted : Thursday, April 16, 2015 9:48:47 AM
Rank: Member

Joined: 1/24/2011
Posts: 407
Location: Nairobi,Kenya
Mainat wrote:
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

Month 1 180k 140k
Month 2 180k 140k


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

I.e. cashflow-wise, you are so worse off spending your own cash to invest


@mainat..your calculation is not accurate.In Githendu's case,where does the 180K disappear to now that he is not paying any loan? For his case,it should be
Cost Vs Return
15M 320K

I think thats a good return for a 15M investment.We can then assume that Githendu will have an ROI within 4 years.He will then be reaping profits in addition to his building.To me thats an perfect investment.
On the other hand and I stand to be corrected ,I think one of the main reasons why investors choose loans rather than their own cash is to beat the taxman.Considering KRA taxes rental incomes at 30%,then it would be wise to ensure that a part of your income is viewed as a cost hence not taxed..the tax gurus can advice more on this...but still rentals/RE will remain amongst the best investments one can make..
Hope is not a strategy
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