I have just been browsing properties for sale, and when I do a simple pay-back calculation, houses in the so called "lower" end like umoja, kayole, zimmerman, etc, seem to have a payback of 9-10 years (cost of property divided by current annual rent), while the payback in the "higher" end areas such as Kile, Lavi is averaging 18-19 years.
For instance, a 14M Kile hse will give rental income of 60K p.m, while a block of flats in Umoja going for 10M will have a rental income of 110K.
I know this is a simple calculation that doesn't take into account inflation and time value for money, but I believe its a useful tool to compare how expensive the properties are.
In mid-nineties, I know of someone who sold a property with a payback of 6 years and I thought it was a good deal, but that was then and current prices have rallied due to various reasons resulting in the longer periods.
While considering that it may be a challenge to collect rent in these area and value appreciates at a lesser rate than the "higher" end, on the other hand these houses have a higher occupancy rate.
Is there something I'm missing, or is such an investment in the "lower" end of good value for money.
Any thoughts?
** I have used the terms lower end and higher end for description and mean no offence, while others may have the same perception while others may not.