Wazua
»
Investor
»
Property
»
Income property
Rank: New-farer Joined: 6/27/2011 Posts: 63
|
Hi Wazuans,
Seeking advice on income properties. So far my research has led to the below options.
Option 1 (most viable IMHO)
Commercial development in lower income area such as Githurai 44/45, Kitengela, Rongai, Ruiru etc.
Cost of land varies with area with KSHs 2.5 m in Kitengela to about 7 in Githurai for a 50 by 100.
Construction costs estimated at about 15m to 20m for 4 floors.
Rental income ranges from 120k pm to 500k pm depending on who you talk to.
Capital gains on completion 50-150% (again depending on who you talk to) on valuation allowing you to unlock equity.
If anyone has pursued this option I would greatly appreciate validation or correction of the assumptions and any additional infor
Option 2 Rental property in upper middle class area such as Lavington
Estimated cost 15-25m for an apartment.
Rental income (per sellers claims) 120k pm unfurnished 250 k pm furnished.
Again would appreciate any further further input on this.
Option 3 motel of sorts/ bed n bfast in Nbo, outskirts or coast. Not much infor on this.
Objective: income should cover most if not all of loan repayments.
Thanks in advance to those who will contribute to our collective education.
|
|
|
Rank: Member Joined: 3/26/2012 Posts: 830
|
I school near Githurai...I may not tell you anything about the cost of construction,but I can assure you that you will never go wrong...demand is far greater than supply. A successful man is not he who gets the best, it is he who makes the best from what he gets.
|
|
|
Rank: Member Joined: 10/13/2009 Posts: 25 Location: Nairobi
|
Guru me:
There is abit of information still missing in your post for you to accurately determine which option is most attractive:
1. How much capital do you have available to you? This is excluding any loans you need to borrow.
2. During the construction phase, do you get a grace period on the loan? Or do you pay interest only? Or do you pay both principal and interest?
3. For the construction loan, are you borrowing from a local Kenyan bank or are you borrowing from an overseas bank? And what are the terms of the loan? Downpayment amount? Interest rate? Loan repayment duration?
In answer to your previous questions, Option 1 is the most viable because the payback period is shortest. There is a difference in the returns you get in developing property in Githurai versus Kitengela, etc with Githurai being a more attractive investment.
A better approach is to consider saving some cash first, then getting a loan to build one floor. The rental income will pay the loan payment. eg with savings of 500k and a loan of 1.2M you can build 10 rental rooms each renting for 3k. The rental income of 30k offsets the monthly loan repayment of 30k. This doesn't take into account the cost of buying the land, the foundation of the structure or other property management expenses such as Water, Elec, Rates, etc.
Alternatively, if you are looking for capital gains rather than rental income, you can buy land, build low cost houses (sold @ Ksh. 1M-Ksh. 2.5M) and resell these for a fair 30% profit. IMO this is the idea that I'd focus on.
Just a few ideas. Any thoughts?
-Fair Car Dealer
|
|
|
Rank: New-farer Joined: 6/27/2011 Posts: 63
|
Fair Car Dealer/ S Mutaga III - Thanks for the responses. Appreciate them. @Fair Car Dealer- Please see responses in red below. Fair_Car_Dealer wrote:Guru me:
There is abit of information still missing in your post for you to accurately determine which option is most attractive:
1. How much capital do you have available to you? This is excluding any loans you need to borrow.
10m
2. During the construction phase, do you get a grace period on the loan? Or do you pay interest only? Or do you pay both principal and interest?
No grace period and repay both P+I
3. For the construction loan, are you borrowing from a local Kenyan bank or are you borrowing from an overseas bank? And what are the terms of the loan? Downpayment amount? Interest rate? Loan repayment duration?
Several options on this one with local banks. Financing available is about 70% of property value.Interest rate varies from 10% for USD loan to 18% for KShs
In answer to your previous questions, Option 1 is the most viable because the payback period is shortest. There is a difference in the returns you get in developing property in Githurai versus Kitengela, etc with Githurai being a more attractive investment.
My research indicates its (Githurai)costlier as well. Would you happen to have numbers/ is the infor I have so far correct on the costing of land and construction etc?
A better approach is to consider saving some cash first, then getting a loan to build one floor. The rental income will pay the loan payment. eg with savings of 500k and a loan of 1.2M you can build 10 rental rooms each renting for 3k. The rental income of 30k offsets the monthly loan repayment of 30k. This doesn't take into account the cost of buying the land, the foundation of the structure or other property management expenses such as Water, Elec, Rates, etc.
Thanks and noted. Will carefully consider this approach as well.
Alternatively, if you are looking for capital gains rather than rental income, you can buy land, build low cost houses (sold @ Ksh. 1M-Ksh. 2.5M) and resell these for a fair 30% profit. IMO this is the idea that I'd focus on.
On the capital gains Q, I would seek the best of both worlds. Income is priority but believe that valuing a completed construction should lead to a capital gain - construction cost vs valuation - which you can use as equity to further borrow and reinvest.
Just a few ideas. Any thoughts?
-Fair Car Dealer
|
|
|
Rank: Member Joined: 10/8/2010 Posts: 446 Location: london
|
S.Mutaga III wrote:I school near Githurai...I may not tell you anything about the cost of construction,but I can assure you that you will never go wrong...demand is far greater than supply. How much are stones going for? machine and hard dressed around nairobi?
|
|
|
Rank: Member Joined: 10/13/2009 Posts: 25 Location: Nairobi
|
Guru: With 10M as your starting capital you can get quite abit of rental income. Because of your goal of getting rental income pretty much from the start, I would look at buying an existing property rather than buying land and constructing. The savings from constructing yourself may not make up for the lost income during the duration of construction when compared to buying an existing investment that is already generating rental income. For example: http://south-b.olx.co.ke...e-south-b-iid-433427692
At the asking price of 130M, and monthly rental income of 1.3M you can get a 90% financed bank loan at 10% that is paid off entirely and leaves you with some little income. If you can get the seller to discount the selling price by 10% to 20% then your residual income is even greater (not counting the annual rent increases). Githurai plots can be seen here: http://www.olx.co.ke/nf/...ch/githurai/-sort_price
I'm not familiar with the area and others may be able to advise on the right price for an appropriate plot. Construction costs are pretty much the same for areas in the suburbs of Nairobi: Ksh. 15k-20k/sq metre depending on whether you are constructing yourself or using a contractor. A4Architect wrote a good article about construction costs: http://www.the-star.co.k...-eighth-acre-piece-land
About leveraging your equity in the project once the construction is completed, I'm not sure whether it would work. I heard that local banks will give you a maximum of 50% against the equity of your property assuming it is free and clear. I could be wrong. Also, if you consider the interest rates that they will lend at (18% for ksh) then the leverage may not be worth it. If however the banks will let you refinance at lower rates, then the extra leverage will work as you plan. -Fair Car Dealer
|
|
|
Rank: Elder Joined: 6/23/2009 Posts: 13,497 Location: nairobi
|
@guru me if you say Kitengela is lower income then what would you call Mathare, Kawangware?.. Also if Lavington is your upper middle income, then what is your definition of a high income area? You obviously lack a general idea of what you are trying to say
HF 30,000 ABP 3.49; KQ 414,100 ABP 7.92; MTN 23,800 ABP 6.45
|
|
|
Rank: New-farer Joined: 6/27/2011 Posts: 63
|
Thanks @FairCarDealer. Appreciate the detailed insights and the extra research. Definately given me something to think about.
@ Obiero - with all due respect I disagree with your assessment and generational. To clarify, the reference to Kitengela was not meant to categorise the entire area as lower income but rather the sort of structure that would be put up in the area would be targeted at lower income earners- specifically persons working at EPZ who on average earn between 6-10k a month. No offence intended.
Similar thing to lavington. Its the product - who is the target market. Thought all this was obvious if not implied. Guess not.
|
|
|
Rank: Veteran Joined: 11/17/2012 Posts: 1,461 Location: Ngong Forest
|
A friend of my mine who seemed to be under influence told me that if you buy a plot and construct regardless of location it will take a minimum of 16 years before you break even!
Kweli rongo?
|
|
|
Rank: Veteran Joined: 2/21/2012 Posts: 1,739
|
@Ngong, you have the answer right there - he was under influence and not him/herself. Rongo kambisa. Ask him when he is sober.. Do not be anxious about anything, but in everything, by prayer and petition, with thanksgiving, present your requests to God..
|
|
|
Rank: New-farer Joined: 6/27/2011 Posts: 63
|
@Ngong one of the links posted by Far Car Dealer contains an article by a4architect and he breaks it down quite well. For ease of reference see below: http://www.the-star.co.k...-eighth-acre-piece-land The best bit of a lot of useful infor gotten so far.
|
|
|
Rank: Veteran Joined: 11/17/2012 Posts: 1,461 Location: Ngong Forest
|
FOLLOWING THE LINK ABOVE I GET @guru hii info imefichwa? Web Sponsored Links Find Electronics Online Find Buisnesses with Local Search! www.local.comTop Star Wars, Top Prices Compare prices online & save up to 75% on Star Wars at BEST-PRICE.com! www.Star-Wars.BEST-PRICE.comRemote Computer Repair Antivirus|Unlimited Online Backup|Complete Computer Care http://www.computerzoom.netRelated Searches buch, business, computer, computerspiele, partnersuche, einrichtung News, Toronto, GTA, Sports, Business, Entertainment, Canada ... Thestar.com is Canada's largest online news site. Visit thestar.com for the latest breaking news from Toronto, the GTA, Canada and the world. Plus stay current with ... www.thestar.comThe Star Online | Malaysia, Business, Sports, Lifestyle and ... The Star Online: Your source for Malaysia latest news, headlines and videos on politics, business, ... (Co No 10894-D) - Investor Relations ... thestar.com.my The Star | IOL.co.za We’re more than our teeth. This month China’s largest English language newspaper, China Daily, launched Africa Weekly, a supplement that “will look at the ... www.iol.co.za/the-starThe Star | Fresh, Independent, Different Thirty nine people died in renewed clashes between the Orma and Pokomo people in the Tana Delta. Hundreds more are reported injured in the fighting between the two ... www.the-star.co.keThe Star VIDEO: Churchgoer killing shocks Sheffield village; VIDEO: Nottingham Panther attacks Sheffield Steeler; The Star: Subscribe for ‘unbeatable’ deal www.thestar.co.ukTheStar.co.za - The Star Browse 15 historic screenshots of thestar.co.za dating back to Apr 23rd, 2007 at Screenshots.com. www.screenshots.com/thestar.co.zaThestar.co.uk download 220 keywords. The Star Thestar.co.uk has 5 top1 keywords, 13 top5 keywords, 13 top10 keywords. Some keywords significantly that growing up: jessica ennis sheffield, daughter gets pregnant ... craftkeys.com/site-info/thestar.co.uk Sponsored Links Find Electronics Online Find Buisnesses with Local Search! www.local.comTop Star Wars, Top Prices Compare prices online & save up to 75% on Star Wars at BEST-PRICE.com! www.Star-Wars.BEST-PRICE.comRemote Computer Repair Antivirus|Unlimited Online Backup|Complete Computer Care http://www.computerzoom.net
|
|
|
Rank: Member Joined: 10/13/2009 Posts: 25 Location: Nairobi
|
Ngong: Try either of the following methods to get to the article: 1. Click on the link below to go directly to the article: http://www.the-star.co.k...-eighth-acre-piece-land
2. Go to the Star Website (www.the-star.co.ke) and enter the following phrase in the SEARCH Box on the top right corner How to maximise rental income on an eighth-acre piece of land The article you want is the 2nd one listed in the results page. It is dated 24 August 2011. -Fair Car Dealer
|
|
|
Rank: Member Joined: 9/18/2006 Posts: 131
|
@guru. I will give you my 2 cents based on my past experience.
If you ever read an article young posted here sometimes back, the key to such a project is one: LOCATION
One other thing you need to appreciate is that despite the plot location, cost of construction will not vary much (slight variation maybe due to cost of materials transport to the various locations, labour may vary slightly but these are immaterial in the total project cost- land plus building)
If I for example take the locations you mentioned, if you buy a plot in ruiru, another in 44/45, Kitengela, or rongai I would tentatively think a 50*100 might cost 2m, 6m, 2m and 3m respectively. Add cost of construction for lets say 5 floors at 20m and you get a total cost of 22m, 26m, 22m and 23m for the various plots respectively.
The presents a difference of about 10-15% between the cheapest and most expensive in cost terms
On the other hand, if you squeeze 60 single room self contained units in each and the rents are 4k, 6k, 4k, 4k respectively, the total income would be 240k, 360k, 240k and 240k respectively. This presents a difference of about 50% in total income between the lowest and highest compared to about 15% of total cost. So dont be duped into saving by buying a cheap plot because you wont save much in total cost but your total income will be compromised greatly.
Again before you buy, ask the going rents in the neighbourhoods you are considering and do your maths to assess income.
Just my 2 cents...
|
|
|
Rank: Member Joined: 9/27/2006 Posts: 503
|
What about fire exit points? Are these being ignored?
|
|
|
Rank: Member Joined: 7/21/2010 Posts: 249 Location: nairobi
|
kazee wrote:@guru. I will give you my 2 cents based on my past experience.
If you ever read an article young posted here sometimes back, the key to such a project is one: LOCATION
One other thing you need to appreciate is that despite the plot location, cost of construction will not vary much (slight variation maybe due to cost of materials transport to the various locations, labour may vary slightly but these are immaterial in the total project cost- land plus building)
If I for example take the locations you mentioned, if you buy a plot in ruiru, another in 44/45, Kitengela, or rongai I would tentatively think a 50*100 might cost 2m, 6m, 2m and 3m respectively. Add cost of construction for lets say 5 floors at 20m and you get a total cost of 22m, 26m, 22m and 23m for the various plots respectively.
The presents a difference of about 10-15% between the cheapest and most expensive in cost terms
On the other hand, if you squeeze 60 single room self contained units in each and the rents are 4k, 6k, 4k, 4k respectively, the total income would be 240k, 360k, 240k and 240k respectively. This presents a difference of about 50% in total income between the lowest and highest compared to about 15% of total cost. So dont be duped into saving by buying a cheap plot because you wont save much in total cost but your total income will be compromised greatly.
Again before you buy, ask the going rents in the neighbourhoods you are considering and do your maths to assess income.
Just my 2 cents...
Agreed, and thanks for insight! ..desire to succeed is always fighting with fear of failure..
|
|
|
Rank: New-farer Joined: 6/27/2011 Posts: 63
|
@Maina20. Thanks and noted.
Think theres quite a bit of very useful infor to evaluate the commercial property option. Thanks again to all for contributing.
Perhaps its worth sharing some additional infor I came across on option 3 (motel) that may be of benefit to others.
Its 3rd hand infor but gather there is a chap who has built a motel of about 30 self contained rooms outside Nairobi. Beauty of it was that since it was in a low popl. area land was relatively cheap and he did not have to build beyond one floor because of availability of land - significantly reducing his construction cost.
Total construction costs inclusive of land estimated at KShs20m.
Room rate per day 3k
Monthly running costs 50k
Conservatively, assuming 20% occupancy Monday through Thursday and 60% occupancy Friday, Saturday and Sunday that would translate to a weekly income of KShs 234,000 (60%*3*30*3000)+(20%*4*30*3000)and a monthly gross income of 936,000.
Based on above
Payback period: 1.78 years
Return on Investment: 56% p.a.
Upside (IMO): Very good ROI and payback period
Downside: Unpredictability of income, requires full time supervision hence time constraints
Based on preliminary investigations, sounds very enticing and to be honest almost too good to be true.
Again would appreciate anyone who can critique or add to the above for our collective benefit.
|
|
|
Rank: Veteran Joined: 11/17/2012 Posts: 1,461 Location: Ngong Forest
|
Fair_Car_Dealer wrote:Ngong: Try either of the following methods to get to the article: 1. Click on the link below to go directly to the article: http://www.the-star.co.k...-eighth-acre-piece-land
2. Go to the Star Website (www.the-star.co.ke) and enter the following phrase in the SEARCH Box on the top right corner How to maximise rental income on an eighth-acre piece of land The article you want is the 2nd one listed in the results page. It is dated 24 August 2011. -Fair Car Dealer  Thanks!
|
|
|
Rank: Veteran Joined: 11/17/2012 Posts: 1,461 Location: Ngong Forest
|
guru me wrote:@Maina20. Thanks and noted.
Think theres quite a bit of very useful infor to evaluate the commercial property option. Thanks again to all for contributing.
Perhaps its worth sharing some additional infor I came across on option 3 (motel) that may be of benefit to others.
Its 3rd hand infor but gather there is a chap who has built a motel of about 30 self contained rooms outside Nairobi. Beauty of it was that since it was in a low popl. area land was relatively cheap and he did not have to build beyond one floor because of availability of land - significantly reducing his construction cost.
Total construction costs inclusive of land estimated at KShs20m.
Room rate per day 3k
Monthly running costs 50k
Conservatively, assuming 20% occupancy Monday through Thursday and 60% occupancy Friday, Saturday and Sunday that would translate to a weekly income of KShs 234,000 (60%*3*30*3000)+(20%*4*30*3000)and a monthly gross income of 936,000.
Based on above
Payback period: 1.78 years
Return on Investment: 56% p.a.
Upside (IMO): Very good ROI and payback period
Downside: Unpredictability of income, requires full time supervision hence time constraints
Based on preliminary investigations, sounds very enticing and to be honest almost too good to be true.
Again would appreciate anyone who can critique or add to the above for our collective benefit. Nice idea,thought of the the same sometimes back but first,3000/day is on the higher side, My survey suggests 1000. Second, when doing my survey I saw one come up on my route and unfortunately it never picked up and was immediately converted to residential. Reason according to me is location next to the road and thus lack of privacy and maybe security and above all open car park. Most of your clients and this is what matters don't require full day lodge and also not very godly.
|
|
|
Rank: Member Joined: 2/18/2011 Posts: 448
|
guru me wrote:Hi Wazuans,
Seeking advice on income properties. So far my research has led to the below options.
Option 1 (most viable IMHO)
Commercial development in lower income area such as Githurai 44/45, Kitengela, Rongai, Ruiru etc.
Cost of land varies with area with KSHs 2.5 m in Kitengela to about 7 in Githurai for a 50 by 100.
Construction costs estimated at about 15m to 20m for 4 floors.
Rental income ranges from 120k pm to 500k pm depending on who you talk to.
Capital gains on completion 50-150% (again depending on who you talk to) on valuation allowing you to unlock equity.
If anyone has pursued this option I would greatly appreciate validation or correction of the assumptions and any additional infor
Option 2 Rental property in upper middle class area such as Lavington
Estimated cost 15-25m for an apartment.
Rental income (per sellers claims) 120k pm unfurnished 250 k pm furnished.
Again would appreciate any further further input on this.
Option 3 motel of sorts/ bed n bfast in Nbo, outskirts or coast. Not much infor on this.
Objective: income should cover most if not all of loan repayments.
Thanks in advance to those who will contribute to our collective education.
hallo boss.only advise i can give,check out www.tofinarom.com i personally have not tried them out but i have no reason to doubt them.check out the capital gains expected on an apartment upon completion,now imagine if they were two or three......happy hunting
|
|
|
Wazua
»
Investor
»
Property
»
Income property
Forum Jump
You cannot post new topics in this forum.
You cannot reply to topics in this forum.
You cannot delete your posts in this forum.
You cannot edit your posts in this forum.
You cannot create polls in this forum.
You cannot vote in polls in this forum.
|