Wazua
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Rank: New-farer Joined: 6/27/2011 Posts: 63
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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.
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Rank: Member Joined: 3/26/2012 Posts: 830
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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.
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Rank: Member Joined: 10/13/2009 Posts: 25 Location: Nairobi
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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
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Rank: New-farer Joined: 6/27/2011 Posts: 63
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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
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Rank: Member Joined: 10/8/2010 Posts: 446 Location: london
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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?
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Rank: Member Joined: 10/13/2009 Posts: 25 Location: Nairobi
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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
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Rank: Elder Joined: 6/23/2009 Posts: 14,321 Location: nairobi
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@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 COOP, IMH, KEGN, KQ, MTNU
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Rank: New-farer Joined: 6/27/2011 Posts: 63
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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.
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Rank: Veteran Joined: 11/17/2012 Posts: 1,461 Location: Ngong Forest
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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?
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Rank: Veteran Joined: 2/21/2012 Posts: 1,739
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@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..
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