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Low End Housing: High Risk, High Return
Gathige
#341 Posted : Thursday, February 16, 2023 9:48:58 PM
Rank: Elder


Joined: 3/29/2011
Posts: 2,242
Fellow Wazuans, Is a residential apartment block, in a low income neighbourhood investment of 12M Kshs fully financed by SACCO loan at 12% per annum for 20 units each at a rent of Kshs 12,000 per month, assuming 85% occupancy rate a good investment decision? Note, cost of land not included in the total cost ( assume land is freely available or at nominal cost)
"Things that matter most must never be at the mercy of things that matter least." Goethe
My 2 cents
#342 Posted : Friday, February 17, 2023 9:51:12 AM
Rank: Veteran


Joined: 6/2/2010
Posts: 1,059
Gathige wrote:
Fellow Wazuans, Is a residential apartment block, in a low income neighbourhood investment of 12M Kshs fully financed by SACCO loan at 12% per annum for 20 units each at a rent of Kshs 12,000 per month, assuming 85% occupancy rate a good investment decision? Note, cost of land not included in the total cost ( assume land is freely available or at nominal cost)


All your figures are too optimistic.

- That it will cost only 12M to put up 20 units
- That these units will fetch 12k per month
- That occupancy will be at 85%

Use more realistic figures and then ran the maths again.

Personally, I wouldn't. I would rather invest the 12M in a blue chip stock that pays 10% dividend and then net 100k per month without having to hassle with tenants, maintenance, KRA etc.

Another alternative is the soon to be announced IFB interest free bond that will probably net 13.5% , that is 135k per month risk free and hustle free.
tinker
#343 Posted : Friday, February 17, 2023 1:08:56 PM
Rank: Member


Joined: 11/15/2010
Posts: 454
Location: Nairobi
My 2 cents wrote:
Gathige wrote:
Fellow Wazuans, Is a residential apartment block, in a low income neighbourhood investment of 12M Kshs fully financed by SACCO loan at 12% per annum for 20 units each at a rent of Kshs 12,000 per month, assuming 85% occupancy rate a good investment decision? Note, cost of land not included in the total cost ( assume land is freely available or at nominal cost)


All your figures are too optimistic.

- That it will cost only 12M to put up 20 units
- That these units will fetch 12k per month
- That occupancy will be at 85%

Use more realistic figures and then ran the maths again.

Personally, I wouldn't. I would rather invest the 12M in a blue chip stock that pays 10% dividend and then net 100k per month without having to hassle with tenants, maintenance, KRA etc.

Another alternative is the soon to be announced IFB interest free bond that will probably net 13.5% , that is 135k per month risk free and hustle free.


12M cannot complete 20 standard bedsitter units. unless there won't be tiles, sanitary wares, cabinets etc.
Any Sacco or bank will start charging interest 30 days after disbursement. Building 20 units takes a minimum of 1 year, how will you be repaying your loan during construction stage.
....He who began a good work in you will carry it on to completion..
Gathige
#344 Posted : Friday, February 17, 2023 5:21:37 PM
Rank: Elder


Joined: 3/29/2011
Posts: 2,242
Thanks @My 2 cents, @tinker. Good insights
@ My 2 cents
1. All your figures are too optimistic: Quite to the contrary the figures are accurate, and the math’s correct. I am a bean counter, so numbers are to the dot. The unit rental rates are for occupied units and the 85% occupancy is based in total units occupied as a percentage of all the units. The lesson here is that most costs are exaggerated by contractors, but self-builds save quite some penny. The downside is it takes time and energy, and one cannot do it for long.
2. Alternative investments. That’s a good perspective depending on a investor’s preference. But I think for one to get a 10% Div one would really need to diversify. IFB looks quite appealing. Will research more on it.

@tinker
3. 12M can indeed do 20 standard bedsitter units. Again the emphasis is basic, ie basic tiles flooring, basic kitchenettes, open wardrobes, and decent plumbing. Nothing top range but decent for the market category. Downside would be higher repairs/replacement costs due to wear and tear.
4. SACCO charging : This is indeed a pain. Lesson is to stagger the loan disbursements as per need to avoid high initial cash disbursed which would lay idle for some time. Most SACCOs would allow this.
5. Duration : 1 year is on the lower end. At least one year and a half for decent work and site management
"Things that matter most must never be at the mercy of things that matter least." Goethe
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