FRM2011 wrote:@a4architect, what would you consider a reasonable ratio/multiple between rent and cost when buying a house as an investment. Consider the following options.
A house in south B going for 15mn fetching 50k in rent.
O.rongai going for 6.8mn fetching 30k in rent.
Edenville house @ 18mn fetching 80k rent.
Nyayo Embakasi flat kes.7mn fetching 30k rent.
Green park athiriver kes. 15mn fetching 45k rent.
Is there a generally acceptable range ? Is it even prudent to buy a house as an investment with these kind of returns ? Especially if it will involve bank financing (interest, stamp duty e.t.c.)
@frm, in most developed countries eg USA, they use a ratio of 0.6 to 0.8. In these countries, the calculations involve bank financing hence complex.
A simpler method i use is by using time as the benchmark. This enables to compare all properties easily as below.
1. o. rongai =6.8m/360k=18 years.
2.edenville=18m/960k=18.5 yrs.
3.nyayo embakasi=7m/360k=19.44 years.
4. south b house=15m/600k=25 years.
5. Greenpark athiriver=15m/540k =27 years.
I use 15 years as the benchmark time for project viability. Any project that repays after 15 years is too long a period.
From the above, the houses are either over valued or are bought for the sole purpose of demolishing then constructing high rise.
The recent judiciary house for the CJ costed kes 300,000,000. The average rent in runda is kes 300k per month. This time period for repayment works out s 300m/12x 300k=83 years. In other words, after judiciary buys the house and wants to rent it out at market rates, it will take 86 years to recover their costs. The cost of this house does not make any business sense at all.
Thats why Shollei's excuse of using JKUCAT as valuation advisors does not hold water since no registered kenyan valuer can want to risk their career by certifying such a valuation.
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