The folly of investing in Rental Units

cc: @Okiya, @Wakanyama

My other handle almost got the words out of my mouth in the thread http://www.kenyatalk.com/index.php?threads/wakanyama-didnt-get-value-for-his-investment-for-real.16796/
For most KTalk mirrionaires, success is when you have a plot where you erect a residential unit for yourself and probably another unit to rent out. Let us use an example to show how stupid you are when you do such.

First, let us assume that you have 10 million shillings and are living in a rented house in Kasarani. Your rent is 35K. Then, you see a nice 50by100 plot being sold for 3.5m and you grab it and build two units with the remaining 6.5m. You therefore live in one and rent the other one for 35K per month.

I, on the other hand, have 10m and living in a similar house paying same rent as above. Instead of buying a plot in Kasarani, I go to Juja Farm interior and buy 20 plots at 500K. I sit back and continue paying rent.

Sasa tufanye hesabu.

After 5 years, you will have collected rent equal to 35K125=2.1M. Your plot will also have appreciated three-fold (lets hope) t0 say 10m plus the buildings (will have depreciated slightly) valued 6.5m. So, your total "value"will be 10m+6.5m+2.1m=18.6m. NB: Whereas the cost of construction may have gone up over the 5 years, wear and tear will also have had its effect. If I remember well, a bag of cement in 2012 costed 500. Today, ni 650, a 30% increase. Your house will have depreciated by more than that.

I, on the other hand has spent 2.1m on rent, but my plots have appreciated three-fold (same assumption as above), so am worth 30m-2.1m=27.9m.

So, if we all decided to liquidate after 5 years, I will be worth far much more than you. Developing plots is therefore not ideal for someone who isn’t ready for retirement.

Thats your free lesson for today.

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Have you ever tried to sell a plot plots?

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Yes, I have bought and sold. Why?

You make it sound like it’s as easy as selling spinach on a Saturday afternoon. I usually deal with matters land and trust me there are many factors that come into play especially when it’s the owner selling directly.

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Juja Farmo_O…uko mahali kukinyesha ni taabu ata kuingia

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It is not easy, but still it is not hard. You just use those experienced in selling. Like PRC, Gakuyo, Urithi, etc. They will get their cut, but well, its easiers than doing it yourself.

Was there on friday, na niliweza kufika mpaka kwa plot. Near mwireri primary School if you know the place.

True. Getting the price you want almost never happens.
@aviator did you factor in stamp duty when buying the plots? Land rates?

Your point? Selling and buying genuine land is not that hard or an exclusive skill as you want it to appear. I know guys who are selling at Murera, kamakis etc and they barely finished high school.

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A good observation.
But both of us are paying the rates/duty.

He wants to make it sound like rocket science.

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which factors?
i was a land broker for more than 11/2 yrs and cunt least any

forrowing

it is just 2-4%

I. Don’t. Even.

This is an example of how people do not maximise opportunity. Hence, opportunity cost. A 50x100 plot can fit 16 units. 8 bed sitters & 8 one bedroom units. This would cost 40m to construct.

Therefore, if I had 10m in cash, I would buy the plot for 3.5m. 6.5m will get me about 30m in debt. Enough for me to do my 16 units. Fully constructed & let out within 8 months. A bed-sitter would let out at 10k and a 1 bed at 13.5k. That’s 188k a month. Annually, that’s 2.25m. How you repay your debt out of this would depend on the interest rate you secured.

There are other factors here, tax, rental increase… blah blah blah… but point is, after paying your loan, approximately 5-9yrs, your property value will be more than Kes 60m. Now you’ll have an asset that is appreciating, and cash flow. Things that open up more opportunity.

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Brokers garra broke.

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188K/month will need 13 years to repay the loan. So, haujapata chochote (cash) for the 13 years. On the other hand, your property has grown from 40m to 60m, a 50% increment over 13 years!

Is it worth?

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And who are you going to sell the land to if all of us take that route,

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Without divulging much, I have a buddy who sold two flats in this city to fund his shamba buying frenzy. That’s where the money is.

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The ones who will be born/start investing at that time.

Kaa sana bila kujenga utakuta umejengewa,ruai ni wangapi wamenyaganywa?ama wakufanye dumping sites