I agree. The point is, I would rather use that money to invest in a better real estate deal (building rentals), and then using the rent collected to pay my landlord in the overpriced property. Then keep the difference which is significant. Using rent to pay rent means you are naturally hedged against risk because the two investments are in the same asset class.
Sir, there is a reason why Kenyan banks routinely prefer to lend to gavament through bills and bonds. You may talk about the risk of hyperinflation (has Kenya ever experienced that) but the risks with your rentals are a million worse. Go ask all the guys who built on grabbed land and saw their tenaments brought down, who don’t have tenants because of insecurity, who have to pay exhorbitant rates to counties that deliver shit, who have to deal with tenants who don’t pay, who have to deal with a flooded real estate market…I could go on and on and on. With gavament, as long as Kenya exists you are safe and can do other things with your life.
In 10 years, the guy who bought that overpriced apartment would be better off than you despite not making the smartest decision on his part. His apartment would probably have doubled in price, and he would have lived rent-free for 10 years. After 10 years GoK would decide to refund your capital having paid you interest over the years which you used to rent. You would have a lower net worth than the guy who bought that overpriced apartment and your rent would have increased significantly. It would reach a time when the interest would not be enough to cover rent in that apartment due to rent hikes.
Banks prefer lending to government because they lend billions. Banks don’t retain bonds for many years for cashflow reasons as you intend to do. Don’t compare yourself to a bank. Banks invest in bonds to park money as they await business opportunities in their core business which is lending. If the rate cap on loans was to be removed today, you banks would liquidate most of their bonds to lend to Wanjiku.
Your investment decisions are contradicting.
On one hand you say you’re better of renting the house but on the other hand you’re planning to build apartments for others to rent from you.
Yes. Because the apartment in question is overpriced significantly.
Let me give you an example. A house in Runda can cost 60 million, but rent for just 150k. A flat can cost 60 million and give 600k rent. What is the smart decision to make??
Buy/build the flat, use 1/4 of the rent to pay your landlord in Runda, and pocket 450k per month positive cash flow.
Yes. Everything. Today, if you buy an apartment block, the best way to value it is to use the 1% rule. If you can’t recoup your total investment in 100 months at 100% occupancy, then it is a bad deal. Engineers and insiders in the construction industry can get an even better return on their own investments. However, if you decide to build and you aren’t an insider in the industry, they will overprice the property significantly and give a very long payback period. When buying a completed block with tenants, that’s when you apply the 1% rule.
Boss, jimbambe na your theories. Eti a 14m over-priced apartment would have doubled in price in the next 10 years? At a time when devolution is happening and the housing market is being opened up?
If you lived in the real world you would know that apartment prices are FALLING, and in all probability will continue to fall as the gavament and private investors roll out the universal housing scheme. Something called ‘correction’.
As for banks and their Treasury investments, the less said the better.
Just out of curiosity, M2Random, kindly answer Okiya’s question with figures. Land: Sh???. Construction of X Units?? (include professional fees, taxes, utilities, etc).
I am not a real estate professional. That is why I err towards buying a block with tenants and not building in my examples. To confirm, the market never lies. So, you can visit various local real estate platforms, check the apartment blocks section and see what people are disposing their income generating assets for. Ignore what engineers, architects etc tell you about the cost. Go to the marketplace and see what the blocks are selling for in reality and compare with the rent they collect as indicated. I believe the market more than engineers, architects etc because it tells the true value of a property through the rent a building commands. Think like an investor, not a technocrat.
Very good sir. But let’s drill this a little further. Give us examples of these apartment blocks you buy that have almost guaranteed returns of 12% per year, that is, a block you will buy for Sh10 m that will bring you Sh1.2m net per year (after taxes, maintenance and sundries). Like, tell us, if you go to this selling site, you will find them selling apartment block at say Langata for Sh10m. Each Block has 8 units each of which you can rent out for Sh15,000.
You get the drift.
Once again, I will be much obliged.
(PS: One unit at NHC Langata was selling for about Sh7.5m. Rent today is anywhere between Sh25,000-Sh35,000 depending on landlord. Langata is considered a good neibahood. I really want to know where these apartment blocks worth Sh10m that can bring in a guaranteed Sh120,000pm are ESPECIALLY IF YOU ARE NOT CONSTRUCTING FOR YOURSELF.[ATTACH=full]247295[/ATTACH]
14.3m to get you all that.How?
Buying a plot …which locality to leave you with enough to build and finish a flat worth to give you 143k per month
Boss amka unakojoa kwa kitanda
If you have the money, and 3-6 months to spend hunting for a good deal, you will come across an investor who can’t keep up with loan repayments. That investor will sell to you the property 12% p.a at least. This are just examples. I am sure there are many more buildings on sale. A guy like me trusts the market more than thieving engineers, architects etc. The true worth of an investment is how much rent it commands vis a vis what it costs. With 30 million, you can buy property with 300k monthly income here in Kenya if you look hard enough.
If you are a pro in real estate, you can buy and build rentals with that 14.3 million and get 143k per month. I am sure some street smart Wakanyamas can easily do that. Since I am not, the second part takes precedence i.e buying from other investors instead of building.
I am a simple guy. I like arguing with facts or easily verifiable information. The fact is, there are many investors willing to dispose their apartment blocks at a price which yields 1% per month at 100% occupancy. I just gave many examples above. Thank you.