You don’t need to own land to become a landlord, let me show you how using a case study.
| Description | Workings |
| Plot size | 50 x 100 or 0.045 ha or 450 sq meters |
| Type of house | Bedsitters / studio apartments |
| No of levels | One floor |
| Size of each unit | 17 sq meters or 193 sq ft |
| Circulation / open space | 30% of plot size (approximate) 450*0.3 =135 sq meters |
| Area available to build | 450-135 = 315 sq meters |
| No. of units that can be built on the available space | 315/17 = 18.5 say 18 bedsitters |
| Material used for construction | Masonry stones |
| Level of finishes | Basic |
| Construction cost per sq meter | 25,000 |
| Total construction cost | 25000 x 18 bedsitters x 17 sq meters per unit = 7,650,000 |
| Add external works e.g. water tanks, gate, bio digester etc. The walls of the units form part of the perimeter wall. | Say Kshs 1,000,000 |
| Total cost of construction | Kshs 8,650,000 |
| Other costs Annual leasing fees for the plot Brokerage fee Legal fees, architects fees, approvals etc Miscellaneous Total | Kshs 100,000 x 15 years= 1,500,000 Kshs 100,000 one off Kshs 300,000 one off Kshs 100,000 one off Kshs 2,000,000 |
| Costs grand total | 8,650,000 + 2,000,000 = 10,650,000 |
| Income | |
| Duration of the lease | 17 years |
| Moratorium (Period when you are not paying rent) | 2 years |
| Total duration when you pay rent (leasing fees) for the land | 15 years |
| Duration of construction | 6 months |
| Total no of months when you will collect rent | 17 years less 6 months for construction = 16.5 years or 198 months |
| Rent per bedsitter per month | Kshs 12,000 |
| Total No. of bedsitters | 18 |
| Total monthly rent | 216,000 |
| Total rent receivable in the lease period | 216,000 x 198 months = 42,768,000 |
| Assume expenses of 5%. This caters for the cleaning and lighting of common spaces and any vacancies. Net rent for the entire period is therefore. | 0.95 x 42,768,000 = 40,629,600 |
| Net income for the 17 years = Net rent less total costs | 40,629,600 – 10,650,000 = 29,979,600 |
| Return on investment = (profit / total costs) x 100 | (29,979,600 /10,650,000) x 100 = 281% |
| Annual Return on investment = gross return on investment / 17 years | = 281% / 17 = 16.55% |
| Annual net income = Net income / 17 years | 29,979,600 / 17 = 1,763,505 |
| Payback period. The payback period is the amount of time it would take for an investor to recover a project’s initial cost. Net rent for the entire period / total costs | 40,629,600 / 10,650,000 = 3.8 years |
Assumptions
- I have assumed that the rent will remain constant for 198 months. This is unlikely. If you increase the rent your return on investment will be higher and so will your annual income and your payback period will be shorter.
- I have also assumed that the rent for the plot will not increase for the 17 years and that its paid all in advance. The actual situation is that its paid annually in advance and is mostly static during the term of the lease.
- This is a very simplistic look at the investment opportunity.
- The legal fees are paid to the lawyer to register the lease against the title in the lands registry and draft the lease documents and get consent by the land board.
- We haven’t factored in rental income tax.
Perspective
- Imagine what you can do with Kshs 1.7M annual income for 17 years. Is this not enough time and money for your kids to go to the best schools? or very good pension as you retire?
- Instead of saving your money in a fixed deposit in the bank at the current inflation, do you agree with me that this is a better investment?
- If the units are well designed and maintained and you treat your tenants well, you will enjoy full occupancy.
Conclusion
Incase this is something you would like to explore, please reach me the contacts below.
We have plots (e.g. Oaklands and Kijani Ridge) and apartments (e.g. Unity Homes) for sale and warehouses to let in a Special Economic Zone (SEZ) (e.g. Samtech Business Park) and in an Export Processing Zone (EPZ) (e.g. Africa Logistics Properties ALP in Tilisi). You can choose from more properties in Tatu City, Ruiru, Nairobi and other parts of Kenya. We can also scout the properties that suit your specific needs.
Lets talk +254 723 477035 or email info@kariukiwaweru.com
Valuer Kariùki, MRICS
Registered & Practicing Valuer & Estate Agent, Kenya.
Chartered Valuation Surveyor. Global
