Why Building Rentals (Real Estate) is not always a wise Investment idea.


Building rentals has been a major business in the country and especially after the current government had initiated it in its major agenda. But currently, the business seems to be not a wise decision especially for beginners. Here are some reasons behind it.

To build rentals, you will need land in a fast-growing area where tenants are paying on time. This would cost you Ksh 2 million in a place like Utawala, Ruai or Ongata Rongai for a faster profit to be obtained. These places are on the outskirts of the city and may therefore attract fewer tenants given the traffic jam situation, lack of basic amenities among other needs.

Constructing a 1 bedroom house would cost you about Ksh 1 Million or less and since you are doing it for business, you will want to build several of them. So let us say you start by constructing 4 houses at the beginning. By the time you finish, you will have already spent about Ksh 6 Million.

From the view, the hustle of finding good tenants starts of which not all are good. If current rental prices in Utawala, Rongai and Ruai is a maximum of Ksh15,000 per month in rent.

Assuming about 70% occupancy per year, your total annual income will be about Ksh370,000. Out of this money you will have to deduct land rates, the cost of maintaining and repairing the house, electricity bills for security lights, paying the caretaker and the cost of handling the sewage waste in total.

In case you borrowed a then your expenses would go up because you have to clear the loan and interest. In the real sense, your four 1 bedroom apartments would bring you about Ksh350,000 per year. Even if you decided not to touch a single penny of the rent so that you can repay the loan, it would still take you a minimum of 25 years to get out of the debt. So in short, that would not be a wise investment option especially if capital is a concern.

Ibrahaz kenya_public@operanewshub.com

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