How to make maximum Return on Investment in constructing on a 50 by 100 plot for rental purposes.

How to make maximum Return on Investment in constructing on a 50 by 100 plot for rental purposes.

Residential Flats
Residential Flats

A 50 by 100 feet plot is usually approximately 15m by 30 m in metric dimensions.
It is 1/8th of an acre.
There are several factors that you should consider to realize maximum profit from investing in constructing on the 1/8th plot.

Location.
The location of the plot will determine the amount of rent to charge. The closer to the main tarmac road, the higher the rental income. This is because such a plot offers access convenience to the tenant. Plots that are next to the road are also safer since criminals do not like to operate where there is too much visibility.
All services such as sewer and electricity are also found along main roads. This makes it easier for such services to be readily available on plots that are next to main roads.
Due to their high visibility, plots near main roads are easily visible to would-be tenants so there will be more new tenancy inquiries leading to higher rents.
As they say in Real Estate investing, there are 3 major factors in determining how profitable a construction project will be: 1. Location, 2. Location and 3. Location.

Tenant income class.
Tenants are classified as High Income, Middle Income and Low Income.

1.
High Income .

If you want to target high income clients, then the plot should be located in a high income area such as Lavington or Kileleshwa or in any region that is next to a major road or in close proximity to a major town.
Here, the materials used for construction are more expensive and the workmanship of the overall construction is high. This is achieved through careful selection of the construction consultancy team and the building contractor. The cost per square meter for such constructions is usually in the range of KES 35,000 and above.
The rooms are also bigger for this target income group. A 50 by 100 plot in this area can fit 3 No. 2 bed roomed units per floor or 5 No. 1 bed roomed units per floor comfortably.
Rent in these areas for 2bedroomed units go for KES 25,000 and above.
A 50 by 100 plot with optimum land use can fit 3 units per floor for 5 No. floors giving a total of 3×5=15 units.
The rental income per month for these units on the lower side will be KES 25,000 X 15= KES 375,000.
The average size for a 2 bed roomed unit in such an area is 80 square meters.
The total floor area for such a construction will be 80 x 3[3 units per floor] x 5[5 floors]= 1200 meters squared.
The cost of construction for this kind of project will be KES 35,000 per square meter X 1200 square meters =KES 42,000,000.
At a minimum monthly rental income of KES 375,000 per month, this will take 42,000,000 divided by 375,000 = 112 months to repay. This is roughly 7.4 years. If you consider appreciation ,cost of land and interest on loan, this is a very viable investment since after the 7 to 8 years of loan repayment, the rental income becomes yours 100% for the rest of your life.

2.
Middle income.

The plot should be located in an area such as South C, South B, Pangani,Buru Buru, Rongai or Kiambu or any region in Kenya where the rent for a 2 bed roomed house is around KES 15,000 to KES 25,000.
The materials used for construction are typically not on the high end of the market. The average construction cost per square meter is around KES 25,000.
A 50 by 100 plot can fit 4 No. 2Bedroomed units per floor. The maximum number of storeys allowed [usually 5 No.] will bring the total number of units to 4 x 5 = 20 units.
Considering an average rent of KES 20,000 per month, the total rental income per month will be 20,000 x 20 = KES 400,000.
The average size of these units is 70 square meters. The total floor area will be 70 square meters x 20 units= 1400 Meters squared.
The total cost of construction for this will be KES 25,000 per square meter x 1400 square meters = KES 35,000,000.
At a monthly income of KES 400,000, it will take 35,000,000 divided by 400,000 = 87.5 months to repay back. This is approximately 7.2 years. Rent generally increases yearly so by the end of the 7 years, the rental income will have increased. If you add the cost of the land and the cost of borrowing money, usually 15 % , the time period is very reasonably since at the end of these 7 to 8 years, the rental income becomes all yours for the rest of your life. Imagine how life could be with a monthly income of KES 400,000 on the minimum for the rest of your life to spend as you wish.

residential flats at Tassia estate, off outer ring, Nairobi
residential flats at Tassia estate, off outer ring, Nairobi

3.
Low Income.

A typical low income plot is located in Kayole ,Mwiki, Upcountry towns or any region whereby the rent for a 2 bed roomed unit is less than 8,000 KES.
A 50x 100 plot in such an area can accommodate 5 No. 2 bed roomed units per floor.
The total number of floors is 5 so the total number of units is 5 x 5 = 25 units. The minimum rental income per month is 25 units x KES 8,000= KES 200,000.

The average cost of construction in such an area is KES 17,000 per square meter.
The average size of a 2 bed roomed unit here is 60 square meters. The total built-up area will be 60 square meters x 25 units= 1,500 meters squared.
The total estimated cost for this will be 1,500 square meters x 17,000 KES = 25,500,000 KES.
This will take approximately 25,500,000 divided by 200,000 KES = 127 months to repay itself. This is approximately 10.6 years. Considering that the plots are very cheap and easy to find, and that you have a 100% occupancy rate on this kind of project, it’s also a good investment.

Conclusion.

You will notice that a major characteristic for a high income rental property is the low density of units per floor. This is to give ample, breathing ‘space, provide more privacy and give room for car park since such tenants usually own cars.

The rooms are also bigger and the size decreases as you go towards the low income market. Careful feasibility study should be undertaken by the architect to ensure that a project does not get misplaced into the wrong income group .This is to ensure that the maximum potential of a piece of real estate is achieved. There are regions within predominantly low income areas that are suitable for a middle-income project and vice versa-regions in a predominantly high income area that are suitable for a middle income kind of project.

Jogoo Road/Outer Ring Roundabout designed by www.a4architect.com
Jogoo Road/Outer Ring Roundabout designed by www.a4architect.com

This project designed by www.a4architect.com is situated in Donholm, a predominantly low income area but the units are designed to attract middle –income tenancy. The occupancy rate is 100% and the maximum rental income potential is realized. The building attracts a higher rental income than the surrounding buildings due to the unique design and proximity to a main road-outer –ring road.
Naivas Supermarket, Jogoo Road/Outer Ring Roundabout desined by www.a4architect.com
Naivas Supermarket, Jogoo Road/Outer Ring Roundabout desined by www.a4architect.com

With banks offering 80 to 100% financing on construction, it’s up to you to choose whichever market niche that is most comfortable to you and start enjoying super-high monthly incomes forever and ever.

Frank Gichuhi
www.a4architect.com

Francis Gichuhi (692 Posts)

Architect Francis Gichuhi . B.Arch. University of Nairobi. Registered Architect, Kenya. Member, Architectural Association of Kenya. Contacts. email info@a4architect.com. Telephone +254721410684


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  34 comments for “How to make maximum Return on Investment in constructing on a 50 by 100 plot for rental purposes.

  1. Anthony
    January 5, 2010 at 12:48 pm

    This is a really insightful article. Thanks alot

    • admin
      January 5, 2010 at 6:58 pm

      You are welcome..

  2. Anne K
    January 8, 2010 at 10:11 pm

    I’m assuming the calculations are based on Nairobi properties. Do they also apply to Mombasa? I would like to explore this idea further.

  3. admin
    January 9, 2010 at 6:22 am

    Construction costs dont vary much from region to region in Kenya. In Nairobi, labour costs are higher than in Mombasa. Imported construction materials are cheaper in Mombasa . Overall, its cheaper to construct at the coast than in Nairobi.

  4. Anne K
    January 9, 2010 at 8:18 pm

    Can you recommend an architect in Mombasa?
    pls email me directly on my hotmail account.

    thanks
    A

  5. kevin
    April 15, 2010 at 9:50 am

    This is useful info, however when you talk of low income residetial flats as having 5 units of 2-bdrms, does that also apply to corner plots?

    • admin
      April 15, 2010 at 6:38 pm

      yes

  6. Ken
    April 21, 2010 at 8:46 pm

    Hello,

    Thanks for the post.
    How do you arrive at the cost per square meter ?

    Regards

    • admin
      April 22, 2010 at 3:53 am

      the cost per square meter is derived by sampling different buildings and deviding the total cost of construction by the floor area of each.

  7. May 27, 2010 at 3:36 pm

    Howdy there,I obtain that your web site is very informative and useful and we were curious if there can be a possibility of getting More writing like this on your website. If you willing to aid us out, we would be willing to compensate you… Sincerely, Galen Towles

  8. mumbi
    September 7, 2010 at 8:12 am

    Hi,
    This is very useful information. Does the overall cost include labour? Also, which banks are offering 100% financing?

    • frank
      September 7, 2010 at 9:27 am

      Yes it does. Depending on how viable the project is i.e is it located in an area that has good demand for sales/rentals, the financing can be 100 %

  9. Kim
    January 2, 2012 at 6:00 pm

    I am interested in building an apartment building in Nairobi in the Low income bracket, and I know very little about real estate. How would I start? I am from the states, but has visited Nairobi a few times and would love to invest there, because I see the high demand for low income rentals. Please can you help me!

  10. Leo
    February 7, 2012 at 4:30 pm

    Great job guys. wish many were able to access this kind of information before making major construction blunders costing millions and next day it tumbles down.

  11. sally
    June 26, 2014 at 9:22 am

    Hi. I have 2 50×100 plots at mlolongo kitengela near Kampala university. Iwould like to develope them .how would you advice me? Your reply Will be highly appreciated

  12. wangari
    September 24, 2014 at 5:31 am

    Hi. can you recommend a contractor in malindi?

  13. edward waboer
    September 28, 2014 at 6:04 pm

    Thank you for the information. You have not given an indication of the number of 1 bedroom.units that can fit on a 50by100ft plot. Assuming a monthly rent of 8000 and 1fl. give an indication of the costing interms of cost of building return on investment.

  14. Edward Waboer
    October 20, 2014 at 9:11 am

    I noticed that your calculations for a typical low income plot is located in Kayole, Upcountry towns or any region You do your calculations having assumed
    1. It will be a two bedroomed unit. And
    2. That they will require parking space.

    Supposing you assumed that they will be No need for parking And that they will be 1 bedroomed houses Of approx 20ft by 20 ft and the rent Per unit is less than 8,000 KES. Then how will the calculations look like?

  15. August 5, 2015 at 11:49 am

    Hi Frank,

    I count myself lucky to have stumbled up on this very informative site. This was as a result of checking for available construction loans in the market. I have a 40*80 plt in Kasarani farm 5-(Hunters Stage -4km from Roysambu Junction on your way to Mwiki)and from your information, this is in the low Class 3 or low income group. The plot is surrounded by residential bungalows with several residential units and flats. The aim of purchasing the plot was and still is to put up a residential flat. From you explanation I can comfortably have 5No floors but since the space is smaller than the 50*100, I guess I may not have the 4No bedroom units. Kindly advice on the best way to start the construction process and what my part (what will be my role/requirement) will be and what role will A4Architect play.

    I look forward to hearing from you. 0720 677 xxx

    Regards
    Stephen

  16. ANN
    August 11, 2015 at 10:36 am

    very valuable advice there,will keep in touch,want to do a project in nakuru

  17. Charles Gichuru
    December 18, 2015 at 9:59 am

    This is very insightful information, particularly for many of us living in the Diaspora, wishing to invest back home.
    Would you consider the Eastern bypass off Thika highway a low or medium income bracket area.

    Is it now permit-able to construct properties with more than 5 floors and if so, what would be the maximum accepted levels.

    Finally, what would be the process of adopting a design drafted in another country, so as to accommodate Kenya’s building laws.

    Hope to hear from you soon, as I am considering developing my land soon.

    Best regards,

    Charles

  18. Kings
    May 13, 2016 at 12:01 pm

    Congratulations Admin.This must be the leading Construction website in Kenya.Not many will disclose this info for free.
    If you’ve bn here count yourself a lucky person
    My question is whether you can assist in Identifying a low income category plot to be developed immediately after with the help of a bank…..Whats the budget of a low income plot in these areas kitengela, Ngong & Rongai Kiserian

    Thank you in advance

  19. xxx
    August 1, 2016 at 7:11 am

    I ɡo to see every day a few sites and ѡebsites to гead posts, however this web site presents feature based posts.

  20. August 1, 2016 at 7:35 am

    Hі there mates, its impressivе piece ߋf writing concerning tutoringand entirely defined,
    keep іt up all the time.

  21. Collins
    September 12, 2016 at 7:20 pm

    Great article,can you advice by how much does land along mombasa road,precisely kitengela appreciate.

  22. Pat
    October 12, 2016 at 10:28 am

    Very good information. Thank you.

  23. Juse
    January 11, 2017 at 3:53 pm

    Thanks for this. So you mean I can build flats in a 50 by 100. Will there be parking space. The cost is high than I imagined

  24. Thomas
    January 29, 2017 at 8:35 am

    All i see is purity of heart ready to help the people ready to be helped. please advice me i have two 50*100 plots in Isinya 5 km from the town 2 km from the main road please advice how i can utilize this parcels of land both my residential and business.

  25. Emmanuel
    April 22, 2017 at 12:04 pm

    Very important ideas…

  26. Moris
    August 29, 2017 at 9:39 am

    Could you please send for me the amount in Uganda shillings for a low income of 50 by 100 feets

  27. Moris
    August 29, 2017 at 9:41 am

    Your plan are good

  28. Nita
    September 30, 2017 at 8:36 am

    I wud like to know avg construction cost of hse 260sqm floor area on 1/8 acre fo goid finish hse…what would be cost of external works..how do i calculate construction costs based on the above..total ready to move in

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