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