Comparison on Return on Investment at Southern Sunshine hotel vs other projects vs stock exchange

The Southern Sunshine Hotel is located along the Southern Bypass in Nairobi, near Thogoto town.

The rooms are being sold at kes 1,740,000 with discount for early buyers as below
http://www.a4architect.com/2014/02/17/southern-sunrise-hotes-southern-bypass-nairobi-sale-price/

Assuming 70% occupancy rate and kes 1,400 as room charges per night, this will generate a monthly revenue of kes 1,400 x 30 days x 70%=kes 29,400 per month.

This will be kes 29,400 x 12=kes 352,800 per year.

For a cost of kes 1,740,000, the investment will give you a return of kes 352,800 per year. This occupancy rate has the possibility of increasing to 100%, as in the case of hotels currently in the nearby Kikuyu town which have 100% occupancy daily.

This cost per night of kes 1,400 also has the possibility of increasing to kes 5,600 as in the case of the nearby Wida Highway motel.

This represents a return on investment of kes 352,800 devide by kes 1,740,000 x 100%=20.2%.

This return on investment is only for the rental income.
Running costs.
Expected monthly running costs are as below
electricity 30,000.00
water 15,000.00
casual labour 20,000.00
cashier 20,000.00
manager 50,000.00
toileteries 40,000.00
insurance 5,000.00
security 15,000.00
TOTAL KES 195,000.

The rent accrued from the bar and restaurant at kes 80 per sq. ft works out to kes 79,200.
This amount goes to offset the monthly running cost to kes 115,800 .

This amount is divided by 33 rooms to kes 3,500 per month. This amounts to kes 29,400 minus kes 3,500=kes 25,900 per month net earnings.
This works out the net Return on Investment to 18%.

Capital Gains.

The investment is also gaining and appreciating over the years. Property in Kenya generally has a 10 to 20% annual price increase.

Assuming an annual price appreciation of 20% since the land is next to a busy international highway and available land for sale is scarce since most land is owned by Kenya Forest Service/Ngong Forest, PCEA Thogoto teachers college, and Alliance High school, the scarcity of land for sale along the highway will push prices up very fast.

The kes 1,740,000 sale price will appreciate by 20% annually to kes 2,088,000.
This represents a kes 348,000 capital gain per year.

Total return on investment.

The total return on investment of accrued rent plus capital gain will be kes 352,800 from rent plus kes 348,000 from the property appreciation.

This totals to kes 700,800 per year.
In short, a purchaser of a room within the Southern Sunshine hotel will increase in wealth at a rate of kes 700,000 per year.
The total return on investment annually is therefore kes 700,800 devide by kes 1,740,000 x 100%= 40.2%.

Nairobi Stock exchange.

The 5 year average return on investment at the Nairobi stock exchange is 20% according to this report.

http://www.investinginafrica.net/african-stock-markets/african-stock-market-performance/

Therefore, the Southern Sunshine hotel investment is a good option compared to investing in the Stock exchange.

Comparison to other Nairobi apartments.

The usual middle class apartments for sale around Nairobi eg Syokimau, Kikuyu, Kitengela etc sell for an average of kes 5.5 million for a 2 bedroomed.
This can fetch a maximum of kes 25,000 to kes 30,000 per month in rent.

This works out as kes 30,000 x12 =kes 360,000 per year.

The return on investment works out as kes 360,000 divide by kes 5,500,000= 6.5%.

If you compare the kes 360,000 annual rent derived from these apartments with the rent accrued from the Southern Sunshine hotel at kes 352,800, its very clear that for 1/3rd the investment, the annual rent is equal.
The kes 1,740,000 investment in the Southern Sunshine hotel is roughly 1/3rd of the kes 5.5million investment in the average middle class apartment.
The kes 352,800 annual rent accrued from the kes 1.7m Southern Sunshine hotel is nearly the same as the kes 5.5m apartment unit.

Purchase a room.

To purchase the Southern Sunshine hotel unit, send an inquiry to info@a4architect.com.
To join the Southern Sunshine hotel discussion forum, click here below.
http://www.a4architect.com/discus/topic/joint-investment/page/6/

Francis Gichuhi Kamau, Architect.
info@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


Share

Leave a Reply

Your email address will not be published. Required fields are marked *