Investment yield is the return on investment of a property.
Yield is calculated by getting the annual rental income divided by property value then multiply by 100. This gives the gross yield. Net yield is gotten after deductions to income such as taxes, maintenance costs, property management costs are removed from the annual income.
Internationally, most residential property yields are below 10%. Most commercial property yields are around 10%.
Factors affecting Yield.
Yield is affected by location of the property.Properties located at the front row of a major road have higher yields than properties further away. Properties located fronting major roads are convenient for tenants and are also easily visible by potential tenants looking to rent and potential buyers looking to buy from businesses in the property. Also, bill board advertisements can boost the yield.
Low end properties.
In Kenya, there are many investors who buy lands far off the main roads, say 5 km from tarmac, where mabati structures can be built for rent. For example, if someone buys a 1/8th plot in Isinya, Kajiado or Kangundo, say for kes 500,000 and builds mabati houses, the yield will be as below.
Cost of construction of 10 mabati houses =10 x 8000 x 15=kes 1.2m. Cost of land =kes 500,000. Cost of property=kes 1.5m.
Annual rent =1000x 10 x12=kes 120,000.
Yield will be kes 120k/kes 1.7m x 100= 7%. This is within international rates .
High end properties.
Other investors buy high end properties in Westlands to be used as offices. The yield for such properties is as below.
Price per sq meter is on average kes 130,000. Rental income per m2 is on average kes 1,000.
Yield will therefore be 1000 x 12/130,000×100= 9.2%, which is a good business deal with better profits.
Middle class properties.
These are mostly residential houses built in Rongai, Kitengela, Ruriu, Ruai for sale. The selling price is around kes 6m for a 3 bedroomed unit and the rent is around kes 25,000 monthly. The yield is as below
25000x 12/6000000x 100= 5 %. The yield is quite low compared to the low and high end profit margins.
The a4architect motel along Southern bypass has a yield calcultated as below.
Monthly room charges. kes 1,400. Assumed occupancy rate =70%. Monthly room revenue = 1400 x 30 x 70%=kes 29,400. Annual income=kes 352,800.
Cost =kes 2m.
Yield =kes 352,800/kes 2m x100=17.64%. This gross yield is higher than the other investment options available.
Francis Gichuhi Kamau, Architect.