Rentals: Very Unpopular Opinion

I do not like killing people’s dreams. I come across as unconventional in most situations. I remember saying here and in many other places that despite everyone’s dream of becoming a landlord, pursuing that dream with peanuts is ill-advised. It has nothing to do with pride, sense of entitlement or desire to crash people’s dreams. I like telling people the uncomfortable truth that they do not like to hear/read because society has done a great job at giving them false hope. Real estate (specifically rentals) is a numbers game and a size game. You need more doors and larger capital for a big project for the numbers to make economic sense - I mean tens of millions. If you do tiny projects, you become a slum lord, carry a dagger when evicting tenants and manage the investment personally…effectively transforming it into a full-time job and the returns will still be mediocre. Unless you do not have better use for your time like focusing on your career or core business, it makes absolutely no sense starting with peanuts. The project size will be too tiny for you to hire a caretaker+agent and retain a monthly return worth talking about. A few millions is peanuts for real estate (rentals), but very decent capital for other ventures which you can later cash out of to build a sensible real estate project. My conclusion is that the average Kenyan does not consider the returns when venturing into rentals and they do it for purely sentimental reasons.

Ukuwe peasant, ununue land, ujenge 10 bedsitters na ulipishe 5k each juu obviously haziko karibu na town. What next?? At 90% capacity unapata 45k. Agent anakula 5k. Unabaki na 40k. Unalipa mama hapo hiyo area wa kuosha common areas na kukuangalilianga. Unamlipa 5k. Unabaki na 35k. Garbage?? Land rates?? Repairs??? Fuel yako ya kwenda kuangalia once per month?? Hii hustle yote for 30k - 35k net per month after investing a minimum of 5 million in the project inclusive of land. Don’t forget the months you wasted ukisumbuana na mafundi etc when building the tiny project. There are better uses for the money. Lakini kuambia mkenya that some real estate projects don’t make financial sense atafikiria uko na wivu, haumtakii mazuri etc. Society has taught him that he must be a landlord at any cost because it is the holy grail of financial freedom.

There are better uses for ur money
Name 5 only

Buy land with it. Buy stocks. Buy bonds. Risk a tiny fraction of it in risky businesses like agriculture and others.

In the example above, I used a hypothetical figure of 5 million. Why not just buy bare land for 4.5 million and start a small business with 500k. You will do better than that landlord msoto in the long run.

You dont pay agent fee if you are managing yourself.

There are other costs though, like emptying septic tank.

People invest in those small projects ili uonekane umefanya kitu, that is more important than returns. All in all, it is positive development. They provide shelter to people

If you examine such small projects critically through a financial lens, they don’t make economic sense. The running costs eat up almost half of the gross return. As the project becomes bigger, it begins to make sense because the operating costs eat up only a tiny fraction of the gross return. Basically, kuna economies of scale.

In Kenya, apart from sale of houses and apartments, rentals do not dictate any major investment prowess to a business man. With the average R.O.I taking 7-10 years, I can think of other investments with a better R.O.I in those seven years…
Those that ventured earlier of course had better numbers. However, in those seven years, If i were to build rental apartments they would be to solely provide financial security to my family I.e food, fees and anything else that is basic. I bought an apartment for 10m. Gives me 80k net every month. I can meet my immediate needs while pursuing other endeavors.
Rental apartments, only serve as long term investments. Kula hiyo 480k p.m after 10 or so years ni fiti sana.
However, if I’m looking to double my money in 2-5 years then rentals are not the way to go.

Foreman @Randy begs to differ

What is the way to go according to you, kindly

Wewe na theories ni kama chanda na pete.

Leo umesema kitu ya maana zaidi, money market ,stocks and commodities market have better R.O.I

Lakini wewe huwa nongwe ya k
awaida ,si kwa hiyo 5m investor bado amenunua land?

It all depends on your aim when building rentals.so kula MTU anataka returns in less than 7 years,maybe no retirement plan etc

Doing rentals is a nice long term safe security. Once you have that security you can then venture into riskier investment with higher returns with the peace of mind of knowing your family will be ok if things go wrong

The best way to go with property industry is, build then sell. Start even with that 5m.

Plot 1m
Build with 3m(inclusive approvals etc)
Total 4m.
Use the 1m to survive.

Put it in market selling price 5m. Within 6month - 1 year utakua umeuza.

Repeat again now being more informed. With 5m.

Try to build a maisonette now with 5m.

Land 1m build 4m.

Your previous 1m still iko kama 500k.

Sell the maisonette 6.5m.

Then

Build now 2 bungalow, with hio 6.5m with great efficiency and proper knowledge its possible.
Sell.

Within 18 months utakua a step ahead.

Plus have a daily business giving you money for ugali. Tena you can find a customers who buys over the roof once. You never know.

But rents will never make you rich. It’s a slow way of eating your capital

This

How many of those small businesses do you know of that get started and collapse without giving any return to the owners?
There are countless examples of open today, closed within a year.

Land is a store of wealth, not a means to wealth. Ukiwa na surplus ndio unawekeza kwa land, kwa ajili ya maisha ya uzeeni.
Land ni same na kusmoke nyama, uikaushe uwe unakata piece kidogo kidogo, mbuzi moja ilast 2 months.
Peasants learn the hard way, as it should be.

True. That’s why I didn’t say use the entire sum on business.

Yeah. Amenunua land ya kujenga. Bare land has higher returns than land imejengwa shanty because you buy more of it.

This post is not meant to demonize rentals. Obviously, that’s what you understood. In fact, I think rentals are good investments when their scale makes sense e.g an apartment block. If you don’t have access to tens of millions, investing in rentals ni kujienjoy tu and will only serve your ego. Rentals are a big boys game. If you don’t have to make a meaningful investment hapo, there are better uses for that money. If I had 30 million plus, I would do rentals all day because the scale of the project makes sense.

The ROI on small projects (rentals) is extremely low when you deduct expenses and the stress involved. ROI on rentals increases significantly as the project increases in size. An apartment block with 100 bedsitters has a significantly higher ROI than a small investment with just 10 bedsitters.