bursting the real estate bubble

This weekend I went to visit a friend of mine. His neighbour has put his house on the rental market. It’s a beautiful four-bedroomed bungalow, with a two-bedroomed servants’ quarters, on a quarter acre of land. He’s put it on the market for KSh 120,000 a month. I asked around about how much similar houses are sold for in that neighbourhood, and the prices are in excess of KSh 40 million.

Let’s take a minute to digest and analyse that. If you paid cash for that house and rented it out, you would make your money back in three hundred and thirty three months. That’s almost twenty eight years. House prices are like stocks – you can use a basic price/ rent, which is analogous to a price/ earnings (or PE) ratio to determine whether a house is under- or over-priced. Long-term average is around 16. This particular house is at 27.7.

Another calculation. If you convinced your bank to provide you with a mortgage, and you financed the house at 18% (and you’d need to be VERY good friends with your bank manager to get that), you’d be paying KSh 617,000 every month for twenty years. So, in effect, if you took out a mortgage in the hopes of renting the house out, you’d need to shell out almost KSh 400,000 a month more out of your own pocket just to break even.

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Acknowledge your source.

http://www.kenyatalk.com/index.php?threads/copy-paste-from-wallace-kantai.26623/#post-526870

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This idea of calling houses assets has to stop. Unless the cost of putting up/buying is less than rental income, it is a liability clothed otherwise.

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Houses are assets. Not liabilities. The knowledge behind the two scenarios is what sets apart a landlord from a tenant.

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I agree to some extent.
But they are full assets only to second generation owners
The first owner will wait before regaining the costs incurred. Only after that will one start getting ‘free’ income.

The minute you get your first rent cheque, that house is an asset. There is nothing like free income. We trade everything for a profit. That is the concept of arbitrage. Guys go to work, trade their time, at a rate they deem is profitable to them. So, low input, high output equals profit.

Now, on housing, guys say it is overpriced if it takes more than 10 years to recoup an investment. So, input ( capital + time ) and output (yield). That is only one perspective.

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Most people in that business line agree to this sentiment.

The worst way to live. But hey not all can escape the rat race.

I look at it in terms of what it is paying back vs what I remain with. My view is very skewed due to my choices of the words. To a lay person, the concept of profit and loss is not straight forward though many do not appreciate that. But your explanation is the right one. Mine has some wall street greedy mantra in them.

This is the 13th time we are having this discussion. I think we agreed the first time that building houses=upuss. Better leave your plot idle as you continue renting.

[ATTACH=full]48034[/ATTACH]

@fired = Wallace Kantai:D

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He is very good at copy and paste.

Buying a house for rental income is not advisable, best way is building your own apartments and renting them out

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@fired:D:D:D:D:D:D:D:D
ata nairobi wire iko na hio story after kucopy paste from here

People advancing this theory that house/buildings are upuss conveniently overlook three issue

  1. The building appreciated with time
  2. Unlike other money investments, houses are not affected by the likes of brexit, Elections or crap that has nothing to do with the owner. Just ask those guys who had fixed deposits and other investments with imperial and other banks
  3. The security and mental peace that comes with having a permanent place to call your own. Keep on paying rent till you are either sacked or incapacitated, then you will wake up!
    I have invested in both properties and the money market, but my emphasis is always on property.
    I however agree that loans are punitive. Save if you can, or save a large bit, borrow small.
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