Development of Flats at Ngong. Return on Investment in Sale vs Rental options.
| Cost Item |
Kshs |
% |
| Land |
2,500,000.00 |
2.945889894 |
| Preliminary/council approvals |
294,000.00 |
0.346436652 |
| Construction |
63,000,000.00 |
74.23642534 |
| External Works |
3,150,000.00 |
3.711821267 |
| Contingency |
1,260,000.00 |
1.484728507 |
| Professional fees. 4% |
2,520,000.00 |
2.969457014 |
| Project Management fees. 1% |
630,000.00 |
0.742364253 |
| Marketing |
170,000.00 |
0.200320513 |
| Financial Charges. 18% p.a interest |
11,340,000.00 |
13.36255656 |
| Total |
84,864,000.00 |
100 |
| Financing Plan |
Kshs |
% |
| Developer |
21,864,000.00 |
25.76357466 |
| Debt Finance |
63,000,000.00 |
74.23642534 |
| Presales |
12,000,000.00 |
14.14027149 |
| Total |
84,864,000.00 |
114.1402715 |
| PROFIT | ||
| SALE OPTION | ||
| TOTAL SALES FOR 30 UNITS |
120,000,000.00 |
|
| TOTAL EXPENDITURE |
84,864,000.00 |
|
| NET PROFIT |
35,136,000.00 |
|
| % Profit Margin |
41.40271493 |
|
| Take home ammount. |
37,636,000.00 |
|
| RENT OPTION | ||
| Rent per unit | 18,000.00 | |
| No. of Units | 30.00 | |
| Rent for 30 units monthly | 540,000.00 | |
| Annual rent | 6,480,000.00 | |
| Return on Investment. Years. | 13.10 | |
Conclusion.
If the project is sold at 100%, the Returns are quite high. If the project is rented out, returns will be in 13 years which is within the 15 year period hence a viable option.
The project can have 50% of units for sale to cater for the high interest rates cost of financing then the 50% of the units that remain are rented out.
This way, the high cost of finance/borrowing is mitigated by sale of units and the client remains with 15 units from which to collect rent from.
Francis Gichuhi Kamau, Architect.
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