News Column

How to Ensure Bank Loans You Take Work for You in Real Estate

May 14, 2014

Francis Gichuhi



Currently, most Kenyan banks are offering loans at an average interest rate of 15 per cent annually. While this is considerably high, there are ways that one can invest in real estate to cancel out the monthly repayments.

This way, bank loans would be working for real estate investors as the returns would pay off the loans and it would be a three-pronged win for them, the builders and the lenders.

There would be no defaults and the uptake of new buildings would rise because the market would be available. The supply rate of new constructions would also increase to meet a significant portion of demand for decent housing.

On average, an apartment or two-bedroom house in the outskirts of Nairobi such as Syokimau, Kitengela, Kiambu and Ruiru costs about Sh5 million. The average rental income from such an investment is about Sh25,000 monthly on the higher side.

A loan calculator from one of the local banks shows the Sh5 million loan will require monthly servicing of Sh69,979.36 for 15 years if at stable interest rate of 15 per cent annually.

With a Sh25,000 monthly rental income, the buyer will need an additional Sh45,000 every month for 15 years to pay off meet the obligations.

The solution to this quagmire is for the investor to find a real estate investment option where monthly loan repayments would be equal to the rental income.

There are two options; you go for a cheaper property that has higher income, or you raise enough cash beforehand so as to borrow less. The latter is a challenge for many aspiring investors.

But then, where do you find an option that gives you the first scenario? Well, our company has come up with an innovative way to ensure you get exactly that. We are offering hotel rooms for sale at the upcoming Southern Sunshine Hotel on the Southern by-pass. Visit for details.

Let's say you buy a unit at Sh2 million. In this investment, on worst case scenario, the daily income will be Sh1,400. This will be Sh42,000 monthly. Assuming an 80 per cent occupancy rate, monthly income will be Sh33,600 on average. When the hotel's running costs are factored in, at about 20 per cent, the income will drop to about Sh26,880. That's in a bad month.

Using the same calculator, if you took a Sh2 million loan from the particular bank, you will be repaying Sh27,991.74 monthly for 15 years at a 15 per cent interest rate.

There you go; if you already have some savings, this investment will make even more sense because you will recoup your cost and start earning profit sooner. The monthly income from the hotel will offset you loan repayments and it will thus be a pain-free investment.

Every savvy real estate investor would want a deal that will make bank loans work for them - it is the best way to own property and gain financial freedom sooner.


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Source: AllAfrica