How to set up rentals

Dungu Serwadda, a real estate agent, says a developer must study the developments around his or her neighbourhood.

What is the predominant type of development? Residential or mixed development, single-storey or a multi-storeyed? Standalone houses, apartment or bedsitters? You will most likely get an idea of what you could include in your development.

Look around the developed neighbourhoods to get an idea of what the trend may be five to 10 years down the road. You can be a trendsetter in your neighbourhood. For instance, a 105 x 69ft plot in an urban area, is ideal for building rentals (check illustration below).

David Kireli, a civil engineer, says it is important to consider the rental rates in the area. Research shows that the rent of a one-bedroom flat (two rooms, bathroom and kitchenette) around Old Kampala can go for 650,000 per month.

With such returns, you should not limit your choice to a single-storey. Future rental payments justify the cost of any additional slab you cast.

If the rent is low, you may settle for single-storey structures. According to Kireli, the size of the plot should be taken into consideration. Residential structures should occupy up to 30% of the plot.

The rest of the plot caters for the parking lot, compound, septic tank and soak pit space. The building footprint and storey height will determine what to develop. Most importantly, you need to consider the cost of financing the construction project.

Developers do not normally have enough money to complete construction. One reputable bank insists that the developer has to have completed the shell house (foundation, walls, roof) and some simple finishes (ceiling frame, external doors and window frames), before approving a construction loan.

This is about 50% of the development that should be drawn from savings. The more you save, the less you borrow. For example, a mortgage of sh100m for 15 years, at 21% interest per annum, will require monthly repayments of about sh1.8m, yet a sh50m mortgage with the same terms will require monthly repayments of about sh920,000. Estimate the cost of development and what you can afford.