UJENZIBORA

Design and Build Contractor.

Category: Doing Business

Affordable Housing / Architecture / Bills of Quantity / BUILDING SOLUTIONS / Business of Construction / Cost Information / Decision Making / Doing Business / Ujenzibora

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How To Think And Build like a Real Estate Investor (With a Simplified Worked Example)

Introduction

Money is made or lost in real estate before a house is built. The decisions that determine the outcome are made at the beginning. These include the Vision to Build(Why?), the Design (What?), the Costs summarized in a Bills of Quantity(How?), the Location (Where?) and the target Market (Who?). Here is how to build while thinking as an investor:

 

Build to Rent

 By Self: Rent to Own

If your annual rent is higher than the cost of owning land plus building a small office, then build and use the savings to offset the cost of development. It is possible to find good land in Peri-Urban Areas near main Cities.

This will allow you to start your journey of owning a small office and eventually a bigger office complex as you complete your Rent-to-Own Milestones. In this scenario, you build a house and move in so that you can stop paying rent but pay down the loan used to build the house or office. Caution: Do not be too quick to move out of major Cities since some Opportunities are more concentrated in Cities than Rural Areas.

 By Others: Rent for Profit

Becoming a landlord is a worthy goal when thinking about building. There is always pressure created by increasing household sizes and there will always be persons willing to rent if the location and price is right.

The main factor to consider while thinking about rental properties is affordability, Location, Services and The Payback Period. In Other Words, will your tenants be happy? and will you be able to recoup your initial investment by collecting rental income? One should also consider the prevailing rental income of the location and whether there are Opportunities for growth. For example, Universities and Hospitals can be great source of constant clientele.

 

Build to Sale

When Building to Sell, the most important factors are Location, Affordability and Profitability. One needs to consider all the costs of the project including Value of land, Financing Costs, Consultancy Fees, Cost of Statutory Services (Electricity, Water and Sewerage) and then determine the Selling Price. The metric to study will be the return on Investment (ROI)

Worked Example with a Financial Template

Financial Template:

In the above example, we are looking at a Potential Development of an Apartment Block Comprising of 8 Residential Units with shared services (Parking, Play Area, Common Staircase et Cetera).

 

As the numbers show, we have only two factors to consider, the input costs and the revenues. A difference of which will either generate a Profit, Loss or Rental Income with the indicated Payback Period.

 

All the Variables in the template are adjustable such that one can do further analysis on different neighborhood, House Types, Project Type e.g. An Industrial building or Park et cetera.

The most important thing to remember is that money is made or lost before a house is built.

NOTES ON FINANCIAL TEMPLATE:

  1. The proposal is to build 2 Blocks in two phases or at a go if funds are available and allow some green area, parking, landscaping and a running track all-round the land.
  2. Item A: Cost of land is pegged at KES. 1 Million for each unit. A bloc will thus raise KES. 10,000,000 and Two Blocks of Apartments would raise KES. 20,000,000.00 towards the cost of land. The sum raised can be used to purchase subsequent land parcels for future developments. This figure can change depending with the final report from a Registered Land Valuer.
  3. Item B: Commitment Fees is sums paid for formal engagement of consultants and the Project Team. This is used towards making detailed feasibility studies of the proposed venture. This will also enable production of preliminary Concepts, Cost Estimates and a Master Plan. The Client can pay a minimum of KES. 200,000 and a maximum of KES. 500,000 to jumpstart this process.
  4. Item C: The Cost of Finance. Using the Concepts, Cost Estimates and Master Plan prepared under Item B, the Developer can secure a Loan Facility from lending institutions. The Cost of acquiring and processing such a facility is covered under Cost of Finance. This includes insurance for the facility, interest rates and processing fees. The lender will determine the Terms and Cost of Finance in negotiation with the Developer. Investors who put money into the project can also determine this as a return on their investment when the project is sold out.
  5. Item D: Professional Fees. This covers the fees for the Architect, Structural Engineer, Mechanical and Electrical Engineer, Quantity Surveyor, Landscaper and any other Specialist Consultants engaged by the Project Team to ensure the integrity and successful implementation of the project to completion. It is paid in pre-agreed stages until project completion and covers both Design, Inspections and Supervision.
  6. Item E: Preliminary Costs. These are costs which are incurred either as a statutory requirement or as a matter of necessity to make the  e.g. Hoarding, Signboard, Project registration, Insurance for the Works, Sanitation for the Works, Water and Electricity for the Works, Security et Cetera. They may not form part of the final works but they are a necessity for the successful implementation if the project. They will be particularized and priced.
  7. Item F: Construction and Training Levy are mandatory sums payable to the Government on any ongoing or proposed project and may change from time to time depending on legislation.
  8. Item G: Renewable Energy Component. Studies indicate that Green Buildings and those which are designed and built with environmental consciousness attract more rental income and can be sold at a premium thereby increase their uptake in the market. This cost shall be covered by the Renewable Energy Component which includes Solar Water Heating and Lighting
  9. Item H: ICT Component is to make the building compatible with ICT Technology including charging ports, CCTV Surveillance, Security Installations, Conduiting and wiring for gadgetry.
  10. Item I: NEMA + Levies 1%. According to the Environmental Management and Coordination Act(1999), we will require to obtain a license from NEMA after an expert has undertaken an Environmental Impact Assessment of the Project.
  11. Item J: External Works Cost (Drainage+ Septic tank+ Water Storage). The Foul Drainage, Septic Tank and A Soak Pit will cost each dweller approximately KES. 300,000.00 as there is no Public Sewer near the project site. Each house will thus contribute this sum towards foul drainage and water storage tanks or Tower.
  12. Item K: Project Manager. There is need to coordinate the Project Components, Expectations and Delivery during the lifetime of the project from start to finish including period where the units will be under sale. This is usually done by the Construction Project Manager
  13. Item L: Marketing Cost. This cost is important to ensure there is speedy uptake of the housing units and to gauge the correct pricing point. It also includes cost of covering target market survey, advertising, billboards, social media campaigns, Print and Voice Advertising and any other Marketing Activities geared towards the success in the uptake of the project.
  14. Item M: Cost Per Unit: With Item A to K covered, the cost of building one residential unit will be 7,724,673.16 This cost is reasonable. More items can be introduced or removed depending on the overall target audience
  15. Item N: Projected Sale Price: The Developer is at liberty to sell the project at any cost. However, should the units be sold for KES. 15,000,000.00, it is projected that the Developer will realize a Net Revenue of KES. 150,000,000 for the 10 units. The Market Analysis generated from Market Research will provide the Best and Worst Case scenarios and the correct selling price.
  16. Item O: Cost Per Square Metre. This is the all-inclusive cost per square metre used to estimate the cost of building a similar unit in the neighborhood/ same land e.g. as Phase 2 or 3.
  17. Item P: Net Profit is what is realized after the Total Cost of the project as been subtracted from the Total Revenue.
  18. Item Q: Percentage Return on Investment (ROI) activities comparing what has been invested and what has been realized as profits. In this case, it is 94.18%. Selling the units at a higher price would raise the ROI and increasing the input costs would lower it subsequently.
  19. Item R: Rental Income. If the 10 Units as designed, are released to the market as rental properties, they will be able to fetch KES. 500,000 per month. This item will also vary depending on the Market Research and Feasibility Study.
  20. Item S: Total Annual Rental Income is the total sum realized from rent from the housing units built.
  21. Item T: Finally the Payback Period means the time it will take for the Developer to get back 100% of his initial investment if the Property is let out at the Proposed Rents. This is 10.73 Years using our analysis. The higher the rent, the shorter the payback period and vice versa

 

COST SAVINGS

  1. The floor area of the house is a major constraint in trying to lower the cost of the house. Our Key Assumption is that we shall design 3 Bedroom Houses in the range of 90 to 100 Square Metres

Maximizing Rental Income by Design

  Example 1

Because the primary driver of an investment decision is to obtain a Return on Investment(ROI) or Make Profit at the shortest time possible, below is an example of a Proposed Residential Housing Unit that Maximizes Rental Income.

 

In the example, we are working with an 8No. Bedroom Maisonette where the following scenarios can play out to maximize Returns.

 

  1. Owner can rent out each of the 8 Units bedrooms as an AirBnB or Hostel for near a busy institution.
  2. Owner can rent out the first floor as a commercial Kitchen and Lending Library to two different vendors or Build and Operate them as Such
  3. Owner can rent out the upper attic floor as a Gym for the Residents and people in the neighborhood.

 

This is a House designed with the idea that it is an income generating machine. It is meant to get the owner to their financial goals within the shortest time possible.

 

Whereas this is one scenario, there is no limit as to what Solutions can be Designed to meet various Financial Goals.

 

8 Bedroom maisonette Designed to Maximize Rental Income

 

(Nobody has the luxury of time, and those who wish to solve the pressing problems of others are prudent to want to obtain their initial sum invested as soon as possible)

More Examples to Follow**

Business / Construction Permits / Doing Business / Environmental Law / Resources

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The Process of Obtaining the Construction Permit and Estimate Durations

What?

The building permit or CP (Construction Permit) is a document provided by a Local Authority to authorize the construction of a new building, or in a situation to amend or renovate an existing approved building.

Who?

The City Council of Nairobi (CCN) has embarked on an ambitious project of automating Construction Permits. This has several Key Benefits to the Industry

How?

In order to open and run a successful construction business or Undertake a Building Project, it is important for one to understand the process that goes into obtaining business permits. Obtaining a Construction Permit is one of the Key Indicators of the Business Environment in a Country.

Those economies with an easier and less laborious process are deemed to be More Competitive. Singapore, Hong Kong(China), Singapore and New Zealand all have more favorable environments than Kenya. Though Kenya is a regional Best Pwerformer in the ease of obtaining Construction Permits, there is still room for improvement in two aspects:

1. Reduce on time taken from 159 days to Global Best Performer (27.5 Days- Korea Republic)

2. Reduce on number of Procedures from 16 to Global Best Performer ( 7 Days – Denmark)

3. Reduce the Cost as a percentage of Project from 5% to Global Best Performer (0.1% – 5 Economies)

Globally, Kenya stands at 124 in the ranking of 190 economies on the ease of dealing with construction permits.

Generally, the Process is as explained on Page 12 of Doing Business in Kenya Report.

Construction_Permit_-_Doing_Business_in_KE

The Procedures for Obtaining a Contruction Permit Are:

  • Obtain a Survey Plan from Survey of Kenya – 1 day
  • Optain a project report from an environmental expert and submit to National Environment Management Authority (NEMA) – 5 days
  • Obtain approval of the environmental impact study from NEMA
  • Submit and obtain approval of the Architectural Plans – Up to 45 days.  The structural engineer submits all the structural and architectural drawings
    to be approved using an online platform httpss://ccn-ecp.or.ke/. The required documents to be submitted are the following:
    i. The proposed development;
    ii. A survey plan from Survey of Kenya;
    iii. Ownership documents
    iv. Up-to-date rates payment receipts.
    v. Structural plans

The fees are as follows:
(i) Building plan approval fee: 1% of the estimated cost of construction
(ii) Construction sign board fee: KES 25,000
(iii) Application fee: KES 5,000
(iv) Inspection of building le: KES 5,000
(v) Occupation certi cate: KES 5,000

  • Submit and obtain approval of the structural plans. – 10 days
  • Obtain stamps on architectural and structural plans from the Nairobi City County – Development Control Section.- 1 day
  • Apply and received the Project Registration Certi cate from the National Construction Authority (NCA) – 7 days or Less

The following documents must be provided for the registration application
1. Authenticated architectural plans (original)
2. Authenticated structural plans (original)
3. Nema approval (Simple copy)
4. Bill of quantities (Simple copy)
5. contract/agreement (Simple copy) It should be duly signed by both the
contractor and the client
6. Contractor’s registration certi cate (Simple copy)
7. Quantity surveyor’s practicing certi cate (Simple copy)
8. Architect’s practicing certi cate (Simple copy)
9. Engineer’s practicing certi cate (Simple copy)

  • Notify the Nairobi City Council of commencement of work and request and receive set out inspection – 1 day

Areas for Improvement:

1. Reduce non-official costs to the process including Diligence of Officers dealing with the process, transparency and elimination of all forms of compromise on the process

2. Increase or consolidate processes that can take place simultaneously

3. The official costs for obtaining the Construction Permits should be kept at a minimum. Setting a goal to reduce this cost will force the Local Authorities to be more innovative and remove costly redundancies in the process.

4. Automation and embracing Click-through-Procedures which can be executed online

Further Reading:

1. Doing Business in a more Transparent World, World Bank, IFC : 2018 PDF ( https://www.doingbusiness.org )

2. Construction Permits, City Council of Nairobi (https://www.ccn-ecp.or.ke/)

Architecture / Business / Cities / Construction Management / Contracts / Cost Information / COSTS / Doing Business

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Affordable Housing Solutions for First Time Home Owners.

Ujenzibora Seeks to provide a series of bespoke housing solutions that are highly customizable, affordable and technologically sound for first time home owners. We offer our clients a one stop hustle free Lab where they can come and find lasting solutions and achieve their goals. We have already designed and built some of the concept houses for example The Firstep House, The Minima, The Open Place et Cetera. We are available to build more.

Our Design and Build package offer our clients a one-stop-shop, peace of mind and affordable solutions in home ownership.

We like challenges and there is no limit as to what projects we can undertake in the built environment. We look forward to working on a variety of challenges and build magnificent houses.

We undertake:

  • Residential Projects,
  • Interior Design and Remodeling,
  • Commercial Projects like office blocks and
  • Eco-Tourism Developments.

  • Proposed Hotel Development Design & Built by Ujenzibora

    Proposed Hotel Development Design & Built by Ujenzibora

  • Customized Container Housing for Office, Residential or Commercial Use.
Interior of The Loft House.

Interior of The Loft House.

We are available to work on projects all over the republic. We believe we have the right team and housing solutions for our clients. – Qs.David Nahinga

 

Architecture / BUILDING SOLUTIONS / Business / Construction Management / Contracts / Cost Information / COSTS / Decision Making / Design / Doing Business / Estimating / Investment / Management / Planning / Procurement / Project Management / Purpose / Quantity Surveying / Real Estate Realist / Ujenzibora

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10 Practical Ideas To Lower Building Cost Without Cutting Corners

httpss://twitter.com/UjenziBora/status/820971727849160705

It is always better to keep the building project within your financial expectations without compromising its integrity. This article is not about building a “cheap building” but Management of Costs irrespective of the size or budget of the project.

The beauty of managing costs is that resources are not wasted and whatever is left can be used on other aspects of the building like landscaping or enhanced security.

1.0 “Manage the project within a Construction Process”

In building a house, there is a messy process and there is the right process of doing things. The easiest way to have cost-overruns is to be dis-orderly.
Management creates order in the building process. The right process helps one to:

Control the Risks.
Control the Design.
Control the Labour Costs.
Control the Overheads.

You will have an upper hand if you have the benefit of foresight, planning and management. You require a program of works and a Method Statement for the Project. This will save you time and money.  Don’t just build as if you are cooking “fufu”.

Have a plan and a process in place before starting the building project.

2.0 “Optimize your building site”

You need to plan the house with a clear view of site conditions. Don’t “copy paste” designs from one site to another even if the user needs are the same.
Simply, cut your coat according to your cloth:

i)If you don’t have much level ground, design a house with a small footprint (ground cover).

ii)If your site is sloped, consider doing a basement instead of spending money on cut and fill.

3.0 “Story buildings are relatively cheaper”

Suppose you have a 1500 square meter house all spread out on the ground and a three story house with each floor covering 500 square meter , which one gives you more value for money?

i) Roof Cover- In our example, for the same amount of floor area you spend less on roof covering.

ii)Foundation Costs – In our example, for the same amount of floor area you spend less of foundation costs and ground preparation.

iii)Savings on land are realized by building vertically.

Clearly, stacking saves one money when building. However, this option is limited by the zoning laws and regulations of the City Council or County/Municipal Council.

4.0 “Simplify the Design”

Leornado Da Vinci is quoted as saying, “simplicity is the ultimate form of sophistication.”

Yes! Take more time in the design stage of the construction.  Be realistic and practical when drafting the Design Brief. A more complex design will cost more.

A complex roof-line with excess ridges and valleys will add to the time and cost of construction.

Let form follow function. Think about the maintenance cost of every material forming the fabric of the house.

Remember, for every building fitting or material, there is an alternative maintenance free material.  Cheap is expensive, therefore Buy Quality to minimize cost-in-use.

To reduce on the building cost, you can avoid curved rooms, curved walling and overly sophisticated designs without compromising on the aesthetics.

5.0 “Consider Open Floor Plans”

You do not necessarily need a solid wall separating the kitchen, the dining and the lounge. You can partition using half a wall. You can also opt to have an open plan between the three spaces (Lounge, Dining and Kitchen). Do a comparative cost-analysis of various options including making the lounge sunken to “define it.”

6.0 “Minimize Administrative Costs”

Have an on-site project office, a clerk of works and a store keeper to handle records as to building materials. Record management will help in minimizing waste, theft and anticipating periods for re-ordering materials or labour.

7.0 “Manage the procurement Process”

A crafty contractor may maximize profits by under-quoting on labour but offloading his profit ambition on procurement of materials.
Where do you source the materials and fittings?
Is it done competitively?
What are the alternatives?
You can save much by pre-ordering fittings and fixtures.
Have you considered imports for bulk supplies?
Consider that you can obtain a superior fitting.In case of large capital investments, one can have considerable quantity discounts by buying in bulk from the source, eliminating middlemen.

8.0 “Look at the House As An Extension of Yourself”

The best way to do this is to outline your role and key functions.  Consider multi-use spaces and utilizing and creating space that would ordinarily not be in the normal houses. You will more enthusiastic about your house only if it reflects your aspirations. It is not ab-normal to have a house without a typical lounge or bedroom. Form follows function. Most people incur unnecessary costs building a house “like that of their neighbor.” For example, if you don’t like visitors, there is no point building a guest house if you are straining your budget! Let that money go into a spacious lounge or more elegant finishes.

9.0 “Do not Ignore Insurance”

The only way to mitigate certain risks is by Insurance of the works, workers and materials. Obtain a Contractor All Risk(CAR) Policy for the duration of works. Construction insurance provides safeguards for you as an employer against your construction workers being injured on site. Construction insurance does not exempt you from maintaining a safe workplace.

10.0 “Have a Contingency Plan”

This is money set aside for “unforeseen circumstances” which may eventually sink the building project if not taken care of. Also, have in place rules t spend the contingency fund. They include things like:

i) Inclement weather.

ii) Foundation issues

iii) Cost overruns from extended preliminaries, making changes, and encountering unforeseen design problems.

iv) Inflation and adverse Market conditions

SUMMARY:

How To Lower Building Cost

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