Surprisingly, nothing is going horribly wrong
Finally, a plot of land that has passed all the due diligence. I haven’t bought it yet, but right now there is only a 500,000 CFA Franc difference between what the seller is asking and what I would like to pay for it. It’s in Yopougon again, but in a much nicer part than where the building with the six studio apartments is.
The idea is to eventually have two 4-storey buildings constructed with a possible configuration of:
19 Studio apartments
8 Three-room apartments
4 Two-room apartments
So this is a much larger project than anything I have done before, but well, it’s time to scale up things! Initially, it all kind of was a funny little side project of having a house in Africa that I could use to stay in if it didn’t work out as an investment. But over time I’ve had a few “Hey, this is actually working, the rents are being paid and nothing is going horribly wrong!”-moments, so I can’t just stop here.
Reasons to like this investment:
- At the moment I only know the revenue it will generate and the building cost to within a certain range, but even with most pessimistic assumptions, the return looks to be ok.
- Everything doesn’t need to be built straight away. One can pause after each storey, have tenants move in, and use the existing cashflow to finance the next storey.
- It’s an area that has potential to increase in value as Abidjan grows, yet it’s not so far off as to not have roads and city-life.
- On the ground floor, there is potential to have shops instead of apartments increasing the revenue.
- The demand for housing in this price range is very strong, and I have a hard time to envision a scenario where it would go down. Even in 2002, during the civil war, people fled from the interior of the country to Abidjan increasing the demand for this type of housing.
- The area is not in the risk-zone of floods.
- I have a quite pessimistic outlook for the economy in the western world. With a high and increasing debt-load and an aging population there are risks of default, and of both deflation and inflation, making it difficult to find a safe place to put one’s cash. I have cash with a bank that is bankrupt and saved by a government which in turn is not far away from bakruptcy itself. All of this creates the unprecedented situation where it almost feels safer to own urban land in West Africa than to have cash in a bank account in Western Europe.
- This is a too big project for the builders I used previously in Yopougon. I have to contact someone new and the project’s success will hinge on that new builder doing a good job at a fair price. If the building company isn’t doing a good job, it would be good to have it replaced as early as possible.
- The contract with the building company need to be carefully worded to set the right incentives and avoid a lock in with too high costs or poor quality. Enforcement of the contract in case of dispute is something that can go very wrong.
- I have had two architects independently have a look at the plot and give quotes for the construction of two four-storey buildings. The quotes were pretty far from each other, highlighting that I need to get a better idea of construction costs.
- Initially estimated construction costs risk rising due to various reasons including building materials getting more expensive.
- Problems with the paperwork around acquisition of the land. I have checked and double checked it, but one never knows.
To conclude, I would like to share a quote from a mostly, but not entirely unrelated TED talk video by Discovery Channel “Dirty Jobs” host Mike Rowe:
“Bob Colmes, the pig farmer in Las Vegas who collects the uneaten scraps from the Casinos and feeds them to his swines. Why, because there is so much protein in the stuff we don’t eat that pigs grow twice the normal speed. And he is one rich pig farmer, he is good for the environment and he spends his days doing this incredible service. It smells like hell, but god bless him, he is making a great living. […] You know, the guy is worth… was offered 60 million dollar for his pig farm, and turned it down outside Vegas. He didnt follow his passion, he stepped back and watched where everybody was going and then he went the other way!”
Here’s the whole video, it’s great stuff: