Real Estate Duplex Rentals vs Treasury Bonds Investments

March 27, 2025

In today’s episode, we look at the Real Estate market with a Duplex property in Kyanja. YouTube video and explanation, below.

Currently, someone is selling this 5 unit shell duplex apartments for 350 million UGX Let's standardize this figure at 350 million UGX as the initial investment. However, upon inspection, you'll find that these apartments are incomplete. For those familiar with construction, it may feel like you're only halfway through the project. If they are selling for 350 million UGX, you must consider how much additional investment will be required to finish the apartments before you can start earning rental income which from discussion with a few RE people, have estimated close to UGX 300 million extra to bring the property to rentable level.

The seller has projected an expected income of 5 million UGX per month from these five units, averaging 1 million UGX per unit. The current asking price of 350 million UGX, combined with an estimated additional investment of at least 300 million UGX for completion, raises concerns about the overall return on investment.

Assuming you can achieve full occupancy within 12 months, you would earn approximately 60 million UGX in a year. Additionally, residential rents in Kampala typically increase by about 10% every three years. To be generous, let's estimate a 12% increase over three years, translating to a 4% annual growth rate. However, you should also factor in an average of 8% of your income for maintenance and repairs to keep the property in good condition.

If we consider a 15-year investment horizon, we can project the total income generated from this real estate project. Over 15 years, the income could grow from 60 million UGX to nearly 100 million UGX annually, assuming consistent rent increases. By this time, the total worth of the project could reach around 1 billion UGX (Projected Rent times 10- Kampala style of valuing properties).

It's important to note that while the property value may depreciate, the land value typically appreciates. Thus, in 15 years, the property could be valued at over 1 billion UGX, resulting in a total investment value of around 2 billion UGX when combined with the income generated.

Treasury Bonds Alternative.

Now, let's compare this scenario with an alternative investment. Suppose another individual has the same 350 million UGX and chooses to invest in a 15-year treasury bond with a coupon rate of 15.8%. After accounting for withholding tax, this investment would yield a guaranteed return of 14.22%. By the end of the first year, this investor would have earned around 40 million, and if they also invested an additional 300 million UGX (additional capital needed for the duplex to match cashflows of RE to cashflows of Bonds) into the bond, their total return would be even higher.

After 15 years, the treasury bond investor could have approximately 1.9 billion UGX, while the real estate investor would have earned around 1 billion UGX from their property. This comparison highlights that the treasury bond investment, with less stress and risk, could yield a significantly higher return.

While real estate can be a lucrative investment, the current market conditions in Uganda suggest that treasury bonds may offer a better return on investment with lower risk.

Happy Investing

Alex Kakande