I’m 26, a single woman making Sh43,000. How do I save to build rentals?

My name is Alison. I earn Sh43,556 net monthly. I’m 26 and a single woman. My spending is as follows; Sh15,000 monthly for food and all miscellaneous expenses, I do not incur rent or travel expenses. I save Sh1,400 monthly for my cousin's school fees which is around Sh17,000 per year. I am left with around Sh25,000 which I have saved in the money market. The total I have saved in the money market is Sh130, 000. My family has land in Kasarani where I'd want to build a residential apartment. I understand that I'm not able to afford it right now but I would like to find the cheapest alternative to save up and build even if it's just ground floor single rooms. 

Benjamin Cheruiyot – the Engagement Lead at Abojani Investments, a personal finance and investments advisory firm

Saving Sh25,000 monthly will add up to Sh325,000 at the end of year, inclusive of 9 per cent annual interest. MMF savings are advisable especially if you expect to withdraw for use in the short to medium term. However, you should also have an emergency fund separate from your project fund. It’s generally recommended that you hold at least six months’ worth of living expenses in cash: that's Sh108,000. 

It will take you a significant number of years to save up to afford construction at about Sh3 million for the foundation and ground floor for your apartment. Your salary is out of the range of credit for the project. You will need monthly repayments of Sh60,000 to service a six-year Sh3 million loan. Saving through the MMF route will take you at least eight years to afford the construction. 

Building is an expensive undertaking. Saving through the SACCO might be a faster route. If you save Sh25,000 monthly, you will accumulate Sh330,000 inclusive of 10 per cent annual interest. Doing this for two years will amount to Sh700,000. With most SACCOs giving credit up to 3X one's savings, you could qualify for Sh2.1 million loan. However, your current income may not service such a loan. You could borrow Sh1.6 million and repay monthly at Sh28,000 for six years. Opting for this will call for an adjustment of your current budget. 

Certain banks may lend you against the plot title deed but you will not be able to service the monthly repayments since you will have overstretched your salary.

The other option is to scale down on your project. If your project did not involve setting up beams, columns and the slab structure of an apartment, you would be better off doing it in phases and earning rental income along the way. However, to safeguard the stability of the structure, you might need to wait until the completion of the ground floor to start earning. You can wade through this by getting yourself a bill of quantities for the ground floor and postponing the project for a number of years to raise funds. You might consider setting up temporary semi-permanent mabati singles or doubles for rent to prevent the land from staying idle.

With age on your side, improve your skills to better your chances of increased income. You may further your studies or learn a marketable skill that will double your income in six years. This will give you huge leverage to achieve your dream project in another four years. If you take a longer term approach and save for a five-year period in a Sacco at 10 per cent interest, your total savings will amount to slightly above Sh2 million. This will give you a maximum 3X multiplier effect of Sh6 million. Over this duration, improve your earnings by creating multiple sources of income streams. With a ready title in a prime area, there are commercial lenders who finance project construction and share proceeds from property sale or rent or via a lease model. This route is dicey and needs thorough due diligence on terms, duration, interest and property rights to avert the possibility of losing your land and project to a rogue financier down the line.

If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered in this column.