Please help! I took Sh1 million loan to build rentals but only earn Sh8,000 in rent monthly

Please help! I took Sh1 million loan to build rentals but only earn Sh8,000 in rent monthly. Photo | Pool

What you need to know:

Always look for opportunities to reduce the expenditure

My name is Douglas. I took a loan with a local bank of about Sh1 million. I am expected to repay a total of up to Sh1.6 million in 84 months. I pay close to Sh19,000 monthly. After payments, I am left with about Sh12,000. I used this loan to build rentals that are currently giving me an average of Sh8,000 monthly. My salary was Sh33,000. With the Sh12,000 plus Sh8,000 from rent, I am left with around Sh20,000 per month. I spend about Sh9,000 on transport, Sh3,000 on rent, Sh1,000 on power bills, and Sh10,000 on food and other expenses. This leaves me in negative territory and to survive I am always borrowing. Please help me help stabilise.

Bancy Kaleli-Moturi, the Trainings and Business Development Manager at Enwealth Financial Services 

Viability of the project: From the look of things, this is not a viable investment. From the income of Sh8,000, it will take 200 months to break even assuming that the rentals will have 100 percent occupancy and that the loan financed the purchase of the property and construction.

One way is to consider selling off the rentals and the land. The income from this sale can be reinvested into more profitable ventures. If saved consistently in a mutual fund at an interest of 10 percent, this will give you Sh85,000 at the end of the year. Also, look for opportunities to increase your income. What side-business matching your skillset can you start? If you rule against selling your rentals, how can you improve them to attract better rates?

Account for every shilling: From your breakdown, you are unable to account for some Sh2,000. An income of Sh33,000 less Sh19,000 loan repayment leaves a balance of Sh14,000. The biggest breakthrough when budgeting can only be achieved when all transactions are monitored. Other than the discipline required to monitor transactions, you will also need to learn to adjust your spending habits. For example, if you overspend on food that you’ve budgeted for Sh10,000 then you may need to recover the amount from transport or KPLC budget lines.

Look for opportunities to reduce the expenditure: From the loan analysis given, it seems that it’s attracting an interest of around 14.4 percent. You may consider refinancing this loan by another financial institution e.g. Sacco that may have cheaper rates. Additionally, you may consider opportunities to reduce some of the monthly expenses such as transport expenditure by planning travel during off-peak hours or looking for alternative housing closer to your workplace to reduce the cost, food expenditure by eating meals from home or sourcing for cheaper suppliers. By reducing your transport by 50 per cent, you will have an extra Sh4,500 which you can add on to the Sh2,000 you aren’t able to account for to get a total of Sh6,500. 


My name is Keziah. I am a single mother of one school-going child. I earn a net salary of Sh50,000 per month. I end up consuming all of the salary and live paycheck to paycheck. My budget is as follows:

1. Rent - Sh14,000

2. Tithe - Sh5,000

3. Shopping - Sh10,000

4. House Help -Sh5,000

5. Travelling - Sh3,000

6. Education policy - Sh3,800

4. Water - Sh1,100

5. Electricity - Sh1,200

6. Chama Sh3,000

7. Balance miscellaneous

Kindly help me restructure my budget so that I start saving and investing and earning interest. Also advise me on where I should invest, how much, and the interests I will earn every year.

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

Your budget has certain expenses that are too high. For example, rent is 28 percent of your net pay. An ideal budget allocates an average of 20 percent to rent. Factors like distance, and security and social amenities may not change this significantly. However, your shopping is on the high end too. Scrutinise your regular shopping list to identify categories of items you could be spending too much on. Consider buying consumables in bulk as they are cheaper. Stock dry foodstuffs from market stalls especially when some, like maize or beans are in season. 

The education policy for your child's long-term education needs is prudent. However, you need an emergency fund to cater for unforeseen circumstances you may encounter. From your budget, you save Sh6,800 in the policy and chama. That's 13.6 percent of your net pay. Chama savings only make sense when money is working for you through table lending groups. Merry-go-round funds only move from pocket to pocket without real value addition. You should strive at saving and investing 20 percent of your net pay to attain faster financial independence. If saving in your Chama is for merry-go-round purposes only, you need to stop and start saving in a money market fund where interests will accrue daily. 

Once you've accumulated a tidy sum, you can use the money to fund short term goals like higher education or acquisition of skills that will increase your income. An ideal budget takes the formula 50:30:20. For example:

         50 percent of your net pay (Sh25,000) to Needs: Rent Sh10,000, water & electricity Sh2,300, house-help Sh5,000, shopping Sh7,700.

         30 percent of net pay (Sh15,000) to Wants: Travel Sh3,000, Clothing, entertainment & miscellaneous Sh4,000, Tithe Sh5,000 and Chama Sh3,000.

         20 percent of net pay (Sh10,000) to go to Savings and Investments: Sh3,800 education policy, Sh3,200 to a money market fund account and Sh3,000 to SACCO deposits.

Saving in a SACCO will afford you loans at 3X deposits, besides earning annual interests. At Sh3,000, your savings will accumulate to Sh36,000, earning an extra Sh3600 from 10 percent interest. In three years, you will have in excess of Sh120,000 that can get you Sh360,000 loan to finance a deposit for a major asset like a plot. 

Savings of Sh3,200 in the money market fund will accumulate to Sh38,400 that will earn you Sh3,500 at 9.2 percent annual interest. Channel bonuses to this account to compound your returns. You can access these savings within 48 hours in case you wish to top up on an investment. Also take advantage of low-priced investment masterclasses to learn about other asset classes like stocks, treasury bills, and bonds, and expand your worldview of investment opportunities. You might also want to check your tithe budgets. If you don’t work late, you could consider having a house girl only once a week. In one year you spend Sh60,000 on tithes. Evaluate if this is a mandatory expenditure and how it impacts your finances and livelihood.

If you have any money problems, send us an email via: [email protected] or [email protected]. Do include your phone number.