I am 39, married with one child. I own a prime plot of land where I have built a four-bedroom bungalow in Nakuru. The plot and the house are worth between Sh8 million and Sh10 million. My spouse is taking a diploma in clinical medicine. My son is in Grade Three.
I am a freelancer and I currently earn about Sh60,000 net. I pay house rent of Sh10,000 in the township. Our groceries and shopping expenditure totals around Sh20,000. I also set aside Sh6,000 for her grooming and Sh5,000 for her pocket money. I save Sh6,000 every month for my child’s school fees and Sh15,000 for my wife’s school fees. I am left with around Sh7,000 only for my needs, including fuel for my vehicle.
Last year, I was making Sh120,000. However, the employer I work for has been going through financial difficulties that have been pushing my earnings downwards. My fear is that as I head into my 40s, I will not have a lot of earning power. Should I sell the home and my car? Should I reinvest the money (Sh8-10 million) towards securing my retirement? Should I buy a smaller apartment in Nairobi? Please advise. Bundi
The first option is to sell your home and car. If this yields approximately Sh8.5 million, you can channel the proceeds into long-term, low-risk investments to secure your retirement while supplementing any current income shortfall you could face if your income declines further. One viable option you could consider is investing in Treasury Bonds. Treasury Bonds are government-backed investment products that offer a guaranteed interest payment twice a year. At the current rate of approximately 14 per cent, investing Sh8 million in tax-free Infrastructure Bonds would yield about Sh560,000 every six months. If you reinvest each interest payout into additional Treasury Bonds and assuming the interest rates remain at the current rates, your investment could grow to approximately Sh14.5 million in five years with an annual income of about Sh2 million —with the potential to compound into a significantly larger portfolio.
Alternatively, you could invest the proceeds of the sale of your house and car in a rental property. You could, for example, allocate about Sh1.5 million to purchase land in a location with strong rental demand and use the remaining Sh7 million to construct affordable units like bedsitters or one-bedroom apartments. This could potentially yield a monthly rent income of around Sh50,000 per month — assuming full occupancy and minimal maintenance costs. You could channel this income into a Money Market Fund to create a buffer for emergencies. As this portfolio grows, diversify into Treasury Bonds as earlier explained or expand your real estate holdings.
These options assume that you continue to live in your current rental house and your expenditure and income remain constant to allow you to invest the full amount of Sh8.5 million. There is also the alternative of leasing prime land for a fixed term (for example 10 to 15 years) in areas such as Dagoretti that are attractive for affordable one-bedroom, singles, and bedsitter rentals. This will save you the cost of purchasing land and give you leeway to invest and recoup money for the duration of the lease. Involve a professional to understand your bill of quantities, projected net income, and the level of risk before committing your entire amount.
As for your idea of buying a smaller apartment in Nairobi—although appealing, it may not meaningfully advance your retirement goals at this stage. Instead, focus on growing your investment portfolio. Then, once your investments mature, you can consider building or purchasing a retirement home.
A second approach is to retain your house and car and explore ways of generating passive income from them. Since your bungalow in Nakuru is in a prime location, it could potentially generate rental income of between Sh40,000 and Sh50,000 monthly. You could rent it out on a short to medium term basis (for example for the duration your spouse will be in college) while continuing to live in the township house close to your spouse’s campus. This approach will allow you to retain the ownership of your house — which may appreciate in value over time — as you steadily build your wealth portfolio. You can combine the rental income with your current monthly savings of Sh7,000 to invest about Sh50,000 per month in a money market fund. If you do so consistently, your portfolio could grow to approximately Sh630,000 in one year and exceed Sh2 million in three years. As your investment grows, you can gradually diversify into Treasury Bonds or rental real estate to build a more stable and reliable foundation for your retirement.
Within this time, your spouse will have graduated, and possibly secured a job and a regular salary as a clinical officer, started to contribute to the family income, upon which you can withdraw your home from the rental market. It is also important that within this time, you start acquiring additional formal or informal skills that will improve or stabilise your earnings to avoid further dips.
