Real estate can help hedge against inflation, but yields in high-end markets have declined.
My name is Adassah. I am married with grown children. We have our own home and don’t rent. I am retiring in the next two years. My husband is already retired. My husband, a former teacher, retired last year and is currently involving himself in politics. He is eyeing the MCA seat in our local area in 2027.
He has set much of his retirement benefits to fund his campaigns. He, however, meets most of our bills which mainly include groceries, shopping, and animal feeds. I pay the workers at our home (farm labourers) and electricity. I personally have savings of Sh1.6 million in my Sacco account that I have saved over a long time in my career.
When I retire, I am expecting a lump sum pay of around Sh6 million. I would like to secure my retirement and have something to save for my grandkids. I don’t trust my husband with money, now that he is in politics. I need to protect myself and my home.
What should I invest in to generate passive income that shall be enough for me to live on, invest and support my grandchildren’s future education and dreams? My idea is to purchase a plot and build rentals, but when I shared this idea with my husband, he said that rental houses are low-risk and low-return and I might die before I even recover my investment.
Please advise me on what to do.
Dominic Karanja, a financial planning and investments consultant, says:
You are currently at an important juncture, seeking to safeguard your accumulated savings while establishing a legacy for your grandchildren.
Your consistent financial discipline and prudent saving throughout your career have provided a strong base for retirement planning. With Sh1.6 million in Sacco savings and an anticipated lump sum of Sh6 million, you will have approximately Sh7.6 million available for strategic allocation.
The primary objective is to generate reliable passive income through low-maintenance investment options.
Investing in land and building rental units can generate passive income through consistent rent, especially in rapidly developing areas like Nairobi’s suburbs or county towns where there is strong demand for affordable housing.
The 2023/2024 Real Estate survey from the Kenya National Bureau of Statistics (KNBS) defines annual rental yield as the return on investment (ROI) from renting out property.
According to the survey, studio apartments (bedsitters) have the lowest rental yield at 2.2 percent, while two-bedroom townhouses offer the highest yield at 8.3 percent. Three-bedroom maisonettes follow closely with an 8.0 percent yield. In comparison, four-bedroom or larger apartments yield 4.4 percent, and one-bedroom apartments yield 2.8 percent. It is important to note that these gross yields do not account for variations in location and property features.
Your husband makes some good arguments. Real estate investment tends to be minimal risk but also offers lower returns compared to other options, with a payback period of 10-15 years or possibly longer if there is an economic slowdown or market oversupply that impacts yields.
There are some initial challenges, such as acquiring land, getting permits, and overseeing construction, along with ongoing responsibilities like handling tenants, repairs, and taxes.
If you prefer a hands-off approach, hiring a property manager will reduce your returns by about 10-15 percent of rental income. Fluctuations in inflation and interest rates can also impact performance, and recently, yields in high-end markets have declined.
Still, real estate can help hedge against inflation and may offer capital appreciation often around 8-10 percent per year in prime locations which makes it a solid long-term asset, provided you diversify and do not invest your entire sum in one go.
To secure your financial independence and protect your legacy, I recommend a “basket approach” that prioritises high yields, tax efficiency, and total privacy. By diversifying your Sh7.6 million, you move away from the high-risk, high-visibility trap of a single rental building and instead create an “invisible” portfolio.
You should start by allocating Sh4 million into infrastructure bonds. These are the crown jewel for Kenyan retirees because they offer tax-free interest currently around 12-16 percent which would deposit approximately Sh240,000 to Sh320,000 directly into your bank account every six months without the headaches of property management.
To help secure your grandchildren’s future, keep the Sh1.6 million in your Sacco account. Leading Saccos often deliver annual dividends of 10–12 percent, which you can reinvest or use for school fees and to support your grandchildren’s aspirations.
For your current needs and farm expenses, consider putting Sh1 million into a high-yield money market fund (MMF). When reviewing options for your “emergency/eorker fund,” pay attention to net yields after the 15 percent withholding tax and management charges.
Although some aggressive funds may earn over 10 percent, most established MMFs currently offer net averages of around 6–9 percent. With Sh1 million invested at a cautious 8 percent net yield, you could earn approximately Sh6,666 per month in passive interest, which is an improvement over standard savings accounts, while keeping your funds accessible for withdrawals, such as to pay electricity bills within 24 to 48 hours.
Finally, invest your remaining Sh1 million in a buy-and-hold plot in a growing area or start building rental units step by step. Raw land offers hassle-free value appreciation, no maintenance or tenant issues and can be a valuable inheritance for your grandchildren in the next decade or two.
To safeguard your retirement funds against the financial uncertainties associated with political campaigns, it is important to maintain legal autonomy and exercise prudent financial management.
Begin by depositing your Sh6 million lump sum into a sole-signatory account for which you retain exclusive access and consider registering for an individual DhowCSD account at the Central Bank to ensure bond interest payments are made directly to you, rather than to joint family accounts.
Upholding confidentiality regarding your net worth is advisable. Within a political context, there is no obligation to disclose Sacco dividends or investment returns, thereby protecting these assets from being redirected towards campaign expenditures.
For long-term asset protection, establishing a family trust for your grandchildren is recommended, as this effectively safeguards your resources for their education and future goals, ensuring they remain inaccessible to political creditors or campaign-related demands.
To optimise home expense management during retirement, it is advisable to eliminate recurring costs and ensure your farm operates as a self-sustaining asset instead of a financial liability.
Allocating a portion of your lump sum investment towards a comprehensive solar power system can provide lasting relief from electricity costs, effectively removing one consistent monthly expense.
Concurrently, conducting a thorough business audit of your farm is recommended. If labour dedicated to livestock or crops does not generate sufficient revenue to offset wages, consider downsizing or transitioning to more efficient agricultural practices.
Establishing the farm as a self-funding enterprise and reducing utility expenses will help safeguard passive investment income from being eroded by household overheads.
If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered on this column.
