Recently, I met my friend called Sam from Darajani and could not help but notice how his lifestyle has changed for the better.
If you don’t know Darajani, it is an informal settlement in Kibera. In other words, it is a slum.
Slums in Nairobi are many and spread all over the city. They include Mathare, Korogocho, Lucky Summer, and many others.
So now, I asked Sam how his fortunes had changed.
He excitedly informed me that he is now a proud slumlord at Darajani, housing 40 tenants. Each tenant lives in a house of 11ft by 9.5mtrs.
I laughed at him for calling himself a slumlord and called him a big liar until he sat me down and gave me the following breakdown.
Land Acquisition in a slum
We all know how complicated the land acquisition process is in Kenya leave alone Nairobi. To make matters worse land is rarely available for sale in a slum like Kibera or Korogocho.
Even if it was available and you are to afford, you would not risk to buy as it might be grabbed or riparian land.
Now here Sam gave me a rather interesting fix.
He told me if you can’t buy land, why then not lease the little space you find.
Therefore, for the basis of this evaluation, we shall use the land lease option, not purchase.
Now a plot of 50 x 100 can be leased at Ksh. 25,000 per month or Ksh. 300,000 per year.
Sam was lucky to find a good spot nearer the road and thus considered more safe and easily accessible.
Construction of Rental Units
His next step was building rental units on the leased land.
You see, in a slum people don’t live in rather complicated stone walled houses with opulent finishes.
They prefer to live in semi-permanent units rather called shanties. These houses are made of iron-sheets or rather known as Mabati.
But Sam was determined that as a slumlord, his houses would be of higher standards which in turn would help him fetch a little more rent than his fellow slumlords in the area.
And his decision was to build Mabati houses yes, but they would have a ground floor slab and at least two course of masonry walling.
And he gave me this breakdown as his cost of construction;
He later clarified to me he may have paid some unforeseen charges like paying the local security guards during construction, the local committees, and transport of materials, thus bringing his total costs to roughly Ksh. 2,500,000.
Profits and Returns on Investments
His capital was based on Ksh. 250,000 he had a saved at a local Sacco.
He also obtained the balance of Ksh 2, 250, 000 from the same bank through a loan. He secured this loan using an inheritance piece of land at his rural home in Nyandarua County.
He is supposed to repay Ksh. 36, 250 per month to the bank, for a period of 72 months (6 years).
Based on the above construction costs, loan repayment, recovery of his savings, and the lease of land fees, he settled on a rental fee of Ksh. 3,500 per month per tenant.
The tenants also pay him Ksh. 200 for their own garbage disposal. They also pay for their own power tokens.
This means Sam is able to have a gross income of Ksh 140,000/- before any deductibles, if we are to assume the full house occupancy, which he currently enjoys, continues.
Remember, he has deductibles, which are as highlighted below;
If you take his Gross income of Ksh. 140,000 per month, and then you less the deductions of Ksh. 71,250, you will realize why Sam can now afford his smile and call himself a slumlord.
He has technically self-employed himself and earns a net income of Ksh. 68,750 stress-free.
As we winded the conversation with him, he told me that despite his smiles, he knew deep down that he had taken a risk on investing his Ksh. 250,000 in a slum, and placing an inherited piece of land as a bank loan collateral.
This is because of the constant harassments by the local boys for “local tax”, and the unpredictable waves of demolitions by the county and national governments.
But as people normally say, what is life without risks?