Consult a building expert on the units to construct

HELLO. My name is Nyale, 42, a civil servant earning a net salary of Sh35,200 a month.

I have several loans which deduct a total of Sh38,987 every month. I acquired a plot of land in one of the major towns four years ago. The plot is in front of a primary school and the neighbourhood has residential houses.

In the next one year, I plan to acquire Sh1.5 million bank loan to construct a storeyed guest house (not a bar) on the plot. How many single units can this money put up?

What are the potential hurdles in having this kind of premises in this neighbourhood? Are there cheaper loans available for this kind of investment?

YOU SEEM to have thought out the location of your plot, which is often a good start before developing it. Important to note is the fact that different types of house development vary from one place to another based on their economic viability arising from the location.

Having established a preference to set up single units on your plot, you may, however, require an expert to evaluate and project the potential value of such a business.

This essentially is an effort to objectively forecast how strong the demand or the market for single units would be in the foreseeable future and whether or not it supports the business idea that you have.

To determine an estimate of such a structure, it would be wise to seek advice from a building and construction practitioner such as a contractor, who has dealt with this type of project.

This also means that you will get a professional view on the existing building technologies that are affordable, thereby lowering the cost of construction and as a result, boost your expected returns.

Commercial bank loans are relatively costly and at times require huge commitments. To add to this, the lenders, especially in Kenya, charge high interest rates besides demanding collateral to secure the financing.

Quite often, many people lack the required capacity to secure such credit and for that reason, they consider other alternatives.

For instance, saccos are popular for offering loans because of relatively fair terms for their members. And for purposes of construction and home ownership, mortgage and construction loans can also be sourced from saccos.

You may need to enquire the products which the sacco you subscribe offers.

All these are options that you could explore, compare, and choose the most viable after considering all the relevant factors.

With respect to funding, the bottom line is always to secure the cheapest form of financing, with a reasonable repayment period and accommodative terms.

For such a funding mechanism, most institutions may require proof of your ability to service the loan and as such, may request you to prepare a business plan.

This should aim to illustrate how strong your market is and the ability of the building to generate adequate revenue to keep the business afloat as well as service the loan. One way or another, you need to convince your potential financier of your capability to service the loan.

It is always advisable to try and fast-track loan repayments as much as possible to enhance your ability to borrow more in the future. Many lending institutions will set your interest rate.