How to buy a house on mortgage and pay back with rent

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

26 October 2025

Alex Mungai wants to know if it is possible to buy a house on mortgage, lease it out and use the rent collected to pay off the loan. The answer is that it depends on two main factors. First is the interest rate of the mortgage and second is the proportion of the buying price that is borrowed.

Alex says he has been offered a Sh10 million apartment in the up-market region of Nairobi and it comes with pre-arranged financing for those buyers who cannot raise the full amount. He adds that the financier is lending up to 95 per cent of the buying price.

Before doing any calculations, we need to establish how much rent Alex is likely to get from this house. Modern apartments in these areas are currently fetching monthly rent that is about 125th of the cost of the apartment. Thus, for the Sh10 million flat, Alex should expect to get about Sh80,000 per month (Sh10 million divided by 125).

From this amount, Alex will probably need to pay service charge of about 10 per cent, leaving him with Sh72,000. So, the question boils down to this: if he has Sh72,000 to commit to loan repayment, how much can he borrow?

To answer that question, we need to know the interest rate and the duration of the mortgage. The bank in this development is charging 12.5 per cent per annum fixed over a period of 15 years. Working backwards, it turns out that Alex can comfortably service a Sh5.8 million loan on these terms. His monthly instalment would be Sh71,500.

In other words, Alex needs to raise at least Sh4.2 million from his own savings for this plan to work. But that would be cutting things too close! We have assumed that he will get a tenant right from the first day and that the house will be occupied throughout the 15 years.

This is far from reality. The realistic position is an occupancy of about 10 months per year. This brings down the average net rent to about Sh60,000 per month. Then the serviceable loan now comes down to Sh4.8 million. So, Alex needs to raise Sh5.2 million, which is slightly more than half of the cost of the house.

Frome these calculations, we can develop a rule of thumb that, if you want to buy a rental house on mortgage and use the rent to pay off the loan, then you need to raise about 60 per cent of the buying price from your own savings.