Comparison of Investment in Rentals vs. Dairy Farming: A Business Perspective

     By Timothy Angwenyi, Business Consultant, and Justine Nyachieo, Business Man & Mentor  When faced with the decision to either take a bank loan to build rental apartments or invest in dairy farming, many aspiring entrepreneurs find themselves torn between the two options. Both avenues hold the promise of significant returns, but the outcomes are highly contingent on the approach, risk management, and the nature of the investments. ### The Rental Property Option:In the context of real estate, using a title deed as collateral for a bank loan is a common method of financing property development. Suppose you borrow Ksh. 10 million from the bank to build a set of one-bedroom apartments. The cost of construction, including amenities and the perimeter wall, might amount to Ksh. 7 million, allowing for about 10 rental units. If each unit rents for Ksh. 7,000 a month, the total rental income would be Ksh. 70,000 monthly, or Ksh. 840,000 annually.However, the realities of loan repayment soon set in. With loan repayments at about Ksh. 35,000 per month (assuming 50% of the rental income is used for servicing the debt), your annual net income becomes Ksh. 420,000. After 24 years of making consistent repayments, the project could still be paying off the loan, with most of the returns simply servicing the debt. For many, this could lead to financial strain, a lack of liquidity, and additional stress as one attempts to balance lifestyle pressures.### The Dairy Farming Alternative:On the other hand, investing in a dairy farm can yield a far higher return within a shorter period. A quarter-acre plot, using the title deed as collateral, can allow you to borrow Ksh. 2 million to buy 10 Friesian cows at Ksh. 150,000 each. The average Friesian cow can yield up to 15 liters of milk daily. By selling 150 liters per day at Ksh. 40 per liter, you can generate a daily income of Ksh. 6,000, which translates into Ksh. 180,000 monthly or Ksh. 2.16 million annually.Considering that feed and maintenance costs for each cow can total around Ksh. 3,000 monthly, and the cost of a farmhand could be around Ksh. 8,000 monthly, your total monthly expenses would be approximately Ksh. 38,000. This leaves a net monthly income of Ksh. 150,000 or Ksh. 1.8 million annually—far higher than what would be generated from rental income.In just one year, the income from the dairy farm could enable you to pay off the Ksh. 2 million loan, allowing you to start building significant profits soon after. Additionally, the farm provides ample opportunity to diversify and grow supplementary businesses like growing grass for fodder or poultry farming to further enhance income.### Financial and Personal Impact:From a financial standpoint, the dairy farming venture demonstrates an expedited return on investment, with significant yearly profits from the outset. In contrast, rental property development, especially when financed by a loan, often requires years of debt repayment with minimal cash flow. For the entrepreneur, this can result in stress, feelings of inadequacy, and an ongoing cycle of indebtedness. With dairy farming, the relatively low overhead and the ability to diversify (by supplementing income with chickens or growing fodder) means that the investment provides a higher degree of financial flexibility. The dairy farm owner is not tied to long-term debt repayment plans and can quickly achieve financial independence, with the added benefit of a simpler business operation.### Conclusion:When comparing rentals versus dairy farming, the latter offers a faster, more sustainable path to wealth. While rentals may appear attractive in theory, they often involve years of financial strain due to large loans and slow accumulation of equity. Dairy farming, however, offers the potential for immediate returns, relatively low operational costs, and less financial stress, ultimately providing greater long-term satisfaction and a higher quality of life for the entrepreneur.In the modern world, where many people are entangled in the chase for status symbols and external validation, it’s essential to make business decisions that align with financial freedom and personal well-being. Dairy farming not only provides this but offers a more reliable and profitable return, demonstrating that practical, grounded business models can sometimes outweigh the allure of traditional investments.  Read More