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How to Start a Rental Property Business in Kenya

Vincent Nyoike
Vincent Nyoike Investment

The rental property business is one of the most profitable businesses in Kenya. It is a long-term business that will serve you and your generations. The demand for houses is high while rental prices are always increasing. This makes it a profitable venture. The chances of making losses in the rental property business are very slim. However, its main challenge is that it is capital intensive.

In this article, we will show you how you can start a rental property business in Kenya.

Look for Startup Capital for a Rental Property Business

The rental property business in Kenya is profitable, but it is capital intensive. You need to look for enough capital to get started. Some of the best sources of building capital are Saccos. You can join a Sacco, invest and then borrow a loan.  

You can get a loan from a Sacco at lower interest rates compared to banks. You need to have guarantors to have your loan request approved. Most Saccos give members loans of up to three times their share capital.

Read also: Best investment Saccos  in Kenya. 

Other sources of capital to start a rental property business include:

  • Bank loan
  • Chamas
  • Savings and investments

Identify a Good Location for Rental Property Business

Rental property buildings fetch more money in towns compared to rural areas. However, the cost of land in towns is expensive while the cost of construction is also high. If you can afford to construct rental houses in a developed area, then you are sure to make good returns.

The other way to go about it is to construct houses in a developing area. You can buy land and give it time for the area to grow. It will save you on the cost of buying land at high prices. Once the area is developed, rental prices will have increased and you can start constructing your rental units.

One of the things to consider before you can start building is the demand for houses. Identify if it is single rooms, double rooms, bedsitters, 1-bedroom, or 3-bedroom units in demand. Make sure to construct more of the units in demand.

The location can also help you determine the kind of houses to build. If your land is near a university or a college, it is best that you construct bedsitters and single rooms. Mostly, college students and university students rent single rooms and bedsitters.

Read also: How to invest in the Money Market Fund in Kenya. 

Decide the Type of Rental Property You want to invest In

There are different kinds of rental property you can invest in. They include:

  • Industrial property
  • Raw land
  • Your own house
  • Commercial houses
  • Residential houses

Decide on the Way to Acquire a Rental Property

You need to decide how you are going to acquire a rental property. As such, you need to decide whether you are going to build or buy rental properties.

Constructing rental buildings is cheaper compared to buying. However, you need to be present to supervise the construction. Alternatively, you can hire someone to supervise the construction on your behalf.

If you wish to buy a rental property business, you can buy one. There are many real estate properties that build houses and sell them when they are complete. 

Read also: Real estate properties to invest in Kenya. 

Cost of Starting a Rental Property Business in Kenya

The cost of building a rental property depends on the location, type of soil and size of the house. Building in towns is expensive compared to rural areas. Also, building in cotton soil is expensive. 

The average cost of building a bedsitter unit in Kenya is Ksh 350,000 while the cost of constructing a 1-bedroom rental unit is Ksh 650,000. 

The following is a breakdown of construction costs in Kenya.

  • Land – Ksh 1 million
  • Drawings - 5% of the construction costs
  • Approvals – 2% of the construction costs
  • Building and materials – Ksh 2 million

Is the Rental Property Business Profitable in Kenya?

The rental property business is a profitable venture in Kenya. Its profitability depends on the location and the number of units.

Assuming you have three bedsitter units, two 1-bedroom units and two 2-bedroom units charging each Ksh 5,000, Ksh 8,000 and Ksh 12,000 respectively, you will be getting Ksh 55,000 every month.

You can start by constructing a few units and construct more units from the rent you will be receiving from the completed ones.

Read also: How I started a rental property business from mabati stalls.

Final Word

There is a high demand for rental houses and the government is constructing more to meet the demand. This has led to an increase in the cost of renting houses in Kenya. Landlords and especially those ones in towns are making millions in the rental building business. 

You too can start small by building a few units and construct more from the rent you will be receiving. The rental property business is profitable while the value of buildings in Kenya is always on the rise.