The rental building is one of the most profitable businesses you can start in Kenya. Investing in land and buildings can be a lifetime source of income. Although investing in the rental business is an expensive venture, you can start small and grow with time. This is how Elizabeth started her rental building business.
In 2004, Elizabeth bought land worth Ksh 350,000 in some suburbs in Nyeri County. She was looking for a better way to invest her money safe other than a current account in the bank. She didn't intend to invest in rental buildings until the idea came knocking on her door.
After 6 years, the area had developed after the construction of a tarmac road. The price of land in the area shot thrice the price she had bought her. This was a great opportunity she had not foreseen. Soon, people started buying land in the neighborhood and constructing rental buildings.
At the time, she didn't have money to construct a decent rental building. Since her land was touching the tarmac road, she decided to build a few stalls using iron sheets to let to business people. The cost of constructing the 10 stalls was Ksh 250,000. Before the stalls were complete, all of them had been booked. Some of the money she used to construct the stalls came from rent bookings.
When the stalls were complete, she started letting each at Ksh 5,000 per month. She was getting Ksh 50,000 rent every month. She could not believe it. She hadn't thought that this would be a profitable venture. In less than five months, the stalls had already returned the money she had used to construct them.
The piece of land was 40 by 80 and the stalls occupied less than half of the land. With Ksh 50,000 revenue from the business stalls, she knew residential rental houses would fetch more money. It is then she decided to construct a few bedsitters on the remaining piece of land.
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She hired an architect to design her residential building to let. She then took the plans to the National Construction Authority and got clearance. She also got a permit from the county council to start the construction work. She immediately started buying construction materials. After three months, she had started the construction work. Most of the money she was using was revenues from the stalls. She constructed the foundation and the money was depleted. She again saved revenues from the stalls for 5 months and constructed the walls, and the money was over again. After another seven months, she roofed the house. She used savings from her income on finishing and fitting and fixtures for the newly built bedsitters. She managed to complete 5 bedsitters and all got occupied immediately. She was letting each at Ksh 6,500. This was a great move since it would increase her rental income by Ksh 32,500 every month. The income would help her complete the remaining part of the building.
In the initial design, the building was to occupy the whole piece of land. However, Elizabeth didn't want to lose rental income from the stalls that soon. She would use the money to construct the building. After completing the construction of the 5 bedsitters, she had depleted her savings. She decided to take two years break before continuing with the construction. With Ksh 50,000 from stalls and an additional 32,500 from the bedsitters, she saved Ksh 1,500,000. She decided to bring down the stalls to pave the way for the construction of the remaining part of the building. She was sad that she had to give her tenants a notice to move out, but she didn't have an option. Luckily, there were many other stalls constructed in the neighborhood, so many got a place to continue with their businesses.
After one and a half years, the building was complete, although she had spent a significant part of her rental income on the project. On the front part of the building were shops, while the rest were residential houses. She let each shop at Ksh 10,000, one-bedroom at Ksh 8,000 while the bedsitters were going for Ksh 6,500. In total, there are 8 bedsitters and two 2-bedrooms. Her total rental income shot to over Ksh 100,000 in 6 years.
The rental building is a good business and from her, she managed to buy other pieces of land. She is now constructing her home from the money she gets from her rental building. Elizabeth says that a rental building is a great way to build passive income and prepare for your retirement.
Challenges Elizabeth Faces in Her Rental Business
In Kenya, there is a huge gap in the housing sector. As such, investing in rental houses is one sure way of generating passive income. However, there are challenges to starting a rental business. One of the challenges is the high capital required. First, you need to buy land, get approval for the building's construction, pay for licenses, and get authorization from the NCA. For her, she had to construct the building in phases since she didn't have the money to construct it all at once.
Elizabeth faces delays in payment of rent by her tenants. Sometimes it is not their fault, but it is that they do not have money. Most of the times, she is lenient with the tenants. She allows them to occupy the rooms and then pay her later. Unfortunately, some used move out without her knowledge and she ends up losing the money. For this reason, she decided that every tenant must pay one month upfront rent before moving into her rentals.
In other months, the tenants move out and her houses are left vacant. It takes some time to get new tenants. It can be challenging, especially if you have built the house using a loan. At one time, it took her six months before her house was fully occupied. This was a challenge since she was not getting an income for the months.
Elizabeth also faced a challenge during the construction of the house. She had to go to work and didn’t have a person to help supervise in the construction of the building. She ended spending more money since the masons were taking long to build to earn more money.