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The rental market has always been lucrative for real estate investors. It is perceived as the ultimate gateway to financial freedom. Statistics show that rent in many markets is at least four times what it was two decades ago.
This means that if a landlord was earning Sh5,000 from their apartment at the beginning of the millennium, they are now earning Sh20,000 and may earn more in another 10 years if the property is well maintained.
Each year, according to several price indexes, rent increases by significant margins. The rental market is one of the fastest growing compared to land and home sales. Out of 47.6 million Kenyans, only 7.4 million, (15.4 per cent) own homes, according to the latest (2019) census report. A whopping 84.6 per cent are renting either in urban centres or rural towns.
Despite the high number of renters, maintaining a good cash flow from your rental space is not a walk in the park. There are many rental properties just as there are renters.
Once you put your property in the market, you realise that attracting tenants is one thing, keeping them is another.
Why isn’t anyone renting?
Perhaps you are wondering why your property is not attracting tenants, yet a competitor with a less appealing rental has a year-round cash flow and a waiting list of future tenants.
In this article, we break down the reasons that could be derailing your efforts to rent your space. But first, why is it important to maintain year-round occupation in your property?
Vivian Ombwayo, a valuer and the director of research and valuation at Broll Kenya, says an empty rental property can turn into a liability. It requires routine maintenance, which means you will hire the services of a caretaker, an agent, painters, plumbers or cleaners often. You will also pay utility bills and land rates to the government, whether you have tenants or not.
Vacant spaces take more than they give. If you built or bought the property through credit financing, you risk foreclosure in case you default. A rental space cannot service a loan without good cash flow.
“When an apartment is empty, people begin to speculate. Eventually, the space acquires a bad image and potential tenants may fear moving in,” says Ms Ombwayo.
People may assume you have legal issues or the building is unsafe. If your rental space, whether commercial or residential has been vacant for months, you might want to understand why this is the case and work on getting tenants. The valuer outlines these reasons and what you can do to tackle the challenges.
1. Poor Pricing
This has to be the most important aspect of any rental. Traditionally, most property owners set their prices based on other rent prices within the neighbourhood. This approach may or may not work given the features that determine a rental’s price.
Ombwayo explains that it’s best to engage a market feasibility consultant or conduct a feasibility study to establish a number of factors. First, a feasibility study will determine the supply and demand dynamics. When the demand is high, the price is also likely to be high, but in a saturated market, you might want to lower your prices to entice tenants. The study will also establish the location’s typology, the type of apartments in demand, market standards and the target market.
On target market, she divides the Kenyan renters into three categories: low income, middle income and luxury. Each location appeals to people representing a particular income bracket and that too determines the price.
The Kenyan National Bureau of Statistics classifies low-income earners as those making Sh23,670 and below. They make up 51.5 percent of the working population.
Middle income earners make between Sh23,670 and Sh200,000, constituting of 44.9 per cent of workers, while upper income earners who rent luxury spaces make up only 3.6 per cent and earn anything above Sh200,000. Assuming that a majority of people adhere to the recommended rule which guides them to only spend 30 per cent of their income on rent, do the math and determine how much your target market is willing to spend. Are your rentals within their budget?
Overall, Ombwayo says the right rent price should strike a balance between the cost of construction and tenant expectations. She further states that the pricing challenge is more evident now during the pandemic when tenants are expecting discounts and rent reductions. Your pricing might have been appropriate in the past, but if you are struggling to attract tenants, perhaps it’s time to review the rates.
2. Wrong Market
Remember the three target markets above? Now imagine building single roomed apartments in Kileleshwa or three-bedroom all ensuite luxury apartments in Githurai. You are unlikely to attract tenants for a property that is in the wrong market. Think about the people who live within the location. Are they students, young adults launching their careers, young families with school going children or retired adults?
Responding to these questions will help you establish whether the tenants you are targeting really need your property and whether they can afford it. In a location with a major university, your demographic is comprised of students who want hostels, single roomed houses or cheap bedsitters.
Young adults will be looking for bedsitters, studios or one bedroom apartments depending on their income range. Often, they will live somewhere close to the universities as they transition from school to work life.
Young families tend to settle for two-to-four-bedroom houses depending on the size of the family. Ombwayo notes that when an apartment has units for mixed demographics, it may be unattractive to tenants.
For instance, if you have bedsitters and two-bedroom units in the same apartment, young, single adults may not appreciate living next to young families with babies crying endlessly at night. The young families may also shy away from living with young adults who party and play music all night, considering the difficulty of putting a toddler to sleep.
Further, understand what each market prioritises. You may be in the right market but your property does not offer the right features.
“Luxury renters value space, high quality finishes and tranquillity. They may also want apartments with fitted kitchens and top-notch fixtures around the house,” explains Ombwayo.
The low-income market is however more concerned about having a decent roof over their head. If you invest in marble kitchen counter tops in a low-income market, that’s a bad move, as you might be tempted to hike the rent. That market does not care so much about luxury. It’s the price that matters, hence, you ought to keep the finishes moderately affordable to break even within a reasonable time frame.
3. Wrong service providers
Your might have the perfect rental and a killer marketing strategy, but if the gateman refuses to allow potential tenants into the property, it will remain vacant forever. Sometimes the people hired to maintain and provide services may have an off-putting attitude that pushes potential tenants away.
It could be little things like sluggishness, refusal to pick calls or keeping the tenant waiting when they go for a viewing. Other times, it is utterly unethical behaviour such as rudeness or hiking rents and deposits without prior communication. How about you call your caretaker or agent and pose as potential tenant one of these days?
Also evaluate your attitude toward tenants. Your rentals are a business, you are not doing tenants a favour by being their landlord or landlady, therefore treat your interactions with them as a business transaction.
Ombwayo notes that a property owner’s attitude may repel tenants too. She says issues such as bigotry, over-screening and trying to control a tenant’s way of life will rob you of tenants. If renting out a servant’s quarter or an apartment within your home compound, remember that the tenant is not your child. They are independent adults with a right to privacy.
4. Outdated features
Even though rent prices have increased impressively over the last 20 years, the rental market has also upgraded at a similar pace. What was considered luxurious 20 years ago may not even cut it in a low-income market. Tenants are picky and spoilt for choice. Finishing is a competitive area when it comes to rentals. People want modern floors, cabinetry and fixtures. The house designs have also changed significantly. For instance, Ombwayo says the luxury market is now leaning toward “his and hers” bathrooms, given the economic empowerment achieved over the years.
If a wife and a husband are both earning a good salary at the end of the month and contributing equally to living expenses, they both want luxury with minimal compromise. No one should have to wait as the other grooms in the morning. They both have important jobs to get to, hence twin vanities or double showers will be attractive.
Fortunately, most features in a space can be updated to attract modern tenants, however, if the floor plans and apartment designs are outdated, look for ways to compensate.
A little-known secret is that older properties tend to be more spacious. They have a competitive edge when compared to the smaller modern units. Use that to your advantage in marketing by mentioning the square footage, if it’s the case with your units. Also upgrade where necessary, and if you are in a luxury market, make your prices friendlier.
5. Power blackouts, water rationing
Finally, you may have a poor occupation rate simply because you are not a keeper. Attracting a tenant is not the end of the journey. You have to ensure they stick around for as long as possible.
A high turnover of tenants takes a toll on your cash flow as you will constantly market the vacant space. You will also do more repairs every time a tenant moves out, and not to mention the legal paperwork involved in parting ways or starting over with a new tenant.
Ombwayo explains that a high turnover could be due to a number of reasons:
“Power blackouts and water rationing are the most common reasons that push tenants away. As a result, many property owners invest in backup facilities such as generators, extra water storage and supplementary borehole connections,” she says.
Other issues could revolve around maintenance, such as poor sanitation, broken appliances that never get fixed and fixtures that are constantly breaking down.
Insecurity and nuisance by other tenants are also worth noting. In conclusion, if you are having difficulty attracting or keeping tenants, take time to evaluate your property.
It could be any of the above reasons or a unique case – there are plenty of tenants, there shouldn’t be a reason to miss out on rent money. – nation.africa/kenya.