Guide to becoming a successful landlord

Wednesday March 15 2017

If you thought that all you need to do is

If you thought that all you need to do is simply make your house available to tenants and enjoy a monthly income, you are wrong. PHOTO| FILE| NATION MEDIA GROUP 

For most Kenyans, building rental properties is becoming an increasingly popular way to invest their money. Indeed, according to the latest Wealth Report by property consultancy firm, Knight Frank, and Stanbic Bank, released last week, close to a third of the country’s high-net-worth individuals have allocated their wealth to properties.

The report also reveals that Kenyans prefer putting their money in the real estate sector as opposed to equities, government bonds, agriculture, and precious metals such as gold and silver.

Mr Dennis Wanjala, a Bungoma-based financial adviser and director at Tender Heart Financial Consultants, says that Kenyans are rushing to set up rental properties as they offer a proven way to build equity and earn sure income.

“Despite positive reviews, the economy hasn’t been going well for the common mwananchi, and other savings options don’t offer much return on investment. The housing sector is one of the few industries that still appear bullish. Becoming a landlord offers one an opportunity for their money to do more for them without intensive involvement,” Mr Wanjala explains.

According to the National Housing Corporation, Kenya has an annual housing deficit of 300,000 units. To ease the problem, 150,000 new units are needed per year. The urge to seal the housing gap (and reap huge profits while at it), is bound to attract more investors to the sector.

Robert Kamau, a senior official at the Ministry of Tourism, is one such investor who revealed to DN2 that he quit his agricultural venture to dive into property market. He now owns four high-rise apartments within Kiambu County.

REWARDING VENTURE

Oscar Juma, another landlord in Ruiru, is another seemingly successful landlord of a building that sits on prime land on the Thika Super Highway. His journey to becoming a landlord began 10 years ago when he put up five make-shift houses on a piece of land he had bought through an investment group. He now owns 29 permanent residential units.

“Becoming a landlord has been rewarding, both financially and in offering me the freedom to be my own boss. I feel proud whenever I look at my building and see a fruitful product of my hard work,” enthuses Juma.

While Mr Juma and Mr Kamau attest to the perks of owning rental property, they are quick to point out that there are numerous headaches and struggles that afflict the life of a landlord.

 “Becoming a landlord isn’t for everyone. Dealing with unruly tenants, handling taxes and maintaining the property can take quite a toll on someone with little patience,” Kamau warns.

Admitting that he lost a lot of money on his first set of rental houses, Kamau advises people looking to jump into the sector to first run the numbers and see if running a rental business will be a viable investment.

CONSIDER ALL COSTS

“I built very expensive houses in a neighbourhood where similar units were going for a quarter of my intended retail price. I could not lower my renting prices because I had spent a fortune building the houses, thus most of my units remained unoccupied for the first two years,” he says, and adds, “Had I done my homework earlier, I would have discovered that in the area where I was building, most of the residents were university students who could not afford to live in executive two and three-bed room apartments.”

Wanjala says that prospective landlords should question whether running a property will make financial sense to them.

“One should consider all the costs involved in building and maintaining the property such as repaying loans, the cost of acquiring tenants, repairs, and the value of time used in managing the property. They should then compare this against the expected monthly earnings to determine whether the business is worth it,” says the certified public accountant and economist.

He adds that one should be able to recoup their initial investment not later than 10 years from when they finish construction.

While Juma owns and runs a pub on the side, he is quick to point out that being a landlord is not your ordinary 8am to 5pm job. “This is not a hobby; it is serious business that needs one to commit time and resources. You must be constantly available as you may be called upon at midnight to deal with tenants’ problems,” he explains.

As Juma has learned, pulling it off as a landlord requires someone who doesn’t mind getting dirty. It helps a lot if a landlord possesses basic handyman skills.

He says, “My tenants sometimes come to me when they are having issues with their electrical sockets and clogged toilets, for instance, which I have since learnt how to fix. It saves me a lot of time and money , and is cheaper compared to hiring contractors every time a minor problem occurs.”

It is also advisable for a landlord to live close to their property. Juma lives in the same building as his tenants, saying that it has helped him to manage it better. This is because he is able to check on the tenants periodically and solve problems as soon as they emerge. “My tenants usually contact me on Whatsapp and I make a point of responding to their queries within an hour. I try to be accessible to my tenants all the time,” says Juma.

LIVES WITHIN COMMUTING DISTANCE

Mr Kamau, on the other hand, lives within a commuting distance from two of his rental properties. He fully manages these properties himself, but he has contracted the management of his two other properties to a property management agency.

“It wasn’t easy for me to give up control of my property to another entity, but the decision saved me a lot of time and hassle,” he says.

For first-time landlords who do not wish to be tethered to their property, Kamau advises that they seek the help of a property agency, otherwise, one can find themselves spending all their time looking for plumbers and electricians. A property management company will normally charge a fee of about 10 per cent of the total monthly income.

As these two landlords will tell you, having rental units unoccupied is the main cause of stress to landlords.

 “Property doesn’t generate any money while it’s vacant, and empty rentals can place serious strain on your cash flow especially if you’re still repaying the loan you took to build the houses,” says Kamau.

As such, it behoves a landlord to master marketing techniques. “Printing ‘house to let’ posters is just the start. Nowadays, everybody is tech-savvy and they look for vacancies online. As a landlord, you have to be able to put your house in listing websites such as Craigslist and OLX. In addition to that, you need to be around to show your house to potential renters,” says Juma.

'TENANTS FROM HELL'

But even when you manage to find people willing to rent your house, you need to take extra caution to avoid “tenants from hell”. No landlord wants to find out that their property has been wilfully trashed by the occupants. Similarly, you would not like tenants who are involved in illegal activities such as drug trafficking, or unruly tenants whose loud house parties keep the neighbours up way past their bedtimes.

Kamau tells of a nasty experience when  police raided a house in his compound four years ago and seized a bagful of bhang. The occupants of the house fled, and Kamau was taken to the police station for questioning. “It is an experience I would not like to relive,” he says.

To avoid such ugly incidents and weed out bad tenants, Kamau has instructed the agencies in charge of his property to thoroughly screen all potential tenants before they are allowed to sign the lease agreement.

“We hand them questionnaires that contain questions about their employment records, lifestyle structure and financial stability. We also retain a copy of their identification cards,” he explains.

While Juma’s vetting process is not as strict as Kamau’s, he too takes extra care before renting out his property. “I use my gut-feeling,” he says. “You can easily identify an unruly tenant by noting their temperament and reading their body language.”

Although Juma insists that experience is the best teacher when it comes to managing rentals, Kamau is of the opinion that landlords have to read and keep themselves conversant with current events. “Just like in most professions, being a landlord is a continuous learning curve.

I constantly educate myself by reading everything I can get about the property scene in Kenya and new trends in rental management. I seek out and develop professional relationships with other landlords in the area and we often exchange notes,” he explains.

Both are adamant that being a landlord is not a get-rich-quick scheme. The hassles that come with managing property and keeping tenants happy may take a toll on someone with a thin skin. Learning the ropes requires a lot of effort and there are many pitfalls along the road for new-comers in the field, but if one is patient and sets realistic goals for themselves, becoming a landlord is sure to become a profitable move.

 

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Causes of conflict between tenant and landlord

A major cause of friction between tenants and landlords is late payment of rent. A landlord, Kamau says, needs to be firm with his tenants and not relent when it comes to ensuring that they pay their rent in time. If a landlord is not firm, he continues, tenants will develop a tendency of walking all over him. “My lease agreement states that when a tenant defaults on paying rent by the 5th of the month, a 10 per cent fee is added onto the rent for every day defaulted. The tenants are thus obliged to pay on time to avoid hefty fines,” he says. But even with the fine that Kamau levies on the tenants who don’t pay rent on time; some of them still develop the temerity to stay for months without paying rent.

“This year alone, I have reported three of my tenants to the Rent Restriction Tribunal in Thika,” he reveals, adding that he has since learnt how to vet potential tenants according to their financial stability and rent-payment record. “Before letting my house, I often ask potential tenants to provide me with their last three rent receipts to confirm whether they pay their rent on time,” he continues.

While it may seem like an overwhelming task to learn all the laws that stipulate the relationship between a tenant and her landlord, doing so might save you from landing  in trouble. Juma recalls an incident when a tenant defaulted on rent and he decided to lock him out of the house. The tenant showed up a week later with a lawyer threatening to drag Juma to court for violating his rights. Losing a tenant means you have to spend time and money marketing your property and vetting new tenants, thus, as a landlord, you should  go out of your way to ensure your tenants are satisfied to avoid high tenant turnover rates. The secret to this, Kamau has discovered, is enhancing open channels of communication with your tenants.

He says, “I regularly check on my tenants and hear their feedback. This allows me to curtail problems before they get out of hand. It also makes the tenants feel extra special.”

“There is a lot of paperwork that goes with being a landlord. Left unchecked, the paperwork can build up and become quite a burden. “I never took serious note of my paperwork until Kenya Revenue Authorities officials came knocking sometime last year,” says Juma. He had to hire a part-time accountant to help him keep his records in order and file his taxes.