Choosing between multiple and single-family rentals

The real estate sector in Uganda continues to grow, buoyed by the generally young and growing population. Investors who want to cash in on their properties, however, have to make the big decision whether to invest in the multi-family or single family rentals.

The single family residences as the name suggests, are detached properties usually with a yard and garage meant to be occupied by a single family.

A multi-family property on the other hand is a single building that is set up to accommodate more than one family living separately. They range from two units within a single building, to homes or small apartment buildings with up to four units. Recently, there has been a boom in investment in the latter.

Yet, according to Uganda Bureau of Statistics, there is a housing deficit of 2.1 million units and the figure grows by more than 200,000 units per year.

This shows there is still need for more housing. However, the choice of housing will determine whether this gap will be closed or it will continue widening annually.

The average investment in rental housing usually stands on a small plot of land (50ft x 100ft) in a good neighbourhood. Good usually means considerably short distance to town, middle class neighbours and close to a main road. There are two main options to choose from when building rentals.

The first being to build several semi-detached houses enclosed in one fence with minimal space for parking or playing, the other being a single average-size bungalow with a nice garden and large parking lot.

Management
“While several rental units in the same space might promise more income, the challenges that come with managing several tenants in the same enclosed space negate the financial advantages,” says Peter Mawanda, a property investor in Budo.

Mawanda says because most investments in rental housing are small scale, most people prefer to manage this business themselves.

“And when given a choice, most people would rather have one tenant rather than six. It is easier to manage the repairs, the rent collections, cleanliness (where necessary) and even evictions in a gate with one family than in a fence with multiple families,” he says.

Multiple-family rentals work better if they are put under a property management company. Management companies deal directly with tenants. They save you time and worry, because they take over the marketing for your rentals, collecting rent, handling maintenance and repair issues, responding to tenant complaints, and even pursuing evictions.
However, the regular investor cannot afford retainer fees for a quality property management company and still make profit from their investment.

“This is one of the reasons that people give in preferring a single-family rental as opposed to several semi-detached rentals. The other is that most people do not have the luxury of staying nearby their investment to keep a keen eye on the property and the needs of the tenants. The more tenants you have in one gate, the more demands on the landlord,” Mawanda says.

Commercial viability
When it comes down to business, multiple-family rentals are the way to go, according to Alex Muhwezi, a property owner and broker in Kasangati, Kampala.

“Some people have their reasons for choosing a single-family rental over several smaller units, but I strongly prefer the latter. If you do not get a well-to-do expatraite to live in that house, you will mostly get frustrated looking for the right tenant. Very few Ugandans in this economy want to pay Shs2m a month in rent. I have seen cases where someone offers Shs400,000 for a three-bedroom house, whose starting price is Shs1.5m,” Muhwezi says.

Muhwezi says that the more units one can fit in a plot the better.

“There are more people looking for the cheapest possible housing than those looking for luxury. Those are the tenants that will give you a quick profit on your investment. Several single rooms on one plot (up to 12 if there is no parking space left) is the best use of your money,” the investor argues.

He adds: “A single room with a toilet and bathroom ranges between Shs150,000 and Shs200,000. If you fit 12 of them in your plot, you are assured of a constant Shs1.8m in rent income on the low side. Most standalone houses will not give you that much,” he says.

Cissy Namaganda of Cinam Investments, says that multiple units in one space give better returns.

“It is possible to earn three times more income from four small units than from one big bungalow. It is possible to fit four two-roomed rentals in a 50ft x 100ft and leave enough parking space for four cars. So why would you build one instead of four?” she wonders and adds,
“Maybe if the cost of construction is big factor.”

Cost of building
According to construction engineer Fred Kangwangye, the cost of building three two-bedroom units is double the cost of building an average-sized bungalow.

“A bungalow built with low-cost materials of good quality costs between Shs80-Shs100m. In comparison, the cost of semi-detached two-bedroom units that are small enough to fit into a 50ft by 100ft costs between Shs180- Shs200m,” he says.

He notes that some people cheat by labeling smaller rooms as stores only to use them as bedrooms later.

If the cost of building multiple units on your plot is standing in the way, the trick, it appears, is to build the units in phases. It was unanimously agreed that multiple units bring better returns than a single house. Except in special circumstances.

When a standalone is best
Peter Byamugisha, a property dealer in Gayaza, says there is a place for building a standalone bungalow for rent.

“For anyone that finds himself in the possession of a plot of land in a very developed suburb, it is best that you build a single bungalow on it. That is especially if you do not have enough money for anything more costly, such as an apartments building. Some companies and NGOs usually like bungalows in quiet neighborhoods away from the chaos of town. And they pay well for it. Why build small residential rentals when you can make much more money from renting your bungalow to a company as a business premise?” he says.

When all is considered, multiple units on the same plot make more commercial sense than a single bungalow. If you are worried about managing so many tenants in your property, you can either hand it over to a property managing company or move into one of the units.

This way, you will be able to supervise your business better. A standalone house is cheaper to build, yes, but it makes much less commercial sense on the most part.

Cost incentive
When Adam Mugisha, a resident of Katale on Entebbe Road, finally got a well-paying job, the first thing he did was to get a bank loan just so he could invest in the housing sector.

He says, “My plan was to build four rental units in my plot. But it did not take long for me to learn that I would not afford the cost of building the four semi-detached units. So I built a miniature bungalow at the edge of the plot, leaving room for the rest of the units, for when I could afford to construct them. I think most people end up building a stand-alone rental house because of cost,” he says.