Inefficiencies have marred Nigeria’s rental system for years, affecting the way landlords and tenants transact. Most landlords collect rent one to two years in advance, while tenants struggle to find an apartment because they deal with unfriendly real estate agents.
Several proptech startups are tackling such issues by providing better options for both stakeholders. One such platform is based on Lagos Small small which gives tenants access to monthly rent payments and provides landlords with a way to monitor tenants, increase their income and manage properties. The platform announces that it has raised $3 million ($2 million in equity and $1 million in debt) in seed funding, money it plans to use for expansion into other major cities in Nigeria, including Port Harcourt, Enugu and Jos. , before the end of Q1 2023.
Tunde Balogun co-founder of the startup, formerly RentSmallSmall, with Naomi Olaghere and Pidah Tnadah in 2018 after returning to Nigeria from the UK and finding it difficult to get an apartment where he could pay monthly. CEO Balogun told londonbusinessblog.com in an interview that this experience prompted him to explore how to create solutions for the market, and during conversations with landlords, he quickly discovered that this was a two-way street.
“We started by understanding the pain points of landlords. Even though they have collected rent a year in advance, the annual system default rate is very high because when people’s finances take a dent, they may not be able to pay the next rent,” he said. evicting them where they have to wait six to 12 months does not support the landlords either.”
The chief executive says that with Smallsmall’s monthly model, landlords can speed up that process pending cancellation. But that’s just part of the package for them. SmallSmall also gives landlords access to quality tenants and defaults by receiving monthly payments where they receive additional margins of about 10-15%, Balogun added.
For tenants, it is the comfort to better manage their finances by paying monthly rent and the peace of mind that SmallSmall offers not to transact with housing brokers. Balogun also mentioned that when customers pay their rent on time, they build their credit profiles on the platform so that they can access financing if they sometimes default. Some of SmallSmall’s competitors include Splet, Kwaba, and Muster.
“Our market is for young professionals with an average age of around 28 years. It’s a huge market,” said the CEO of the monthly rent potential in Nigeria. “Last year we surveyed nearly 3,000 people in Lagos, which found that 80% of them wanted to pay their rent monthly. So that tells you how much adoption the monthly space would have if the markets eventually opened up.”
Supply and demand rarely converge in the real estate proptech market in Nigeria as there is a housing shortage where demand dramatically exceeds supply; it also doesn’t help that house prices and inflation continue to rise at the same time. For example, SmallSmall has more than 476,000 people registered on its platform since 2018. While 80,000 of that number are on the waiting list, the company has only served nearly 1,500 people. “That shows how big the demand is relative to the supply, which is very small,” Balogun added.
In order to increase the offer and create options for customers, Smallsmall changed from RentSmallSmall in July. The latter is now one of three product lines, which include BuySmallSmall and StaySmallSmall.
RentSmallSmall allows users to rent properties and pay monthly. BuySmallSmall identifies newly built properties from renowned developers that meet the company’s market demand: studio apartments, one-bedroom and two-bedroom apartments — and packages them as investment opportunities for young professionals looking to invest in real estate. When purchasing, these owners turn to landlords and list their properties on RentSmallSmall so that they can earn passive income when other users pay rent. Stay SmallSmallon the other hand, users can book furnished bed rooms starting at $4 per night.
“Delivery was in a way our bottleneck and we had to be able to control the quality because many properties were in poor condition. We also wanted to provide a channel where clients can invest in real estate and work toward home ownership,” said the chief executive of the BuySmallSmall product, which is based on the platform’s proprietary data. “We encourage young people to own a house and invest in real estate by making only a 20% down payment, while helping them finance the rest. That is one of the reasons why we are attracting debt financing.”
SmallSmall participated in the Techstars Toronto Accelerator Program in 2021 and was the first African proptech startup to step into the program, receiving $120,000 as part of its pre-seed round. Sunil Sharmathe CEO of Techstars, who spoke about the investment, said: “Techstars Toronto was proud to be an early investor in SmallSmall as we saw huge inefficiencies in the experience tenants face in obtaining accommodation in Africa. With the early traction and multi-aspect business model, Techstars decided to make a follow-up investment and participate in the latest funding round.
The starting round welcomed the participation of other investors such as Oyster VC, Asymmetry Ventures, Vivaz and Niche Capital. Meanwhile, individual angels such as Sean Fannan of Chartboost, Adam Meghji of Universe, Jimmy Ku of Flutterwave, Samir Goel and Wemimo Abbey of Esusu, Jason Njoku of Iroko and Tunde Kara of Vendease took part.
SmallSmall has processed over 25,000 monthly stays in Lagos and Abuja meaning a typical SmallSmall user stays on the platform for an average of 17 months. The proptech claims to have had a default rate of less than 7%, saving property owners over $1.5 million in damage and renters over $1.2 million in brokerage fees.
Having generated more than $5 million in its first three years and making a profit last year, SmallSmall aims to use this new investment to support its vision of “providing flexible, high-quality housing solutions and financing to targeted homebuyers.” In addition, the startup will continue to build technology and partnerships with landlords, developers, real estate and asset managers, and other key stakeholders.
“If we look at the fundamentals of housing as a basic human need, it is not just when people have access to homes, but also own a home,” added the CEO, pointing out that Nigeria has one of the lowest penetration rates. for home ownership in the world. “Home ownership can somehow improve economic status because it generates passive income for people to meet other needs. So we want to play a part in that and help young people in their journey from renting to investing and ultimately buying real estate.”