Types of Profitable Rental Properties in Kenya

By Andrew Juma

Andrew is the founder of The AJ Center, a globally recognized, award-winning end to end digital marketing firm, scaling brands with SEO, PPC, and PR excellence.

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Investing in rental properties is one of the most lucrative ways to generate passive income in Kenya. With the growing demand for housing in urban and peri-urban areas, rental properties continue to attract both local and foreign investors. However, not all rental properties offer the same level of profitability. Choosing the right type of property depends on location, target market, and construction budget.

In this guide, we will explore different types of profitable rental properties in Kenya, their potential returns, and what to consider before investing.

1. Bedsitters and Studio Apartments

Bedsitters and studio apartments are among the most popular rental units in Kenya, especially in major towns such as Nairobi, Mombasa, Kisumu, and Nakuru. These units are affordable, easy to maintain, and attract young professionals, university students, and low-income earners.

Why Bedsitters and Studios Are Profitable

• High demand in urban areas: The influx of individuals migrating to urban centres for employment and education fuels a consistent demand for budget-friendly accommodation options. This high demand translates into lower vacancy rates and a steady stream of rental income for landlords.
• Low construction costs: Compared to larger apartments, bedsitters require less space and fewer materials. This translates to lower initial investment costs, making it easier for investors to enter the market. The reduced construction costs also contribute to higher profit margins over time.
• Quick turnover: Since tenants are mostly students and young professionals, these units experience fast tenant turnover. While this might seem like a disadvantage, it allows landlords to adjust rental rates more frequently to reflect market conditions and potentially increase overall income. Additionally, shorter tenancies reduce the risk of dealing with problematic tenants for extended periods.
• Steady rental income: Despite being low-cost, multiple units generate stable monthly cash flow. The affordability of bedsitters and studio apartments ensures a consistent pool of potential tenants, leading to a reliable stream of rental income. Even during economic downturns, the demand for affordable housing remains relatively stable.

Best locations for bedsitter investments in Kenya:

• Nairobi estates such as Roysambu, Embakasi, Umoja, and Kahawa West. These areas are densely populated and have a large number of young professionals and students, ensuring a high demand for bedsitters.
• University towns like Eldoret, Juja, and Rongai. These towns have a constant influx of students seeking affordable accommodation near their institutions.
• Fast-growing satellite towns such as Ruiru, Kitengela, and Thika. These areas are experiencing rapid development and population growth, leading to an increased need for affordable housing options.

Read Also: Designing Low-Cost Bedsitters in Kenya

2. One and Two-Bedroom Apartments

Many middle-class Kenyans prefer one or two-bedroom apartments, making them a great investment option for landlords. These units appeal to young couples, small families, and professionals who want more space than a bedsitter offers.

Why One & Two-Bedroom Apartments Are a Good Investment

• Stable demand from working-class tenants:  As the economy grows, more Kenyans are able to afford slightly more spacious and comfortable living arrangements. This expanding middle class represents a stable and reliable tenant base.
• Higher rental income than bedsitters: A two-bedroom apartment can generate more income per unit compared to multiple bedsitters on the same plot. While the initial investment might be higher, the potential for increased rental income per unit makes one and two-bedroom apartments a more lucrative option in the long run.
• Attracts long-term tenants: Families and couples tend to stay longer, reducing frequent vacancies. This stability in tenancy reduces the costs associated with finding new tenants, such as advertising and cleaning, and ensures a more consistent income stream.
• Easier to finance construction: Many banks and SACCOs offer loans for building affordable apartments. These financial institutions recognize the demand for affordable housing and are more willing to provide financing for projects that cater to this segment of the market. This makes it easier for investors to secure the necessary capital to develop one and two-bedroom apartment complexes.

Best places to build one and two-bedroom apartments in Kenya:

• Suburbs such as Syokimau, Ruaka, and Kikuyu. These areas offer a balance between urban convenience and a more relaxed environment, attracting middle-class families and professionals.
• Nairobi estates like South B, South C, Kilimani, and Lang’ata. These established neighbourhoods are popular with the middle class due to their proximity to the city centre and various amenities.
• Satellite towns such as Kitengela, Athi River, and Thika Road areas. These areas are experiencing rapid growth and offer more affordable land prices compared to Nairobi, making them attractive for developing apartment complexes.

Read Also: Trends in The Nairobi Real Estate Market

3. Serviced Apartments and Airbnb Rentals

With the rise of digital booking platforms, serviced apartments and Airbnb rentals have become a highly profitable real estate investment in Kenya. These short-term rental properties target business travellers, tourists, and digital nomads looking for fully furnished accommodation.

Why Serviced Apartments Are a Smart Investment

• Higher rental yields compared to traditional apartments: A well-located Airbnb unit can generate more income per month than a long-term rental. The ability to charge higher nightly rates and adjust pricing based on demand allows for significantly higher returns compared to traditional long-term rentals.
• Flexible rental pricing: Investors can adjust pricing based on demand, peak seasons, and special events. This dynamic pricing strategy allows investors to maximize their income during peak periods and remain competitive during slower seasons.
• Growing tourism and business travel sector: Nairobi and Mombasa receive thousands of visitors every month, creating a steady market. Kenya’s growing economy and its position as a regional hub for business and tourism contribute to a consistent demand for short-term accommodation.
• Minimal tenant disputes: Short-term stays reduce the risks associated with difficult tenants. The shorter duration of stays minimizes the potential for conflicts and damage to the property, leading to a more hassle-free experience for landlords.

Best locations for serviced apartments in Kenya:

• Nairobi’s Westlands, Kilimani, Lavington, and Upper Hill. These upscale areas are popular with business travellers and tourists due to their proximity to business districts, embassies, and entertainment venues.
• Coastal towns such as Diani, Nyali, and Malindi. These areas are major tourist destinations, attracting both domestic and international visitors seeking short-term accommodation.
• Business hubs like Eldoret and Kisumu. These cities are growing economic centres and attract business travellers, creating a demand for serviced apartments.

4. Student Hostels and Rental Units Near Universities

Kenya’s university and college population is growing rapidly, increasing the demand for off-campus accommodation. Student hostels are an excellent rental property investment, especially near major institutions.

Why Student Hostels Are a Profitable Investment

• Consistent demand: Every year, thousands of students look for housing near their universities. The cyclical nature of the academic year ensures a constant influx of students seeking accommodation, leading to high occupancy rates.
• High occupancy rates: Unlike traditional rentals, student hostels rarely experience long vacancies. The consistent demand from students ensures that hostels are typically fully occupied, providing a stable and predictable income stream.
• Minimal furnishing required: Unlike Airbnb, student hostels only need basic fittings. This reduces the initial investment costs and the ongoing expenses associated with furnishing and maintaining the property.
• Multiple tenants per unit: Some hostels accommodate two to four students per room, increasing rental income. This shared accommodation model allows landlords to maximize their income per unit, making student hostels a highly profitable rental property option.

Best locations for student hostels in Kenya:

• Near universities such as the University of Nairobi, Kenyatta University, and JKUAT. These major universities have large student populations, creating a significant demand for off-campus accommodation.
• College towns like Juja, Rongai, and Eldoret. These towns are home to numerous universities and colleges, making them ideal locations for student hostel investments.
• Areas close to TVET institutions and private colleges. The demand for student accommodation extends beyond major universities to include students attending technical and vocational training institutions and private colleges.

Read Also: A Comprehensive Guide to Apartment Building Plans

5. Commercial Rental Properties (Shops and Offices)

Another profitable investment in Kenya’s real estate market is commercial property. Shops, retail spaces, and office rentals provide higher returns than residential properties, depending on the location and type of business they attract.

Why Commercial Rentals Are a Good Investment

• Higher rental income per square foot: Businesses pay more per square meter than residential tenants. This higher rental income reflects the value of commercial space for business operations and translates to higher returns for landlords.
• Longer lease agreements: Businesses often sign multi-year leases, ensuring stable cash flow. These longer lease terms provide landlords with greater financial security and reduce the frequency of tenant turnover.
• Diverse tenant base: From supermarkets to salons and cyber cafes, commercial spaces attract different types of tenants. This diversification reduces the risk of relying on a single tenant and provides a more stable income stream.

Best places for commercial rentals in Kenya:

• Nairobi’s CBD, Westlands, and Upper Hill for office spaces. These areas are major business hubs and attract a large number of companies seeking office space.
• Satellite towns like Ruai, Kamulu, and Joska for small retail spaces. These rapidly growing towns offer opportunities for retail businesses catering to the local population.
• Bus stops and trading centres where high foot traffic is guaranteed. These locations offer high visibility and accessibility for businesses, making them attractive for retail spaces.

Read Also: Commercial Office Blocks in Kenya

6. Gated Community Rentals

Gated communities offer security, privacy, and amenities such as playgrounds, parking, and swimming pools. These rental properties target the middle and upper-class segments of the population.

Why Gated Communities Are a Smart Investment

• Higher rental rates: Tenants are willing to pay more for added security and amenities. The enhanced security and lifestyle amenities offered by gated communities justify higher rental rates, leading to increased profitability for landlords.
• Lower tenant turnover: Tenants in gated communities tend to stay longer. The sense of community and the amenities provided in gated communities often lead to longer tenancies, reducing vacancy rates and ensuring a more stable income stream.
• Desirable lifestyle features: Safe play areas, green spaces, and ample parking attract families. These features make gated communities particularly attractive to families, who are often reliable and long-term tenants.

Best locations for gated community rentals in Kenya:

• Runda, Karen, and Lavington for high-end tenants. These affluent neighbourhoods are known for their luxurious gated communities and attract high-income tenants.
• Kitengela, Athi River, and Kiambu for mid-range rental communities. These areas offer more affordable options for gated community living, attracting middle-class families.
• Nakuru, Eldoret, and Kisumu for growing urban gated communities. As these cities grow, the demand for gated community living is also increasing, creating opportunities for investors.

Final Thoughts

Investing in rental properties in Kenya offers great potential for financial growth. Whether you choose bedsitters, Airbnb units, commercial spaces, or gated communities, success depends on location, target market, and good property management.

Before investing, conduct market research, work with professionals, and ensure legal compliance to maximize your returns. Marble Engineering specializes in designing and constructing properties in Kenya. Whether you’re looking for the best Nairobi suburbs for building rental units or need expert advice on any other type of construction project, we can help. We operate across Kenya and are available at any point in time to answer your questions. Contact us today to look at our house plans or discuss your construction project.