Inefficiencies have marred Nigeria’s rental system for years, thereby affecting the way landlords and tenants transact. Most landlords collect rent one to two years in advance, while tenants struggle to find apartments as they deal with uncharitable agents.
Several proptech startups are addressing such issues by providing better options to both stakeholders. One such platform is Lagos-based SmallSmall, which gives tenants access to monthly rent payments and offers landlords a way to vet tenants, increase their income and manage properties. The platform announces that it has raised $3 million ($2 million equity and $1 million debt) in seed funding, money it plans to use to expand to other major cities in Nigeria, including Port Harcourt, Enugu and Jos, before end of Q1 2023.
Tunde Balogun co-founded the startup, formerly RentSmallSmall, with Naomi Olaghere and Pidah Tnadah in 2018 after returning to Nigeria from the UK and struggling to find an apartment where he could make monthly payments. CEO Balogun told TechCrunch in an interview that this experience prompted him to research how to create solutions for the market, and after conversations with owners, he soon discovered it was a two-way street.
“We started by understanding the pain points of the owners. Even though they collected rent a year in advance, the default rate of the annual scheme is very high because when people’s finances take a hit, they may not be able to pay the next rent,” he said. “The legal process to evict tenants where they have to wait six to 12 months doesn’t support landlords either.”
The CEO argues that with Smallsmall’s month-to-month model, owners can expedite this pending process when they give notice. But that’s only part of the package for them. SmallSmall also allows landlords to access quality tenants and limit defaults by taking monthly payments where they receive additional margins of around 10-15%, Balogun added.
For tenants, it’s the convenience of better managing their finances by paying monthly rent and the respite that comes from not dealing with estate agents that SmallSmall provides. Balogun also mentioned that when customers pay their rent on time, they build their credit profiles on the platform, allowing them to access financing in case they sometimes default. Some of SmallSmall’s competitors include Kwaba, Muster, and Spleet, which also announced its seed round this month.
“Our market is aimed at young professionals with an average age of around 28 years. It is a huge market,” the CEO said on the potential of monthly rentals in Nigeria. “We surveyed almost 3,000 people last year in Lagos, which showed that 80% of them wanted to pay their rent every month. So that tells you how much adoption the monthly space would have if the markets eventually open up.”
Demand and supply rarely converge in the Nigerian real estate technology market 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. SmallSmall, for example, has had over 476,000 people sign up to its platform as of 2018. While 80,000 of that number are on a waiting list, the company has only served nearly 1,500 people. “This shows how huge the demand is, compared to the supply, which is very small,” Balogun added.
To increase the supply pool and create options for customers, Smallsmall rebranded from RentSmallSmall in July. The latter is now one of three product lines, including BuySmallSmall and StaySmallSmall.
RentSmallSmall allows users to rent homes and pay monthly. BuySmallSmall identifies new-build properties from reputable developers that meet company demand in the market: studio apartments, one-bedroom and two-bedroom apartments — and packages them as investment opportunities for young professionals looking to invest in real estate. When bought, these landlords reach out to landlords and list their properties on RentSmallSmall so they can earn passive income when other users pay rent. StaySmallSmall, on the other hand, allows users to book furnished bed spaces starting at $4 per night.
“Supply was kind of our stumbling block and we had to be able to control quality because a lot of properties were in bad shape. We also wanted to provide a channel where customers can invest in real estate and work towards acquiring homes,” the CEO said about the BuySmallSmall product, which is based on the platform’s proprietary data. “We encourage young people to own homes and invest in property by paying as little as 20% down, while helping them finance the rest. That’s one of the reasons we’re increasing debt financing.”
SmallSmall participated in Techstars Toronto Accelerator Program in 2021 and was the first African proptech startup to enter the program, receiving $120,000 as part of its pre-seed round. Sunil Sharma, CEO of Techstars, speaking about the investment, said: “Techstars Toronto was proud to be an early investor in SmallSmall as we saw huge inefficiencies in the experience that tenants face when receiving accommodation in Africa. With the early traction and multifaceted business model, Techstars decided to make a follow-up investment and participate in the latest round of funding.”
The seed round welcomed participation from other investors such as Oyster VC, Asymmetry Ventures, Vivaz and Niche Capital. Meanwhile, individual angels such as Chartboost’s Sean Fannan, Universe’s Adam Meghji, Flutterwave’s Jimmy Ku, Esusu’s Samir Goel and Wemimo Abbey, Iroko’s Jason Njoku and Vendease’s Tunde Kara participated.
SmallSmall has processed more than 25,000 monthly stays in Lagos and Abuja, meaning that a typical SmallSmall user stays an average of 17 months on the platform. proptech claims to have had a lower than 7% rental default rate, saving property owners over $1.5 million in damages and tenants over $1.2 million in broker fees.
Having generated over $5 million in its first three years and turning a profit last year, SmallSmall wants to use this new investment to support its vision of “providing flexible, quality housing and financing solutions to homebuyers.” In addition, the startup will continue to build its technology and partnerships with landlords, developers, property and asset managers and other key stakeholders.
“When we look at the fundamentals of housing as a basic human need, it is not only when people have access to houses, but also home ownership,” the CEO added, noting that Nigeria has one of the lowest home ownership penetration rates in the world . “Ownership can improve the economic situation in one way or another because it creates passive income for people to meet other needs. So we want to play a part in that and help young people on their journey from renting to investing to the final property purchase.”