Cobus Truter is the co-founder of INDLU, a company on a mission to transform township neighbourhoods through profitable property partnerships. They have created a mobile app that facilitates relationships between landowners who rent out their backyard properties, and tenants, while building a track record for both. On the back of that track record, INDLU are able to further invest, thus helping the township landlord to build his property business. The INDLU team started almost 10 years ago, expending much effort and finance and making many mistakes along the way, owing to limited resources and know-how. However, their efforts were not wasted as they constructed several shopping centres and gained a lot of experience. In January 2017 they finally worked up the courage and capital to initiate the start-up of INDLU. Their app was launched in December 2017 and they have implemented almost R5 000 000 in upgrades and investments in townships since then.
The population density in townships like Tembisa amounts to about 100 000 people per square kilometre. We are currently witnessing the largest demographic shift in history all over our continent. Population growth and urbanisation pose a massive challenge… or opportunity… depending on how we view it. Here in South Africa we have a huge backyard rental market. Approximately 850 000 landlords are housing more than 10% of our entire country as well as the vast majority of foreigners, thus earning around R10-billion per year through backyard rentals - this without a single formal player.
Usually, a beneficiary of a RDP house build a number of rooms in their backyard which rent out for amazing returns. While Truter is accustomed to a 10% yield in the shopping centre industry, these backyard landlords are achieving between 70% and 100% yield! A typical backyard rental may be four rooms constructed at a cost of about R1500 each giving rise to a passive income of around R9000 per month, of which no-one is aware. The banks do not take that into account when they calculate credit scores.
The way INDLU works is this: a tenant uses the app to search for a place to stay. In this market, tenants pay about R1000 up front for agents to find them lodgings, so the app is a valuable tool for the tenant as well as the homeowner. The homeowner lists his property on the app which is also a bidding platform, ensuring a market related price. The tenant makes an offer and if accepted, they sign the lease on the app. The 10% of people that live in backyards have no way to RICA or FICA, so a lease becomes a very valuable item. The app also enables the tenants to pay their rentals, rather like buying airtime. People are now buying rental bundles months in advance through INDLU. Homeowners use the app to list their property, find tenants and sign leases; it’s like having property management software in your pocket. More importantly, they are building up a track record. These are people who have no formal employment record so are overlooked by banks when it comes to investment. However INDLU has access to this data as the landlord uses INDLU to manage their backyard rentals (finding tenants as well as payment of rent), so INDLU is able to identify where to invest.
An eight room building recently erected cost about R300 000. It leased out within an hour, having had about 10 people bidding for each room. The rooms go for approximately R1350 to R1500. That R300 000 building is bringing in about R12 000 per month gross. Over a five year period, 85% of that money is used towards paying off the building and to support the overheads while 10% goes to the landlord for managing the business. After five years the asset reverts entirely to the landlord. It is like car finance, except he is earning 10% upfront, meaning that he is cash-flow positive from day one. Of the entire rental turnover, 5% goes into social upliftment projects, but the biggest impact is, firstly, providing much needed, affordable housing in a desperate market. Secondly, they are creating assets for landlords after five years. The building will deliver, after escalations, about R15 000 per month for the average landlord, so INDLU is distributing capital. Only local labour is used so there is a lot of social impact and community benefit derived from this process. These contractors, although good at building are often not very good at pricing or admin. An Uber-like system was created which directs jobs to the contractors, who accept or reject as they wish. A very smart algorithm keeps analysing material prices to ensure they offer the best deals. Building operations are being carried out with high efficiency and surprisingly low cost.
A question often asked is whether there is sufficient smartphone penetration? Seemingly there are enough people with smartphones and for those unable to use them, there is usually a teenager in the house able to assist. INDLU do not market their company at all; the buildings market themselves. Although the business is still relatively new and low-key they have already seeing a massive growth spike. The turnover deriving from the app amounts to R225 000 per month at present, which amounts to about R2 700 000 annually, giving a 0.027% part of the R10-billion per year market. As the first in the market, INDLU has the biggest market share to date and they plan on keeping it that way.
INDLU not only consists of the INDLU Living rental app but also an INDLU Invest and a INDLU Build app which will enable the public to invest in one or a portfolio of INDLU houses. These companies will be publicly launched towards the end of this year. The next target is to raise about R100 000 000 by February 2019, with a lot more action in the future.