Setting the rental value of a property is more than plucking a figure out of the air that seems about right.
Every home has a magic number for the rent a tenant expects to pay and how much the landlord needs to turn a profit.
Miss the mark and set the rent too high and you risk the home burning a hole in your bank balance from standing empty for months but go too low and the rent coming in will fall short of expectation and reduce your profits. Either way is bad for business.
So how much should you charge as rent? The answer is don’t be greedy or too generous and set a fair price in line with similar properties in the same neighbourhood – and this guide shows you how to arrive at the right figure in two easy steps.
If you want an overview of rents in your area, you can look up several online reports update each month.
They give a helpful overview of trends in the rental market and can give a reliable rent amount a specific property should command.
Most offer a typical rent for an average property but beware – rent for an average property in Barking & Dagenham, East London, is light years away from that charged for a typical home in the plush neighbourhood of Kensington & Chelsea when the stats provide an average rent for London.
The ‘official‘ rent report is the Index of Private Housing Rental Prices from the Office for National Statistics (ONS).
Perhaps more useful is rents by local authority area, which is also published by the ONS. This report returns rents for letting out rooms or homes by number of bedrooms and is released each June and December, covering every local council in England.
Each report has strengths and weaknesses. The ONS report has the widest sample but lags the market by two months, making the data historical rather than current, while the commercial reports are based on their customer data, which can skew the results as the samples are smaller.
Rightmove looks at rents asked by landlords, while Homelet and Hometrack analyse rents achieved.
Several web sites offer online rent calculators that work out the rent a home can expect to command based on type of property and postcode.
Most return an average rent based on the highest and lowest rents in the postcode area.
The likelihood most calculators will return the same result as they calculate their figures from the same database. You can try a rent calculator at OpenRent.
Start your rent calculation with your break-even point – this is the least amount of money you need every month to pay the running costs of the property.
Don’t forget that some of these costs switch to the tenant when they move in, like council tax and the utilities. This leaves you with two sets of costs – one for when the property is empty and another for when a tenant has moved in.
Next look at comparable rents other landlords are charging for similar properties in the same area.
Note the highest and lowest rents and work out the average for similar homes within half a mile or so of your property. This gives the cheapest and most expensive rents for the area and the average tenants are paying.
Now you can judge where on the rent scale to place your property by scoring some key factors.
The best research tools for landlords are undoubtedly online property platforms, like Rightmove.
You can rate your rental property by skimming through the masses of data the portal holds about every property.
One of your first decisions is if you are letting furnished or unfurnished.
Where your property is located shapes your market and can make Modern city centre apartments tend to come furnished to a high spec, while family homes in the suburbs are advertised empty as families like to move with their own furniture.
How you present your property at this stage has a bearing on the type of tenant who will move in and how long they will stay.
Furnished properties attract tenants who tend to move in straightaway.
No legal definition states exactly what makes a property furnished. A standard furnished home generally includes:
The convenience of amenities on the doorstep attracts tenants. Features liked by tenants that help with marketing a property but don’t necessarily add a lot to the rent include:
As a landlord you can’t afford to make emotional decisions about your property as they will cost you money.
Be realistic about the living standards you are offering and set the rental value of your property at a fair price.
Don’t overdevelop by adding an expensive, high spec finish that tenants don’t want or can’t afford but do maintain the home to a standard that offers value for money.
The biggest mistake is refurbishing a property to your own taste rather than to the condition a tenant wants. Tenants like a neutral finish so their furniture and belongings easily match the colours of walls and carpets.
If in doubt, you can always view a couple of properties like your own to get an idea of what other landlords are offering.
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