Setting the rental value of a property and working out rental yield 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. This guide shows you how to work out your property’s rental yield and arrive at the right figure in two easy steps.
Step 1 – Where does your home fit in the rental market?
If you want an overview of rent prices 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 calculation on your property’s rental yield.
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 the number of bedrooms and is released each June and December, covering every local council in England.
Other rent statistic publications to consider include:
- The Homelet Rental Index, produced by tenant referencing agency Homelet
- Rightmove Rental Price Tracker – Published quarterly online giving average regional rents and places with most tenant demand.
- Hometrack Rental Market Report, also published by online portal Zoopla.
Each report has strengths and weaknesses. The ONS report has the widest sample but lags the market by two months. This makes 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 rent prices charged by landlords, while Homelet and Hometrack analyse rental agreements.
Crunching the numbers
Several websites offer online rental yield calculators that work out the rent a home can expect to command based on the type of property and postcode.
Most return an average rental yield 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.
Step 2 – Setting the rental value
Start your rental yield 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 that 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.
- You can see the décor and condition of the property from the images
- The floorplan shows the internal layout, size, and number of rooms
- The map pinpoints where the property is in relation to public transport, shops, and schools
- The homes for rent section give an idea of what you should charge as rent
Features that can make a difference when letting a 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. 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 or unfurnished?
Furnished properties attract tenants who tend to move in straight away.
No legal definition states exactly what makes a property furnished. A standard furnished home generally includes:
- Beds, wardrobes, and chests of drawers
- A sofa and other seating
- Curtains, blinds, and other soft furnishings
- A TV and white goods, like a fridge, freezer, cooker and washing machine
What attracts tenants?
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:
- Homes with airy, bright rooms
- Fast broadband speeds and outdoor space have become important as more people work from home due to the COVID-19 pandemic
- Properties within walking distance of schools, shops, the doctor, parks and other amenities
- Homes with easy access to the London Underground or good transport connections
- A garage, off-street parking or storage space for a bike or two
You can glean a lot more information about your property’s neighbourhood from websites like PropertyDetective and CheckMyStreet.
Don’t make emotional business decisions when letting a property
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.
Why choose Oasis Living when letting a property?
Access your online account 24/7 from wherever you are and instantly have the tools at hand you need to find tenants, manage your property and collect rent, including:
- Our service that finds tenants fast for a 5% fee – half the price of many other agents who charge 10% or even 12%
- Free handyman visits once a month if you have a small repair, like a leaking tap
- Professional staging and photographs to show your property in the best light
- Sign and approve tenancy agreements and other paperwork online