How Much Is My Property Worth To Rent?
Working out what rent you should charge for your property investment is an important decision as it has a big impact on the performance and overall viability of your investment. Undoubtedly a priority for an investor is to maximise their income each month, but at the same time you don't want to price your property out of the market and find it hard to get high quality tenants. Working out the right rent to charge is an art form and one best done with specialist advice and careful consideration.
Here is a look at 4 key steps to take when working out how much to rent your house or apartment out for.
Step 1 - Organise a rental appraisal with your local property manager
The easiest way to answer the question “how much rent could I rent my house or apartment out for’ is to talk to your local property manager and get a rental appraisal. They are experts in this area and will review your house or apartment. They will assess its key features including its location, condition, the number of bedrooms and bathrooms, the property size and access to sought after amenities.
In addition, they will look at comparable rental prices for properties that have recently been let. This information is normally only accessible by a property manager and is important because it shows the final rental price a property was let for. Prices may change from the advertised rate during the rental campaign, they may go up or down depending on demand. This data is a more accurate measure of your property’s worth and can really help clarify the local market.
Following the appraisal, the property manager will provide you with a suggested rental price guide for your property and a recommended marketing campaign to enable you to attract the best quality tenants.
Rental appraisals are free, come with no obligation and are a great way to find out a lot of information about your property and your local rental market.
Step 2 - Do your own research into the local rental market
As the property owner you have the final say as to how much you want to rent your property for, so by doing your own research into the local market you can ensure you are making an informed decision. Head to websites such as mcgrath.com.au, realestate.com.au or domain.com.au and look for properties that are for rent in the area.
Look for properties that aren’t as good as yours and ones that are better so you can understand the rental pricing range. Of course, you also want to look for similar properties. If you have time it’s a good idea to track and record rental listings over a month or so. Over time you may start to see trends.
While this research will provide you with valuable insights into the different types of properties and their rental value, it doesn’t provide an accurate market rate for your property. As we mentioned above, the listed rental price may change during the rental process. This information can only be found with the help of a property manager.
Step 3 - Understand the market demand when renting out your house or apartment
Regardless of the information that you gather from steps 1 and 2, the rental value of your property could change drastically due to demand. Demand can impact the rental cost of your property in both positive and negative ways. Here are some common effects of demand:
- When the economy is weak, demand for rental properties often goes up as people cannot afford to buy
- When the economy is weak, demand for smaller, cheaper apartments is greater as people are looking to downsize
- When interest rates are low and rental yields are the same or on parity to loan repayments, renters with a deposit saved may decide it’s better to buy than rent. Therefore, reducing rental demand.
While there are many variables at play here, generally speaking, when there is greater demand for your particular property, you can charge a higher rent. When there is less demand, you may have to lower the rent to attract tenants.
Talk to your local property manager about current demand in the local area. They live and breathe the rental market in your neighbourhood and their insights will be valuable here.
Step 4 - Understand your expenses in the context of your rent and rental yields
While steps 1, 2 and 3 give you a good idea about how much to rent your house or apartment out for, they are missing a key calculation factor that can seriously impact your bottom line.
Those numbers don’t take into account the expenses you incur as a landlord. For instance, you are responsible for:
- Mortgage repayments
- Maintenance costs
- Investment taxes
- Cost of vacancy periods
- Insurance costs
When working out your rent you want to understand your monthly expenses so you can make sure you make some profit each month too.
So, once you have had a rental appraisal, reviewed the local property market and assessed the current demand, you should have a potential rent figure in mind. But before you lock it in, calculate how much of that money will need to go on expenses each month. If you are making no profit, you may want to consider a slight increase in the rent, or if that is not possible, to reduce some of your expenses to ensure you turn a profit each month.
Talk to your accountant about how much profit you should set aside each month.
A final word
Ultimately the amount of rent you charge for your investment property should reflect the market conditions and is best determined with the help of a skilled local property manager. It’s also important to keep in mind that setting a price for your rental is not a one-time event. If your property is looked after by a property manager they will review the market on a regular basis and adjust the rent based on demand (according to the legislation on rent increases in each State and Territory). Your local McGrath Property Manager would love to help you answer the question ‘how much should I rent my house or apartment out for’. To connect with your local team click here.
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