When it comes to being a landlord, it can be a fine balance to determine a rental price that is fair and line with market value whilst still ensuring you turn a profit.
Determining what constitutes fair rent may be one of the first things you think about when deciding to let a property, and with good reason. Not having rent set at the right rate can result in vacancy periods as well as you receiving less than you could potentially in rent each month – not to mention there are many different factors that impact your ability to set rent.
Here, we take a look at some key things to think about when deciding the right monthly rent for your property to let:
You’ll need to make sure that when charging rent, you receive enough to ensure that your mortgage payments are met, and that you still have enough left over to make a profit as well as pay for any maintenance or emergency repairs. You can start with your monthly payment along with any additional expenses and use this as a baseline for your calculations.
Current market conditions
One way to get a rough idea of what you could potentially receive is by determining what is “on the market rent” in your local area. This means looking at other nearby listings to see the average rent in your neighbourhood. Reading up on local housing market conditions and predictions can also help.
Some investors work out the rental yield on a property when determining fair rent, which essentially means looking at how much they can expect to earn on their buy-to-let property as a percentage figure. For example, if a landlord let a property worth £150,000 for £500 pcm, this would result in an annual rental income of £6,000 and a rental yield of 4 percent. Some landlords may have a minimum of six per cent for example, and therefore either may look at whether that investment really is sustainable for long-term profit.
Property location and condition
The size and shape of your property will of course play a large part in what you can reasonably expect for it in terms of rent. The square footage, number of rooms, the amount of outside space (if any) along with the general condition of the property will all impact your rent; if you have a property in a great location that is dilapidated or tired looking, you may need to invest some time and capital into it to raise the standards of quality and therefore the amount you could receive in rent.
Ultimately there are a number of ways to determine what is a fair rental price -some landlords believe the one percent rule (the idea that rent should amount to roughly one percent of your property’s value), while others prefer to rely on local market conditions. If you are unsure about how to price your monthly rent, you can consider enlisting the help of professional letting agents who can provide some guidance.