For the first time in a blog I’m going to put my summary at the start and say that in summary “Setting the right rent for your property is not an exact science but it’s not far off it!” Let me explain…..
Supply and Demand Driven, not Expenses Driven
Last night I watched the film “Joy”, the story of the title character who invented the miracle mop in the US. The reason I mention this is that one of her suppliers started to charge $2 more per mop for the plastic mould. Joy said she couldn’t pay it as she could not charge more than $19 for her mop as nobody would pay more than that and the $2 extra would send her under. The comparison to the rental market is similar, just because your mortgage payments are £600 it doesn’t mean that you will get £600 in rent! The rental market is like most other markets and fluctuates due to supply and demand and the amount tenants can actually afford not the fact that you had to fit a new boiler last year and want to claw your expense back!
So how do you know what level to set the rent at? Well the first thing to do is to monitor the market. Look at similar properties on Rightmove and Zoopla (the two biggest property portals). Whilst you will only see Asking Prices and not the actual amount they went for, at the time of writing we do not have to negotiate on price so these tend to be one and the same.
Monitor which properties have been on the websites the longest, they are more than likely the ones that are priced too high or are poorly presented. Look at the properties which are similar to yours and are turning over quickly and this is where you want to start to base your rent. Let’s call this the “Base Point”.
Adjusting the Base Point
The next step requires a bit of honesty, remove the rose tinted spectacles and take a hard look at your property. Compare it to the other properties you used to set your base point. If it is better located add £25, if it has old-fashioned storage heaters deduct £25, if it has a dishwasher add £10, if it is over the passage and the room sizes are bigger add £25, if it is furnished add £50 etc.
Ring a Letting Agent
Letting Agents have access to a lot more information than can be found in the public domain. Name the street and the odds are we have let at least two properties on it already, so we know what you can get. In addition, Rightmove and Zoopla have some great tools for Letting Agents which enable us to access not just current data but historical data. We have at our fingertips a database which in effect enables us to check any postcodes letting activity for the last 5 years. Ring an agent and ask them what they think you can get for it. You don’t have to commit to their service but at least if you struggle with letting the property or your tenancy then you already have a relationship with someone you can revert to.
What not to do
- I feel the need, the need for greed (not sure if that is another film reference?). Landlords who overstretch themselves financially or who do not do their homework BEFORE buying often end up needing more money to balance their books and end up charging too much rent. This then leads to lengthy void periods (see my other blog on It’s The Voids That Kill You). http://www.topcitylettings.co.uk/its-the-voids-that-kill-you/
- Don’t take a tenant who is overstretching themselves. Referencing agencies use a Salary V Rent ratio for a reason. Tenants who overstretch themselves inevitably become bad payers.
- Consider taking less rent for a tenant who is going to stay longer. Minimising voids will save you money in the long run.
- Don’t forget when looking at whether you rental property is profitable make sure you consider the capital appreciation. The £25 you “lose” on rent each week fades into insignificance if the property increases by £1500 in value each year!
- Rent can be increased at the end of the initial term, so it may be worth “hooking” the right tenant then increasing the rent by £25 after six or twelve months. Bear in mind it is not worth losing a good tenant over £25 per month.