Is your asking price right? Maximising rental yield depends on getting the optimal rent for your particular property, and Pamela Yardney shows how it’s done
When it comes to renting out a property at the right price, many landlords can be at a loss as to where to begin. Some believe that their property is the ‘bee’s knees’ and perhaps think it must be worth far more than it is. Some overcommit to a large mortgage and expect their tenants to foot the bill for the monthly repayments, regardless of whether the rental amount is reasonable.
And others feel it would be an injustice to charge too much and believe that by asking for less than the going market rate they will find better tenants who are more obliging when it comes to making payments on time.
In reality, none of these methods are appropriate for setting the correct price. Today’s rental market is so different from what it was that it’s no wonder that many landlords are at a loss as to what a fair rent for both themselves and their prospective tenants would be.
We’ve all heard stories about tenants clamouring to literally get their foot in the door of a vacant property by any means necessary these days. Unfortunately, there are landlords and property managers out there ready to take advantage of the current stock shortage and are engaging applicants in bidding wars.
This is highly unethical and illegal. I would strongly advise landlords to avoid the temptation of altering the advertised rental on their investment once this has been set and circulated in the market.
It’s crucial to know the going rate for your rental from the outset, before you market your property and show it to prospective tenants.
Determining the right price
Rents are determined in a similar manner as asking prices for sale properties. Just as a good real estate agent provides a potential vendor with a list of comparable neighbourhood sales, a property manager should advise a landlord the rents of properties similar to theirs in the area.
It is the property manager’s job to conduct extensive research on behalf of the landlord to ascertain the prices of properties of similar size and style that have been leased in the area.
There are two benefits in having your property manager carry out this type of work. First, only licensed estate agents have access to information regarding properties that have already been leased. And secondly, your property manager will have an intimate knowledge of the suburbs they work in.
The next step is to investigate the competition, by finding out about properties close by that are still on the market. Anyone can do this research, as long as they have access to local papers, agents’ to let lists or the internet. As most agents advertise online, incorporating extensive images of available properties, you can almost undertake this part of your research without leaving your home office!
While scouring the classifieds and internet will provide valuable insight into the types and rental value of properties yours will have to compete with, it does not necessarily provide an accurate market rate for your property.
It is more important that you set your rent based on the comparable rental prices in the local area, as advertised rents may change during the process of letting vacant premises. They might go up or they might go down, depending on the level of demand and tenant interest in that specific neighbourhood.
Understanding comparable prices
Getting comparable rental prices for recently let properties is the best way to measure your own property’s worth. But in order to match your own with comparable properties, you have to know exactly what sort of property you have. As you can’t compare apples with oranges, it’s important to be objective about your property when assessing it and, later, when setting the rent. You may think you have an apple, but do you really have a lemon?
The condition of the premises will play a large role in calculating what it might be worth to a prospective tenant. As the old saying goes, first impressions count.
If your property is looking tired and run down, and lacking curb appeal, you may struggle to get any enquiries at all, let alone a decent rental amount for it.
If people don’t like what they see from the car window, they will more probably drive on to the next property on their list. That applies to apartment blocks as well. Although the external appearance of apartments may not be completely within your control, as a landlord and owner of one unit or apartment in the complex you might like to keep an eye on how well the body corporate is maintaining and managing your investment. The more attractive it looks, the more rent you will receive.
Boosting your rental appeal
Tenants want the same thing as owner-occupiers – reasonable value for money. If you want to ask a top-shelf price, you have to be realistic as to whether your investment is in the top-shelf category.
Most prospective tenants will have certain boxes that must be ticked in order for them to pay top dollars for a rental property. These include:
A clean, tidy and well-maintained property – Not only does it look good, it tells the tenant that the landlord is willing to spend money on their investment and will attend to any maintenance issues as required.
Location, location, location – A property close to all the essential services required for tenants’ lifestyles is crucial. Amenities such as shops, schools, transportation and leisure facilities are highly valued.
A place for everything – Cupboard and storage space is a big priority. We all seem to have stuff cluttering our lives; your tenants will need somewhere to put theirs.
The extras – These days, tenants, like homebuyers, think of things such as dishwashers, airconditioners and heaters not as luxuries but as everyday items. Often these appliances are on the top of their must-have list and will mean a higher level of rent.
Freshness and light – A newly renovated home, even if it has simply had a lick of paint and some new floor coverings laid, will always appeal to prospective tenants. Also, a fresh, airy and light-filled space is more inviting and people are willing to pay a bit extra to feel comfortable.
If your property has all of these attributes, it will appeal to a broader range of tenants and therefore should sit in a higher rental bracket than a similar style property that perhaps lacks the same ‘wow’ factor.
Another consideration is suburb reputation. If you have two comparable properties, with one located in an area that has a lower socio-economic population and one in a trendy, more affluent neighbourhood, you will always be able to demand a higher rent for the latter. Position can mean a considerably higher or lower rent for the exact same style of house, unit or apartment. Potentially it can mean a difference of hundreds of dollars!
Word of advice
Avoid trusting the selling agent implicitly when it comes to rental valuations. If you have your eye on a property that you are considering for a rental investment, you are far better off conducting some of your own research on internet sites such as realestate.com.au and/or speaking with local property managers.
While selling agents have a great knowledge of sales prices and property values in their local area, they don’t work with rental properties on a daily basis and therefore will not necessarily be able to provide an accurate potential rental figure. That is why sales agents specialise in sales and property managers specialise in leasing – they are two very distinct markets.
Ultimately, rental properties, like any other investment, are all about the bottom line. There is no point undervaluing your most important asset; yet, if you aim too high your property could sit empty. Both of these outcomes should be avoided. Do your research, ask the experts and be realistic. That way, you’ll be sure to know that the price is right!
Pamela Yardney is director of Metropole Property Management and co-author of All You Need to Know About Buying and Selling Your Home. Website:www.metropole.com.au
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