How to get the ideal price for your rental property
In previous years landlords were able to name their rental prices and still have an abundance of tenants vying for their properties.
Their properties were filled quickly and years of
escalations followed.
But this is no longer the case due to an oversupply of
rental properties,a struggling economy that’s
reduced rental affordability, and a pandemic that’s further exacerbated these dynamics.
Landlords are undoubtedly under pressure to reduce their
rental prices
to attract and retain tenants
to avoid vacancies, yet as a vast majority still have bonds to pay on their properties, Ben Shaw, chief
executive of digital letting agency HouseME, says they are not left with much room to manoeuvre.
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To arrive at the “ideal price”, he recommends landlords follow these steps:
Step One: Calculate your yield
“First, calculate your input costs such as
bond repayments
, levies, taxes and rental agency fees. If
possible, add a buffer of about 12% onto these costs for unexpected expenses such as maintenance
emergencies and vacancies. This will give you your preferred price.”
Step Two: Do some market research
landlords
need to figure out if this price is within range of the current market ‘rental
value’ of their properties.
“Go to a popular online marketplace and enter the search criteria matching your own property.
Browse the results to see what similar properties in your neighbourhood are
letting
for. Ideally, you
want to be at or under that average price. But beware, these listings typically only show you the
asking price, not the price the properties were rented for, so they may still be inflated.”
Step three: Test the market
“Post your listing at your researched price and see how many prospective tenants respond,” he
continues.
Landlords must be sure to include beautiful photos showing every room and any outdoor areas, a
detailed description and clear contact details in your listing.
“Typically, if you haven’t had more than five responses and a couple of viewings booked in the first
week, this is a sign that your property may be overpriced. Act swiftly to adjust your price and do so
in large enough increments. Remember that the earlier you list your property, the more time you
have to adjust before the required occupancy date.”
Step four: Reassess your costs
Landlords struggling to find reliable tenants at their preferred rental prices will need to find ways to
lower their price. To do this, they should ask themselves the following questions:
Does the interest rate change allow you to pay less on your bond? Could you refinance your
mortgage? If not, how much could you afford to self-finance each month in case the rent
doesn’t quite cover the bond?
Do you have access to funds to self-finance your bond in the event of vacancy while you wait
for a tenant who can afford the full price?
“Work through these questions to establish the minimum price you can afford to charge, bearing in
mind that it may only be temporary: by the time this lease is up, the situation may have stabilised in
your favour again.”
Step five: negotiate
If a prospective tenant wants to negotiate the rental on a property that is already near or at the
lowest prices it can go, Shaw says landlords could offer them other concessions to “sweeten the
deal”.
For example, there might be some maintenance or upgrades that the tenant would like done before
moving in.
“Wi-Fi is a big deal to many tenants, so you could offer to make the property fibre ready.
Consider allowing for an additional couple of days before the month starts, so they can use the weekend to move in. Although these are costs, at least they are only once-off costs in exchange for a steady income.”
A recent survey by HouseME reveals that tenants are “extremely sensitive” to upfront costs such as deposits and agency fees, he adds.