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How to work out the rental value of a property

by Marcel Dybner
July 28, 2016

Q: We’re looking to buy an investment property but not sure if we can trust the rental indicated by the selling agent. How can we accurately work out what we’ll be able to rent the property out for?

There are actually a number of factors to take into consideration when deciding how much rent to charge on your investment property. To get the best rental return on your property, you need to look at its size, location, type and supply vs. demand at the time of leasing. While a lot of the information can be found on your own, it’s a good idea to have a thorough understanding of local rental market trends.

Factors that will Impact How Much You Charge

There’s no secret of how important location is. Even within suburbs, there are pockets which are seen as more attractive by potential tenants. This might include distance to shopping strips, schools or public transport. All of these factors will have an impact on price.

The type of property is also a factor: is it an apartment, semi-detached house, a stand-alone home and how many bedrooms and bathrooms are there? The size of the rooms are also a determining factor.

Facilities such as washing and dry areas; a swimming pool; courtyard; private garden; onsite parking; a garage; ease of access to the property and any other amenities all need to be considered. There’s also the overall condition of the property to look at and whether or not recent updates have been made along with the house’s access to local conveniences such as schools, shops and local transportation.

Avoid These Pricing Traps

While the above factors are considerations for setting the rental price, there are certain pitfalls which you need to avoid:

Coming up with a rental amount based on your current expenses

While you’re wanting to charge rent to cover your outgoing expenses, keep in mind that tenants have a budget and aren’t likely to sign a lease on a property that doesn’t fit their requirements.

Charging rent below the average property prices

While you may think that “cheap” will attract more tenants if you set your price below market average, it doesn’t mean your tenants will be grateful. Reputable and reliable tenants will respond better to reasonable rentals.

Not adjusting rent

Don’t leave the rental price at the same amount for years on end. Aim to keep up with current prices and adjust accordingly or you will miss out on maximising rental returns. It may feel harsh increasing the rent on great tenants but reasonable increases reflect the market and are actually expected. If you’re not engaging an agent, make sure you read up on your rights as a landlord and local tenancy laws.

Trial and Error

If you haven’t been a landlord before, calculating the rent on the property will take a little trial and error at first. But if you want to come across as a seasoned landlord and up your profits, refer to all the necessary data and be sure to get professional guidance to ensure you settle at an accurate and appropriate rental charge.

Finally, coming up with the rental amount depends greatly on the current market conditions. A local real estate agent can help you get up to speed on these.

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