Of course, you want to make a reasonable income from your investment property, but knowing what level to set your rent at can be tricky.
If you go too high, you risk putting tenants off - especially if there are many properties to choose from in your area. Even just £25 a month extra could deter them, leaving you with an empty property and a hole in your finances. With this in mind, it's essential to charge a reasonable rent that gives you a good return while also allowing you to attract tenants.
How can I calculate my rental price?
Unfortunately, there's no golden rule when calculating what level of rent to charge, and it may or may not sit with your rental yield expectations. To find out how to calculate your rental yield visit our guide. To decide on an appropriate figure, you'll need to do some thorough research and take a range of factors into account, from the size of your property to the amenities available nearby.
To give you a head start when deciding how much to charge for rent, here are the main issues you should consider:
Location, Location, Location
Where your property is situated can have a significant impact on rent. For example, you could probably charge more for a one-bedroom flat in central London than a four-bedroom family home in other areas of the country. The national averages can be helpful to gauge high-level trends but when it comes to calculating rental values, focus on the typical values in your specific area instead.
Look at the health of the rental market in your location too. Are homes being snapped up by people quickly, or do they tend to linger on the market for weeks or even longer before finding tenants? If you're in an area where demand outstrips supply, you can afford to be more ambitious when setting your rent. In contrast, if the balance of supply and demand tips the other way, you'll need to aim lower to attract tenants.
Furnished or unfurnished?
Are you including full furnishings and appliances or providing a part-furnished or unfurnished property? As a general rule, the more furniture and fittings in your rental home, the higher the rental value you could achieve.
However, this will depend partly on the type of tenants you're trying to attract. For example, young professionals may be prepared to pay significantly more for homes that come with stylish, well-maintained furniture and appliances. In contrast, students probably won't pay as much attention to the quality of these items, while families or long-term tenants may have a lot of their own furniture they wish to bring, meaning they would actually prefer a part-furnished or unfurnished property. We discuss the question 'furnished or unfurnished' for your property in our tips post.
Your property's size, condition, and energy efficiency rating will obviously affect how much you can charge for it. The larger your home and the more bedrooms it has, the more you can expect people to pay for it. Also, tenants will pay more for well-maintained and pleasantly decorated properties. Additional features such as a garage or parking space and a garden will allow you to increase your rental price too. Gadgets such as 'Nest' or 'Hive' style smart home devices and fast fibre internet connection availability may also attract potential tenants, so be sure to mention them in your advertisement. However, whether or not tenants will pay more for these 'features' is debatable.
The type of people you're trying to attract as tenants is a significant factor in rental value. For instance, if you're in an area close to a university or college, your 'target customer' is likely to have a lower budget than if you're in a hotspot for well-paid young professionals.
People will consider paying more for a home near useful amenities such as shops, parks, schools, work and recreational facilities. There will also be more demand for properties close to transport links, including train stations, tube stations, and bus stops. If your property is near amenities like these, make sure this is reflected in your rental price.
The UK is undoubtedly a nation of pet lovers, but many landlords don't allow tenants to move into their properties with animals such as cats and dogs. If you allow tenants to keep pets in your property, it will increase the demand, which means you can charge higher rents. If doing this, you might want to consider specific cleaning or clauses relating to pets in the tenancy agreement.
One of the best ways to get an accurate idea of what you can charge for your property is to research the competition. The easiest way to do this is to check out property websites such as Rightmove or Zoopla. The HomeLet Rental Index will also give you some up-to-date market information.
You could also look at the property section of your local newspapers for further information.
By checking the rental values of properties in your area that are in a similar condition and size to yours, you'll get a clear idea of what you should be aiming for.
Local letting agents
Local agents are a good source of information too. Take a look at their websites and shop windows to see the advertised rental value of local properties. You can also speak to these specialists. Even if you don't want to use a letting agent to market your home, you could tap into their expertise. Explain that you're a landlord who will shortly be looking for tenants, and you're doing some research into how much rent you can expect to get.
Letting agents are a great source of information on the climate of the local property market, and they know exactly what tenants are looking for and what they're prepared to pay.
Balance ambition with realism
The key to deciding what rent to charge is to strike a sensible balance. You don't want to sell your property short by setting a price below its market value, but at the same time, you mustn't allow an unreasonable expectation to get in the way of attracting tenants. As long as you do enough research, you should find that you can make an informed and realistic decision.