Investors hoping to make a decent, long-term return on investment know the value of establishing a competitive, market-based rental price for their property. The property’s rental price is a fair indication of the property’s value, and accurately valuing a rental property draws quality, long-term tenants and in turn, a stable rental income. Setting the rental price too high can result in a costly vacancy, whereas undercharging can lead to a loss in profit. Smart investors look to balance high rental returns with low maintenance and management costs in order to support large capital gains.
Prospective tenants have a wealth of knowledge at their fingertips with unlimited options and access to property websites and information. This results in a more cautious and informed approach to the rental market as a whole; with tenants making decisions based on thorough market research and comparative homework. This should encourage investors to be fair and realistic in setting their rental to avoid their investment property sitting empty.
How do investors go about establishing an accurate rental price?
Investors looking to set a fair rental price can do so by considering the property’s average gross yield. This is also hugely beneficial to aspirant investors who would like to determine a property’s investment potential before buying it. The gross rental yield is the rental income the investment property produces before expenses are deducted, and is represented as a percentage of the property’s purchase price. Examples of expenses are insurance, maintenance and repair costs, agent fees, advertising, rates and taxes. The rental yield is a good indication of the rental price an investor can expect on a particular property. Currently the national gross average yield ranges between 6-7%.
A simpler rule-of-thumb for establishing a rental price is 1% of the property’s value in real terms; however, external factors such as location, security, property value, condition of the property and supply/demand play such a significant role in determining a competitive rental price that this estimate is often fairly inaccurate.
Supply and demand are major driving factors in determining realistic rental prices; with various other factors like proximity to amenities, quality schools, and major public transport/business nodes having substantial weight in the decision process.
A good question to ask is what similar properties in the same complex or area are being rented (not advertised) for.
The best advice in gaining a more precise picture would be that investor’s consult an experienced rental agent/agency with specific area and market knowledge. A reputable agent would be able to assist and advise on a comparative rental value that would attract quality tenants for a particular complex or suburb. An estate agent would also be able to give valuable feedback on what, if any, changes need to be made to the property (new carpets, fresh paint etc) to draw prospective tenants.