If you own an investment property, you’ll need to decide how much rent to charge. Ask too much and you may alienate potential tenants.
Research the rent If your property is being managed by an agent, they will be able to advise on what they believe is a fair price for your rental. But be sure to do your own research so you can be confident that a tenant will snap up your rental at the agreed price. Is it comparable to other rentals? Take a look at the market – what are similar homes fetching in the area? Is there an oversupply or an under supply? Make sure you’re comfortable with the stipulated rent before you sign on the dotted line. You’ll have to pay a commission to your agent, so factor this into your thinking.
Supply and demand
When it comes to setting the rent on your investment property, it comes down to supply and demand. If your property is in a desirable location close to services and facilities, it’s likely demand will be high. This, of course, means supply is generally low and so rents are at a premium. The more people who want to live in your area, the more you can generally charge, within reason.
Reconsider the rise
While you’re within your rights to review the market conditions and raise your rent at the end of the lease period (you cannot increase the rent during a fixed contract period), remember tenants are a price-sensitive bunch – if they think they can find a better deal, they may go elsewhere and this could leave you without a tenant for a while. If your house is sitting vacant for too long you may also be tempted to take in a less than desirable tenant, which is always risky. Think long and hard about your rental reviews. Tenants understand the need to match the market and make a profit, but will not appreciate sizeable and unnecessary rent rises. Is it worth keeping your tenant happy so they’ll stay longer? At least you know a good tenant will treat your property with respect and will continue to pay the rent on time.
Fix it up
The better the condition of your home, the more rent you can charge – it’s that simple. If you’re looking o negatively gear your property, this is most certainly the case. Consider any outlay in this area an investment in your financial future. Try to look at your investment property through the eyes of a tenant – how can you freshen it up and make it more appealing to the market? Your property may just need a light spruce-up or you may decide to add a second bathroom or deck, which are attractive features for tenants
The percentage game
As a general rule you should expect to get between five and six per cent of the property’s capital value back every year – depending on market conditions, of course. Firstly, invest in current valuation of your property so you know what it’s worth in the current market. If you’re property is worth $400,000 you should expect to get approximately $20,000 back in rent a year, which is around $385 a week. Use this equation as a guide only.
Marketing matters
If you’re going to attract a quality tenant to your property you’ll need to cast the net fairly wide. Consider marketing as a worthwhile and necessary expense (and potential tax deduction). Firstly, a ‘for rent’ sign is a must – it’s possible your new tenants already live in the area. Work with your agent to use MPP and consider online advertising options. Open homes may also be helpful, but make sure your home is spick and span before throwing the doors open.
