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One of the most important aspects of renting out your property is determining the value of your property. When you're trying to advertise your property to attract your most ideal tenants, setting the correct price for your property is paramount.
In my experience as a licensed Real Estate Agent, I have witnessed a lot of property owners get into trouble by setting the rent too high and start to attract poor tenants which results in loss of rent as well as increasing the chances of damage to your property. So when you set your rental price, try not to think about what you want, but what your target market is willing to pay. Place yourself in the shoes of your prospective tenants and consider the practical amount that you would be happy to pay for your particular property.
Determining Your Property's Worth
To determine what your target market would be prepared to pay for your property, the best place to start is to compare your property with other properties currently available for rent.
The reason for this, is because people who are looking for a property to rent will be doing just that, they will be looking at a number of properties in the area to create their shortlist and then apply for the property that represents the most value to them.
So your goal is to set the rent at the highest price point while attracting the right tenants but don't get too excited by setting the price too high because that will only lead to poor tenant applications and a higher vacancy period.
How to compare.
The best place to compare your property to other properties on the market is realestate.com.au or allhomes.com.au if your in the ACT.
When comparing your property with other properties on the market, equally most important to the number of bedrooms and the presentation of the property is the location of the property.
In terms of the location of the properties you're comparing your property with, limit your scope to the same area as your property, the closer the better, within the same street is the best. Limit your scope to a 5-kilometer radius.
Most tenants will want to live in an area close to the amenities - like Schools, shops and public transport - so if your property is situated in a location near these, this may give you an added advantage over your competitors.
Now that you have started looking at the properties in the same location as yours, we now need to take into consideration the attributes of the property - the number of bedrooms, bathrooms and car spaces. Of the three, I have found bedrooms to be the most important. So when you're surveying the area, start with properties with the same number of bedrooms (also take into consideration the bathrooms and car spaces, while you're at it).
Once you have a small list of properties, say 4 or 5, with a similar number of bedrooms, bathrooms and car spaces in a similar location, you may now start to narrow it down to 3 properties by looking into the finer details of the property. In particular the age and condition of the kitchen and bathrooms and so on from there.
You may decide to keep an eye on the market over a couple of weeks to keep track of which properties are getting rented quickly, which have lowered their rent and which ones have been listed for many weeks.
Once you've taken all these details into account, you will have narrowed down your comparables to around two or three similar properties within your area.
By now you should have a good indication of the rental value but lets try and narrow this down to achieve the price you will advertise your property at, by considering your time frame.
From this point you're probably tossing over $20 here or there per week. Have a think about your time frame you're working with. For instance, if you need to have a tenant in the property and paying rent within six weeks, you may decide to take a conservative approach and set your rental price slightly under your remaining comparable properties. However on the flipside if you have over 6 weeks you may take a little risk and set it on par with the highest priced comparable, but I warn you, if you do not get enough inquiries within the first week, then it is imperative that you reduce your rental price so its more competitive with the others.
Validating your Rental Price
You can get a good feel whether or not the price you set for your rental property is right by the amount of inquiries you get and the number of people that take a look through your property. If you are getting less than 3 inquiries each day within the first 3 weeks, more than likely, something is wrong with your advertisement - the price, the photos or the write up is probably not grabbing your target audience’s attention. I like to make a small change to each of these components in this situation.
If your rental price is set too high, you are more likely to receive applications from tenants who are desperate, those who are willing to pay more than the property is actually worth because they are in desperate need of a property. And although people often equate a higher price with status, if your property does not have the location or amenities to back up the higher price tag, prospective tenants will have no desire to see your property.
One important note is that some agents deliberately set rental prices at 5% less than the market value to attract better tenants in less time to their vacant properties. Not only does this reduce the time it takes to find your tenants (saving you money), this also plays a major part in less tenant turnover, less rent arrears and less general tenant issues during the tenancy.
To ensure a smooth tenancy, it is important to get the start right, and that begins with setting the right price. I hope the information you gathered was useful in helping you to manage your property.
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