"How much rent should I charge for my house?" is a question asked by every landlord for every property. While there are some factors you can take as indicators of the rental value of your home, there are many aspects you won't be able to pull from an online search or rental value report. Experience in interpreting the history and trajectory of the rental market in your suburb is key - and understanding exactly where your home fits into the mix.
Can you work the rent out as a percentage of the sale price of the house?
An often referenced "rule" is that you should expect to charge $100 for every $100,000 value in your home. e.g. if your home is valued at $450,000 you should rent it for $450 per week. While this provides a rough ballpark figure, it is completely without science and should not be considered reliable in many instances.
There are many reasons why this guide is flawed. Firstly, renters usually don't care in the slightest what the sale value of your home is. They want to know it is affordable, comfortable, and meets their personal circumstances. So why should the sale value represent what they would pay per week as rent to live in it?
Additionally, demand for properties for sale in a particular suburb does not necessarily correspond to demand for properties to rent in that suburb. For example, there may be high market growth where there is little rental demand. This is clearly evident in areas of significant housing development or in new land release areas. Property values increase as demand in the area increases, though this can be closely followed by a flood of investment properties hitting the market once the newly built homes are complete. The greater the supply, the less rental return per property.
Don't confuse the rent you want for the rent it's worth
New investors and passionate renovators can fall into the trap of thinking their home is worth more than the market will pay. After all, you've carefully planned what material to use for the floors in the kitchen, considered where to purchase and install ceiling fans and air conditioning, and maybe even made the decision to restore the old fireplace to working condition! All that care, consideration and effort has to pay off, right?
Well, it certainly can. But having the best rental property on the market in your suburb is no guarantee of superior financial return. It may just reflect the great taste of your new tenants.
Tenants will compare what's on offer from your home with what's on offer from all others in their consideration set. If your property has the gorgeous restored antique cast iron bathtub you love but the bedrooms are smaller than others in the area, you may have to park your passion at the door and drop the rent below what you'd like to appeal to a broader range of tenants.
How to start working out how much rent your property is worth
The starting point is to search for properties like yours in your local area (no more than 1km away from your home) which are currently available for rent, and get a feel for what these homes are renting for. Domain or RealEstate.com.au are great for these searches.
Then, to get an accurate indication of rental property value, you need to factor in the "state" of the properties you're comparing to. For example, consider whether any repairs are required, the quality and recency of any painting or flooring work, quality and layout of key areas such as kitchen and bathroom, etc.
It often becomes apparent that there is a wide range of pricing variation, even among homes which offer the same number of bedrooms, bathrooms, car spaces, and seem to be of similar age and features. But why?
Think about it yourself. If you had two homes of similar size and features, would you pay more rent for the one with the larger backyard, or the one with less traffic noise? Would you pay more for the one with the north-easterly afternoon breeze, or the one with the undercover area the kids can play outside when it's raining?
There are a lot of variables that are hard to quantify in rental dollar terms.
What if you can't find comparable properties as a guide to how much your house should rent for?
So you've searched the rental listings for homes like yours and you can't find anything similar. It happens all the time. Recently we were asked to provide a rental appraisal for exactly this purpose - a 4 bed, 1 bath home was going to market in a suburb full of 3 bed 1 bath, or 4 bed 2 bath homes. How do you compare?
Providing an accurate rental appraisal in situations like this is exactly where a good property manager provides value. An experienced property manager can help identify a broader range of comparable properties than you may yourself, and will have rental market history beyond the currently-available rental listings.
If you're wondering what the potential rental return should be for your investment property, even if it's currently listed with another agency, we'd love to help. Contact us for a rental appraisal today.
About Carnelian Property Management Newcastle
We are a family-owned and run Newcastle business. We’re landlords. We’re home owners. We’ve also been long-term tenants. We are refreshingly accessible with intimate knowledge of the greater Newcastle, Lake Macquarie and Fern Bay rental markets.
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