As a landlord, it is good business sense to maximise the amount of rent that you get on your investment property, but this has to be balanced with actually having a tenant in your property paying rent, so there is a clear sweet spot between maximising rental yield and keeping the rent attractive. So how do you decide how much rent to charge?
Research the area
The first thing to do is do your research on the local area and the local rental market. That will give you a good idea as to what rents are being charged for what types of property. This will clearly be a range of prices depending on the quality of the property, the exact location and whether the property is furnished or unfurnished. Clearly you can set the rent at whatever price point you see fit, but this could well leave you with void periods with no tenant, which will cost you money.
Calculate Rental Yield
For a property to be worth it financially there needs to be a reasonable rental yield on it. If the yield is too low then it is likely to lose you money when the running costs are considered. Rental yield is, at its simplest, the annual income from the rent divided by the amount paid for the property or its current market value. So, if you paid £100,000 and get £10,000 year in rent, then your rental yield is 10%. Ideally you need to be aiming at a rental yield of between 5-8% to make the property financially viable. You will need to take this into account when setting the rent in the range of prices you have researched for the local area.
Location, Location, Location
When researching the local market, consider the local amenities around the property, people will be inclined to pay more for properties which are close to good schools, shops, transport links or parks and leisure facilities. You can certainly reflect these advantages in the rental price, but still make sure that you don’t price yourself out of the market.
Consult an Agent
Local Lettings agents are a great asset and they will be able to give you a realistic view on what your property could be let for. We at Newton Fallowell are expert lettings agent across the Midlands with over 30 Offices from Telford to Stoke-on-Trent and over to Boston. Our friendly and experienced agents are here for you whether you just want some advice or for us to manage your rental property for you.
Legislation
No blog on rent and setting rent would be complete without a quick look at the law around increasing rents. Currently, if the tenancy is in its fixed term, rents cannot be increased unless the tenant agrees. If the tenant does not agree then the rent can be reviewed and increased at the end of the fixed term as long as the right notice period is given. For tenancies where the rent is paid weekly or monthly, this is 1 month. Where rent is paid quarterly then it is 3 months and if the rent is paid 6 monthly or yearly then the notice period is 6 months. Typically rent can only be increased once in any 12 months unless the tenant agrees. Rent increases can be catered for in the tenancy agreement. Finally rent increases can only be made if they are reasonable and in line with local average rents. This will all change, however, with the introduction of the Rental Reform Bill, which is being worked on by the Government. When this Bill comes in, and there is no definitive date yet, automatic rent increase clauses in tenancy agreements will be stopped, rent increases will only be allowed once in any 12 months and the notice period for rent increases will increase to a minimum of 2 months.
What rent to charge is clearly a business decision and you need to weigh your ability to achieve a reasonable yield with the prices being commanded in the local market. Why not contact us at Newton Fallowell and we will be more than happy to assist you in anyway we can with your rental properties.
