How To Determine Property Rental Price
Setting the right price on your rental property is an important consideration. Not only do you want to be sure you set a price that is right for the location and property type, but you also need to make sure the price you set is attractive to potential tenants. Any investor should understand what drives tenants to pay the rental amounts they do in certain areas. This information can be vital for making sure the price you set for your rental property isn’t too low, but also isn’t too high for the market. The rental figure you receive for your property will still be largely determined by the demand for properties like yours in similar areas. Obviously, if your property meets a tenant’s particular needs, you’ll have more success renting it out. If you intend to be a successful investor, it’s logical to find out whatever you can about the features and inclusions in a rental property that tenants regularly ask for. Even if you haven’t ventured into the world of property investment yet, you can still learn how to choose a property that will offer a good rental yield, as well as become a solid investment for the long term. This report was written to give you some insight into the types of things tenants look for when they apply to rent any property. Keep these things in mind and you should find that your investment property is always rented and earning you a good investment income.
#1: Identifying High Returns
A good property investor will always consider the rental returns that are achievable before purchasing a property. As a general rule of thumb, properties in more expensive areas will receive a higher amount of rent per month than properties in cheaper areas. However, don’t make the mistake of thinking this makes a more expensive property automatically a better deal. The rental yield you receive should be based on calculations that show you exactly what percentage of the purchase price can be realised as a rental income. For example: Annual rent of $20,000 divided by a purchase price of $400,000 is a rental yield of 5%. Just because you find a property returning a higher $35,000 rental income per year won’t automatically make it a better yield, especially if the purchase price was $900,000. This is a 3.8% yield. Don’t just rely on the yield percentage, though. You still need to consider the area you’re buying in, the type of tenant you want to attract, and various other factors that can affect the overall rent amount you receive. Every different suburb will have a range of rental prices that can potentially be achieved for certain properties. Trying to determine exactly how much rent your property will yield based on only comparative rents received for other properties in the area can be difficult. After all, you may find a price variance exists based on all sorts of other factors, even though the properties you’re comparing are similar sized, with the same number of rooms in the same suburb. However, if you can narrow down an estimated range of rental amounts that could potentially be achieved in that area, this is a good starting point.
First impressions count. No matter where your rental property is located, tenants will still expect that it be presented well, inside and out. A property with flaking paint, gardens filled with waist-high weeds, thread-bare carpets and leaking taps can still be successfully rented, but it probably won’t be to the type of tenant you want for the long term. A well-presented property is far more likely to attract higher quality tenants willing to pay top market rental rates in every area. This adds up to you getting a better return on your investment that also means a much lower vacancy rate. Work on freshening up any paintwork in neutral colours. Avoid bright colours or unusual tones, as these may not appeal to everyone and you could reduce your market appeal. When you keep things neutral, you appeal to the widest possible audience, and reduce the chance of offending any potential tenants. Keep outside areas neat and orderly. Be sure garden areas are well maintained and look nice. Fix any broken fixtures and fittings and repair leaking taps. Put a little oil in door hinges so they don’t squeak when opened. When you present a property well right from the start, it also sets a standard for the tenants to keep up with. After all, their tenancy agreement does tell them they’re expected to leave the property in the condition in which they found it if they happen to leave.
Location is one of the primary driving factors for tenants. All tenants want to live close to areas that are convenient for them in some way. This could mean the property needs to be close to their kids’ school, or close to their work, or close to other amenities, such as shopping centres or public transport. There is some evidence that properties in close proximity to the CBD in any city will have a higher demand than properties that are further away. Usually, the demand for properties within a 10km radius of the city centre will be highly sought after by tenants. However, location is relative to the individual. Not all tenants want to leave near the inner city. Some prefer to live further out in the suburbs, where they are close to local shops, local schools and local community areas.
#4: Access to Facilities
Many tenants will be keenly interested in properties that are within easy access to facilities they need. Students will always look for properties near a University that are also near public transport stations or stops. Families will look for properties near to local schools and shopping centres. Older tenants may prefer rental properties close to medical facilities or hospitals. Tenants with kids and pets will prefer properties close to parks and public facilities. Ideally, you should have an idea of the type of tenant you hope to target before you buy. Then choose a property that will suit your chosen demographic.
Pretty views of the city, coast, or surrounding hills areas may be highly desirable in a property. This is reflected by the higher purchase price of properties in areas like these. However, views don’t always equate to higher rental returns. Tenants are still interested primarily in location and living space. If your investment strategy is to sell the property at some point in the future to realise any capital gains, a property with views may give you this benefit in some cases. There is some indication that property featuring stunning views in highly sought after locations may experience slightly greater capital growth over time.
Many rental agents report that the age of a home, or how recently renovations have been completed can be a big factor with demand from tenants. The more recently a property was built, the higher the rent is likely to be for that home. Likewise, the more recently renovations have been completed, the more desirable a tenant will find that property. Of course, if you buy a property that hasn’t been renovated or updated recently, this represents a great opportunity to add value and increase the likelihood of capital growth. You will need to complete renovations before advertising the property for rent, though, in order to maximise the rental return you expect to get. Tenants generally prefer the feel of a freshly updated property, especially if you’ve included a modern kitchen or updated bathroom. This can increase the rent you can charge for that property.
#7: Number of Bedrooms
The number of bedrooms a property has can influence demand from certain types of tenants. A one-bedroom property may be ideal for single people, or a couple, while a two bedroom property may suit a couple, a small family with only one child, or someone who needs a spare room for home office purposes. Larger homes with three or four bedrooms will appeal to families with children. Homes with more bedrooms that are located near universities may also be ideal for shared student accommodation. Of course, the rental return for a property with two bedrooms will be higher than the return for a property with just one bedroom. Likewise, a house with three bedrooms may fetch more rent than a property with only two. Right across Australia, the demand for two bedroom units and three bedroom houses remains strong. This increase in demand also coincides with the increase in rental return on these types of properties. Rental prices may be slightly higher for properties that feature built-in robes in bedrooms, or walk-in robes in a master bedroom. Tenants prefer these inclusions, as it removes the need for them to buy their own cupboards and wardrobes to store clothes.
#8: Number of Living Areas
Many property designs feature more than one living area. This usually includes a living room or lounge room at the front of the property and a family room or rumpus room at the back of the property. Two-storey homes often feature a living area downstairs and a separate living area upstairs. In some cases, an outdoor entertaining area can count as an additional living area, especially when that space is enclosed or protected against the weather. Alfresco outdoors areas (outdoor entertaining areas built under the main roof of the home) or patios and pergolas may appeal to some tenants as being important, especially if they intend to entertain or enjoy outdoor living. Many families with children prefer the idea of more than one living area. This allows the parents to watch TV in one room, while the kids play in another.
#9: Number of Bathrooms
The number of bathrooms in a property should be proportionate to the number of bedrooms in the home. For example: a one-bedroom unit really only needs one bathroom. However, a four-bedroom house should ideally have two bathrooms. Two storey homes often have 2 bathrooms. This is usually comprised of a main bathroom, including bath, plus an en suite to the master bedroom and a toilet or vanity unit downstairs for general use and for guests. It’s important that larger homes with four or more bedrooms do have enough bathrooms to cater for more people living within the home. A four bedroom home with only one bathroom may end up receiving lower rent simply due to the inconvenience to the tenants. Female tenants tend to place a larger importance value on bathrooms than males, especially when it comes to cupboard space and storage space. Females also tend to prefer main bathrooms that include a bathtub as well as a shower, although an en suite is acceptable with just a shower. Some landlords may find that a bathroom that includes a spa bath may attract a slightly higher rental premium. However, there is also the associated maintenance involved, so be sure to do your sums if you choose this option.
#10: Outdoor Entertaining Areas
Balconies, patios, pergolas, decks, barbecue areas, alfresco entertaining areas and other outdoor entertaining areas are very popular with tenants in warmer states. Outdoor living is appealing to many people, as it allows them to make the most of good weather conditions. It also increases the amount of living space they have on the property. Outdoor entertaining areas may also include paved areas surrounding pools or spas, as well as lawns and gardens. The size of the outdoor area provided is important. Ideally, tenants will prefer areas that will allow them to seat four to eight people comfortably during a barbecue or social get-together. Most rental agents agree that a house with an appealing outdoor entertaining area will rent far more readily than a home without this. However, the addition of a pool or spa may be a deterrent for some tenants, as the responsibility for maintenance and upkeep is more than most are willing to deal with.
#11: Floor Coverings
The floor coverings you have in your property can affect the number of tenants interested in it. Tenants with kids are naturally a little reluctant to rent a property with pale carpets. They already know their kids are going to spill things and cause stains. Likewise, old, faded or worn carpets are going to be unpopular with many tenants, as they may worry they’ll be accused of causing the pre-existing damage. Vinyl, floorboards or tiles are more hardwearing in heavy-traffic areas. This will mean less maintenance for you and less stress for the tenant. You also won’t have to worry about replacing hardwearing floor coverings between tenancies if you choose tiles or floorboards.
#12: Air Conditioning and Heating
A good air conditioning system is vital in properties located in warmer states. It’s also important for homes that don’t have outdoor entertaining areas. Ceiling fans can provide some air circulation, but they won’t actually cool down a hot house in the middle of summer. Installing a good quality air conditioner can help to entice tenants to pay a slightly higher rental rate. Adequate heating will be a consideration for tenants in some southern states, as it can get quite cold at night during winter.
#13: Car Accommodation
If you’re buying a house to live in, you’ll immediately consider car accommodation for your car and probably your spouse’s car. However, having a double garage under the main roof of the property won’t really increase your rental return much more than a property with just a carport. Tenants don’t always consider car accommodation to be an important factor in their choice of property. They may be happy to park in the driveway. Younger tenants may be happy to use public transport and not even own a car. Having said this, if you’re thinking of buying an investment property located on a really busy road or a main road, tenants will immediately think about how much off-road car parking is available. Access into the property will also be a factor, especially if the road is a major arterial road with access from one side of the street only. You could find that a property located on a busy road may be less desirable with tenants for these reasons, regardless of what type of car accommodation is available.
Female tenants are generally more concerned with security features in a property than male tenants. Security doors and windows with key-locks will appeal to them, especially if there are children in the house. Yet, the addition of a security system or alarm system will not always equate to getting a higher rental amount in return. The tenant may appreciate the security feature, but it won’t represent value
Most tenants will view the number, type and condition of the appliances available in the home they want to rent. Obviously, a stove and oven in good working order is necessary, but gas cooktops are preferred over electric or ceramic cooktops. Stainless steel appliances tend to attract a slightly higher rent, as tenants may view these as better quality Some tenants will happily pay a little more for a property that features a dishwasher. Premium appliances will attract premium tenants, especially in the higher rent ranges. These can include things like in-built fridges, wall-ovens, dishwashers, reverse cycle ducted air conditioning, and instantaneous hot water systems. However, it’s important to remember that any appliances you include with the home are the landlord’s responsibility if they need repairing or replacing.
Renting a home that includes furniture can be a good way to increase rental yields. Unfortunately, the number of tenants seeking a fully furnished property is lower. This can mean your property may be more difficult to rent out, which can translate into longer vacancy periods. Before you think about renting a furnished home, think about your intended rental market. Students may prefer full-furnished accommodations, as will short-term rental tenants seeking holiday accommodation. Some executive apartments may also do better as fully furnished properties.
Most landlords simply don’t want pets in their properties. Pets tend to leave odours in rooms and stains in carpets. They can ruin gardens and lawns, and noisy dogs or roaming cats can offend neighbours. Yet, some landlords love the idea of letting their tenants keep pets. Those property owners know they can charge a slightly higher premium for the privilege of having pets in the home. Some rental agents may even choose to charge a ‘pet bond’, to help cover the costs of steam cleaning carpets and removing any offending odours. The biggest benefit, however, is the fact that tenants find it more difficult to move when they have pets. They won’t be able to find a new rental property as easily, which keeps your vacancy rates low and makes it more tempting for that tenant to do the right thing by your property in order to remain there as long as possible.
#18: Solar Panels
There aren’t many rental properties with solar panels installed yet, but those that have them can expect a higher rental return, simply because the tenants get the benefit of reduced electricity bills. Some landlords are happy to keep the electricity bill in their own names, and rent out the property at a premium, as there are no electricity bills to pay at all for the tenant. The landlord is then able to keep any of the feed-in tariff amounts due if the panels generate sufficient energy to represent a credit. The idea of installing solar panels and working towards keeping the feed-in tariffs for power fed back into the grid should be discussed with your accountant and your property manager. It’s important to ensure that this approach is right for your property and for your intended tenants.
The 18 tips listed in this report are designed to give you more insight into how tenants view prospective rental properties. No matter which suburb of which major city, or regional centre you choose to buy your rental property, it’s always possible to add value to any property to help it earn the rent you want from it. Good luck with your investment portfolio and happy landlord-ing.