Setting the optimal rent amount

Updated: September 17, 2022

Quick Version

Overview

There is no magic formula for finding the right rental price for your property. You should closely examine comparable properties in the area to arrive at a base level of rent, then take into consideration items such as amenities, including utilities, competitiveness, and how much you are willing for the property to lay vacant. Psychological factors can also come into play.

As a landlord, putting a property on the market can be a stressful time. There are safety checks to conduct, prospective tenant visits, and a lot of paperwork. One aspect can be particularly daunting, but can make the difference between a tenancy that starts quickly and produces regular income and one that sits idle and loses money. Setting the best rental price carries a lot of considerations—however, it is an important step to take to ensure a successful tenancy.

Why is it important to set the right price? There is a balance to be struck against maximising rental income and not pushing away prospective tenants. In certain markets, there are a wealth of options for tenants to choose from, and they probably will not want to overpay. Likewise, setting the price too low might make your property appealing for the neighbourhood but can result in less rent collected overall. Ask yourself if your property is exceptional for the area or is fairly typical—tenants can easily spot features that make a particular property stand out, and if you are pricing all your properties the same regardless of their features, you may be losing income.

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The comparables

One way to anchor the property’s rental price is to compare it to other similar properties in the area, finding ones that are as close to yours as possible. Geography is crucial, as being in the same city or town matters but finding comparables in the same neighbourhood is even better. Other factors to consider are the number of bedrooms and bathrooms, whether it’s a single family or multi-family residence, and how old the property is, as prices tend to go up in newer construction.

Once you’ve found a few comparables, it’s important to make adjustments to the price based on the amenities and other differences in the properties. Not all one-bedrooms are the same. Major considerations include the view, with pretty garden views demanding higher prices than that of the car park; updates and upgrades, such as new appliances or hardwood flooring; the level of the property, with higher floors usually costing more except when walking up staircases plays a role; the property’s size; and factors such as closet spaces, balconies, and number of exterior windows.

You may wish to employ psychological tools when determining a property’s rental price. A property renting at £795 feels different to prospective tenants than a similar property at £800 due to perception biases toward leftmost numbers, and it may make the difference between your property getting multiple viewings and it sitting empty.

Other factors for setting the right rent

It would be great if you could maximise your profits on the property and charge as much as possible. But there are many other factors to consider that might make a slightly lower price worth it. For example, how much are you willing to let the property lay vacant? You should allow for less-than-100 percent occupancy when determining your revenue for the year, or otherwise think about lowering the price. Bear in mind that the average yield per month on a rental property is between zero and six percent and it may take many years before you will actually turn a profit.

Should you include utilities within the rental price? Some tenants see this as a value-add and are willing to pay more for the peace of mind of not worrying about extra monthly bills, while others will be scared off by the higher posted amount. Some different types of bills you might include are utilities such as gas, water, and electricity; council taxes; internet and/or phone service; television license; cable packages such as Sky or Virgin or even services like Netflix; and cleaning and maintenance fees. Students and younger renters in particular might value not having to pay bills separately, as they might not want the burden of having to split them fairly.

Are you being competitive within your area? If prospective tenants can find similar properties cheaper, chances are they will choose those first. It may be necessary to lower the rental price based on the current market even if you are aligning yourself with historical trends. Factors such as seasonality can make a difference here, with some areas demanding higher or lower prices during different times of year, for example at the beginning of the school term.

Finally, take into consideration how your property will appear on rental property websites. Adjusting keywords and search terms can help guide more people toward your property, and if more amenities are listed, a higher rental price can be justified.

While there is no magic formula for determining the ideal rental price, there are many ways you can look to other properties and make adjustments to ensure you are striking the correct balance. Search for comparables, make adjustments based on amenities, and make the best use of trusted resources like Sharehouse to find a price that’s just right.

Still Got Questions

FAQs

Where can I search for comparables?

Websites such as Rightmove and Zoopla will feature hundreds of properties available in your area, while local letting agents’ sites may also have similar properties on display. Other online tools like Openrent can help you make calculations based on postcode. For more resources like these, check the Sharehouse trust partnership network.

You can also visit local letting agents to see what’s available now, or you can canvass the neighbourhood to see what properties are available to rent and the prices that are being asked.

When can I increase the rent amount on an existing rental?

According to the government, a periodic tenancy’s rent can only be increased a maximum of once per year. For a fixed-term tenancy, rent can only be increased at the end of the fixed term or by agreement of both parties. Further, any increase is required to be “fair and realistic,” meaning the rental price must not stray too far outside the norm of other rental properties in the area.

What should I do if my property remains vacant?

During times between tenancies or during renovation, your property will be empty and not earning rent. Certain types of landlord insurance will cover empty property risks. Be sure to check resources such as Sharehouse to compare the different types of landlord insurance and find one that works for you.

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