finweek

How to determine the rental price of your investment property

(iStock)
(iStock)

Buyers looking to purchase an investment property to rent out often have difficulty determining the accurate rental price.

There are many factors to consider, and if you don’t assess your property value correctly you could end up over- or undercharging and neither are a situation you want to be in.

The accepted calculation standard for a long time has been to charge up to 1.1% of the property’s value in relative terms. Take note that as the property’s value increases the percentage of rental yield decreases because of the low demand for rental in high-value properties. In some cases rental price can go as low as the 0.7% mark.

A lot of other variables need to be taken into account, with one of the most important external factors influencing rental price being the location of the property.

Suburb, sea views, amenities, schools, business districts, transport routes all play a major part in the demand for a rental property and often we will see homes of equal value and characteristics several kilometres apart charging completely different rental prices due to their location factors.

Another key variable is supply and demand and, depending on the current trend, this will have a definite effect on your rental price.

Once you’ve assessed the advantageous features of your property you need to research property comparisons in your area to get an idea of what the local standards are. Browse listings of estate agents or property portals and locate properties of similar value and features.

In addition, give the local estate agent a call; if they’re worth their salt they’ll be able to assist you and give you a great idea of what rental income you can expect. Consider every little detail.

Internal factors need to be assessed in conjunction with elements out of your hands, such as the condition of your property. In this instance you need to be very honest with yourself and identify any issues a tenant might have; cracks in the wall, paint peeling, cupboard space, kitchen size etc.

You have to view your property through the eyes of somebody wanting to walk in and call your place home.

Calculate your bond repayments, levies and other expenses and compare them to a realistic rental income; this way you can determine what you can afford as well as decide whether you should let the tenant pay for water and electricity or if you’re able to absorb some of the costs to make the property more appealing.

Once you’ve evaluated all these guidelines and determined a price, gauge the ad response and demand for the property to assess whether your rental expectations are too high or too low.

Demand is a great indicator of your property’s value as many tenants are knowledgeable of what realistic rent prices are.

If the ad response is very bad, and you’ve ticked all the necessary marketing boxes, then maybe you’ve overestimated the rental price. Reassess and adjust your rental expectation slightly lower and then see what the response is.

If, on the other hand, you get a huge response and are inundated with enquiries you can afford to push the price a little higher. 

In conclusion, all of these guidelines are only a drop in the ocean in comparison to the knowledge worthy estate agents have. Finding a local estate agent to assist you in managing your property is undoubtedly still the best option. They will not only accurately measure your rental income, but ensure all the legalities are followed and tenants are managed professionally and lawfully.

*Richard Gray is CEO of Harcourts Africa.

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
USD/ZAR
14.05
0.0%
GBP/ZAR
19.67
0.0%
EUR/ZAR
17.10
0.0%
AUD/ZAR
11.03
0.0%
JPY/ZAR
0.13
0.0%
Gold
1,831.32
0.0%
Silver
27.45
0.0%
Palladium
2,929.64
0.0%
Platinum
1,256.50
0.0%
Brent Crude
68.28
+0.3%
Top 40
62,573
+1.4%
All Share
68,520
+1.4%
Resource 10
71,474
+2.1%
Industrial 25
86,856
+0.9%
Financial 15
12,711
+1.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
Yes, and I've gotten it.
21% - 1387 votes
No, I did not.
52% - 3460 votes
My landlord refused
27% - 1836 votes
Vote