For years, landlords could set their rental price without much worry. Because of the abundance of tenants, properties got filled quickly, with years of escalations to follow. Recently however, prices have come under pressure due to several coinciding factors. The tables have turned and there is now an abundance of properties for tenants to choose from, meaning they can easily ask for lower rentals. In this environment, it’s difficult for independent landlords to know how much rent they can reasonably charge while still filling their property swiftly with a reliable tenant. The following five steps will help you navigate these market dynamics.
1. Calculate your yield
First of all, consider your bond repayment and costs such as levies, taxes and rental agency fees. Ideally you should add about 12% buffer onto that for unexpected expenses such as maintenance emergencies and vacancies. This gives you your preferred price.
2. Do some market research
Now, you’ll need to check if this price is within range of the current market ‘rental value’. Go to an online marketplace such as Gumtree or Property24, and enter the search criteria matching your own property. Browse the results to see what similar properties in your neighbourhood are charging. Ideally, you want to be at or under that average price. But beware, these listings only show you the asking price, not the price at which the properties eventually got rented for, so they may still be inflated.
3. Test the market
Post your listing and see how many tenants respond. Typically, if you haven’t had more than 5 responses in the first week (assuming you have beautiful photos and a detailed description), your property may be overpriced. Act swiftly to adjust your price, and do so in large enough increments so your advert lands in a new price bracket. The earlier you list your property, the more time you have to adjust before the occupancy date. If you list with HouseME, they have a digital two-way auction that allows tenants to place competing offers on your property above or below the asking price, giving you a sense of the current market value in real time.
4. Reassess your costs
If you’re struggling to find tenants at your preferred price, let’s look at how you can lower it. Some questions you might ask yourself: does the interest rate change allow you to pay less on your bond? Could you refinance? How much could you afford to self-finance in case the rent doesn’t quite cover the bond? Can you save costs on agency fees by switching to a digital renting platform like HouseME? Do you have funds set aside to self-finance one or more months of vacancy? Arrive at the minimum price you can afford to charge, and keep that in your back pocket.
So you’ve found a tenant who is interested, but wants to negotiate. If you’re already at your minimum price, there are other concessions that could sweeten the deal. For example, the tenant might like some maintenance done before moving in, or access to fibre internet. These are worthwhile once-off costs in exchange for a steady income. Tenants are also sensitive to upfront payments. Consider switching to an agency with lower tenant fees, or if the tenant is in good standing, waive part of the deposit. The one thing you don’t want to compromise on, however, is the tenant’s affordability. Run a thorough credit check to prevent any trouble later on.
In conclusion, advertising at the right market price and being open to negotiate are key to finding and retaining a great tenant in a terrible economy. Although you may need to compromise in the short term, supply and demand is bound to stabilise, as is the Covid-19 situation, so this is likely only a temporary situation. If you’d like more help pricing your property, vetting your tenants, or getting your rent guaranteed, go to www.house.me to see how we can make renting more affordable for you.
This post and content is sponsored, written and provided by HouseME.