A guide to rental rates
The key to a landlord succeeding with a rental property begins with introducing a low rent rate that attracts good tenants at an affordable price. Determining the right rental price can be difficult.
Charging higher for rents, usually this means you’ll have a higher the vacancy rate.
You want to generate a monthly rental income, but most importantly, you need to find the appropriate rent. Searching online on property websites can give you a variety of information.
How is rental value created?
Rental value is based on the size of your property relative to others in your area and how people would like it to be modernised. For example, if you have a three-bedroom house with one bathroom that needs updating, then someone will want this for their family (bigger space & 2 bathrooms).
Someone else may only need one bedroom and don’t care about renovating because they are not going to live there for long. Both tenants will pay different prices depending on what they want!
What’s a rental yield?
In property investment, the rental yield is the return you receive on your investment. It’s simple to calculate the rental yield. If a property is worth £100,000 and you’re renting it out for, let’s say, £5,0000 per year, then your rental yield is 5%. It’s the amount of rent in relation to the purchasing price.
Can I rent my home out while I find a buyer?
As a short term solution, the lending agent may grant permission to let. This allows you to allow your house for a maximum of a 12-month period and maintain an existing mortgage.
If your lender is willing to allow you, this could be a good solution if you think the local market will improve in a year and you plan to bring the house back in for sale. You can also transfer your residential mortgage to a buy to let mortgage.
What can be the effects of charging too much rent?
More than likely, tenants will not want to live in your property if it is too expensive. They would probably rather find an alternative. Charging higher rental prices are often associated with higher levels of tenant turnover.
What can be the effects of charging too little rent?
If you charge very low rent, then it may attract people who will cause problems for you (that’s why there are often restrictions by law about how much can be charged). You might not get your property back when you needed to sell either because no one would buy it or because the residents won’t vacate the proeperty.
Key factors to consider when setting your rental price.
- Condition of Property: How modern/old is the house? Does it have all new kitchen appliances or just a gas cooker & cold water tap? Have all windows had blinds fitted or just one set per window?! They may seem trivial but there’s many factors that influence rental prices.
- The number of Bedrooms & Bathrooms: – Is there just 1 or 2 bedrooms? Or maybe there are 4?! The more bedrooms and/or bathrooms, the better. Even if the property was identical to one with less, people would be willing to pay more for a higher number. I’ve seen three-bedroom houses let for almost double the price of one bed! Obviously, this doesn’t mean you should try charging more than what other properties in your area are achieving, but it’s something to take into consideration.
- Time of year: Is it peak renting season or low demand? At peak times (summer & Christmas), there is more demand, so you can charge more. However, at quiet times you’ll struggle to fill it, so perhaps think about lowering your price a bit.
- Length of Tenancy: – A 12-month tenancy will let you achieve more than a six or 9-month tenancy. If people have to move out after six months, they probably won’t get the same rent again from somewhere else because they only moved in recently. By getting more for their money, you’re reducing their financial stress of moving, and if it’s been made clear from the start that your property is for 12 months, then it’ll be less hassle for them!
- Furnished / Unfurnished: Is your property furnished or unfurnished? If there is furniture in each room and carpets on the floor (which make rooms look bigger & brighter), this can give your home an edge on similar properties. Of course, if you’ve got an unfurnished property, then you’re going to have a much easier time managing the tenancy and getting it back in good condition, but you will get less if it’s not furnished.
- Security Deposit: How much of a security deposit do you want? This depends on how much risk you think your property is exposed to (i.e. tenants may be more likely to leave at short notice or damage something). Tenants tend to put down three months rent as security which would cover most replacement costs for average-priced items such as TVs, carpets etc. If you take this option, then the tenant pays more in total, but that’s okay because they’ve saved months in rent and can move into a new property straight away!
- References: Do you want all your tenants to provide references? Most do not, but it can be very helpful if they have had good students, workers or business owners as tenants in the past. This is because they are likely to pay rent promptly and on time (if not early even). If someone has bad credit, then it doesn’t necessarily mean they will fail to pay rent, but they will cost you money by having to spend hours chasing them up every month. It’s also nice for your tenant to know that you’ve taken the extra steps required with their reference (even though it is not legally needed); this could make the difference between getting the house & missing out.
- Do you want to allow pets on your property?: Allowing pets could open the door to a greater audience, especially with many people deciding to get pets after lockdown. People with pets can often stay longer, so it can be a wise choice if the tenants look after the property.
- Does the rent more than cover mortgage payments? The rental rate should ideally be around 30% higher than the cost of the mortgage.
Location – Is the property in an “up and coming” area? Or is it in a highly sought after location? Higher tenant demand = higher prices. I would recommend looking at the typical rent values for similar properties (size, condition etc.) to get an idea.
What are rental property values like in the local area?
The best way to find out what prices are like in your area is to look at Rightmove and Zoopla. This will tell you how much similar properties got rented out for and the average price per month (in several different areas).
If yours is much cheaper than other nearby houses, then there could be a reason for it! For example, if no one wants to rent your house because it’s very small or badly located, then think about having it renovated or selling instead of trying to let it out.
Also, check Rightmove every now and again as rental prices change all the time! It doesn’t hurt to try putting up your advert slightly higher either but do not expect miracles; the same houses tend to get rented at around the same price every year.
Why consider a 12-month tenancy?
Having a 12-month tenancy can give you more control over your property, make it easier to manage and helps with budgeting for the future. Most people prefer long term tenancies because they want security from their home and settled family life in one area.
Obviously, renting out a house for longer is also going to generate a more stable income but do not expect miracles by having it up for sale instantly! You can’t put an exact time on how long it will take to find someone, but things like location and price are huge factors that affect demand.
Remember, though, if you lower your prices too much, then you’ll be back at square one with tenants leaving after six months instead of 12, so think carefully before making a final decision.
I’ve listed my property on Rightmove, but it hasn’t been rented out yet! What should I do?
It takes time to find a tenant, and not everyone is going to make a decision straight away. You could also be unlucky with timing as the house may have been rented out just after you put up your advert; if there were other properties available nearby, they saw first.
Try not to stress too much as most people will wait until they come across what suits them best instead of rushing into something that isn’t right for them or their family.
Spend your time creating a high-quality description, good quality pictures and giving all the necessary information so tenants can choose properly between different houses they are considering renting. This will increase your chance of finding good tenants and could save you time as well.
The best way to find out if a 12-month tenancy is right for you or not is to try it for a year at least, then review the situation afterwards.
It’s easier than trying to sell and buy again, so it does no harm and will give you experience moving out anyway! Just think carefully about what your plans are for the future because things can change quickly, and the next minute, you may be glad that you had longer in the house after all.
What else can i be doing?
Spend some extra time showing around your tenants when they first arrive, checking everything is working okay (if not, then fix it), giving them useful information about their area, local amenities and travelling to/from your house.
It sounds common sense, but I’ve known several landlords who think they’re better off avoiding this because it takes up time when you could be doing other things.
Not only is it likely they’ll leave good reviews if you do nice things for them (which could attract future tenants), but that little extra attention shows them that you care about the property and are there for support whenever needed.
What if my tenants don’t pay?
An eviction usually takes around three months!
If there’s no valid reason why they haven’t paid rent (e.g.. job loss), then they must leave the property once enough notice has been given (if not, then go through formal procedures).
If they refuse to leave after the notice period has ended, a court order will make them go. You can also sue for any money lost as a result of rent not being paid if you choose to do so (e.g.. if bills weren’t paid and you had to sort it out yourself).
How much should I charge for rent?
You should set your price according to market value based on similar properties nearby that have been rented out recently. This is because people want somewhere cheap but won’t settle for somewhere which isn’t up to standard.
That usually means where something is situated, what condition the property is in and how big/small it is all affect its rental price, so each case varies a. Rightmove is good to find out what others in the local area are being rented at, but you should do some research online and by speaking to local letting agencies.
Make sure you have a clear tenancy agreement that includes all essential information such as how much rent needs paying, when it is due, details about who is responsible for repairs etc.
Tenants can refuse to pay if they feel their deposit hasn’t been protected correctly or that the terms in the contract were unfair (e.g.. the wrong amount of notice given before entering the property), so make sure everything is in order before starting the tenancy.
How to keep tenants happy?
A lot of letting agents will tell you that all their clients want is someone who pays rent promptly and doesn’t meddle with anything in the house, but it’s actually more important than that. If you want to keep good tenants, then you should always be there for them whenever they need help or advice about something.
For example, give them details about handymen in the area who are cheaper than what an agency may charge, show them how things like heating systems work when they first arrive, explain how to get in touch with you if they experience any problems etc.
You should also make sure the house is always clean and tidy when new tenants arrive (e.g.. change bedding/linen after guests leave), be easy to contact by lettings agencies or tenants, keep on top of repairs and don’t charge ridiculously high prices for bills not included in rent (e.g.. council tax).
If your going away for a long time or simply don’t have the time to deal with a tenant’s problems, then a letting agency may work better for you as they can vet potential tenants and take care of all communication between them instead of doing it yourself.
However, most agents will charge you higher fees (so it would be more expensive), and you’ll also probably have to pay them even if there’s no tenant in the property. You may also find that they’re only interested in managing your property if it is very profitable for them, so they won’t work with you on alternative payment structures or rent prices.
Take a look at the rental market in the local property market.
The rental market in your area will help you see what letting agents are charging for monthly rent in properties similar to yours, helping you to create an average rental value.
How much rent should I charge? FAQS