If you are not achieving the price that you want for your home, you may be thinking about renting it out, especially if you want to move. Or it may be that you need to move away for a period of time for work or otherwise, but since you intend to return, you want to hold onto your property. Renting it out in the interim means that you can at least earn some rental returns on your asset.
An empty house is also a security risk. Whatever the reason, rental agents from the Seeff Property Group say a competitive and market-related rental rate is vital to keeping the property occupied and ensuring you achieve the objective of earning a return on your investment. The amount that you can charge will affect the return that you can earn.
It is important to note that not all properties are suitable for rental and may also not achieve the desired rental rate. You should therefore always research this before making the decision, says Seeff. If the rental rate is too low and the property is bonded, there may be a shortfall. If the rate is too high, you may not find a suitable tenant and risk the property standing vacant. Any empty property is costly and eats into profits.
Scarcer rental properties in desirable locations attract higher rents while an oversupply drives down rental rates. Setting the rental at the correct rate is, therefore, a vital prerequisite. Factors that will influence the rental rate include:
Property prices – rental rates differ depending on the area with some achieving higher rents compared to other areas. Properties may also differ within the area. You need to set a rate that is competitive in relation to other similar properties in the particular area.
Location and amenities – popular areas attract higher rents due to higher demand. Tenants usually look for convenient amenities such as shops and schools as well as easy access for them to get to work or other needs.
Accommodation and finishes – the age, size, and condition of the property play a role. Security, garaging and safe parking, a swimming pool, a neat garden, and low-maintenance requirements are value-adding factors. Excessive bedrooms and finishes do not necessarily result in a higher rental rate.
Economic cycle – the rental market fluctuates with the economy. During a boom, landlords can charge higher rates, while the inverse applies in an economic slump. Financial pressure on tenants and their ability to pay puts downward pressure on rates that may either need to come down or remain flat.
Breakeven would be where the return on investment is at zero, meaning you are not making a profit, but also not making a loss. If follows that anything above breakeven would be a profit, albeit that it might be less during a weak economic phase.