Landlords: How to Set Your Rental Rate
Published on December 31, 2023 by Sarah Mac
One of the most common quandaries for landlords is how much rent to charge. Naturally as a landlord, you’ll want to generate a good yield on your investment, make sure your costs are covered, and attract tenants who stay for the long term. Finding that balance in terms of rental rate is never easy, and there is a great deal to consider, especially if you’re new to the game.
In this post we are delving into the factors that will influence how much rent you can realistically charge, as well as looking at how to determine a fair rental rate.
Property location
Property location is one of the biggest influencers of rental rate. The area in which your rental property is situated will determine its ceiling price.
Major cities like London tend to command a higher rental value than the suburbs or smaller towns or villages, for example.
However, where the property is located in terms of amenities and transport links, as well as whether it’s in a commuter belt, will also play a major role in how much rent you can charge.
Well-rated schools, vibrant town centres, plenty of leisure facilities, hospitals and universities, major rail and road connections and proximity to enterprise zones where there are lots of job opportunities will all affect the rent-ability and rental income value of your buy to let property.
Property type and size
Detached and semi-detached houses will generally attract a higher rental rate than terraced properties, apartments and flats. But size matters, so looking at the square meterage of a property is a good place to start.
Number of bedrooms will also directly influence how much you can charge for rent.
Property condition
A modern property that’s been well-maintained, or an older property that’s been sympathetically and professionally renovated, will prove more of a pull for tenants, as well as attracting a higher rental value.
Furnished or unfurnished
The convenience of moving into a furnished rental property is enough to convince some tenants to pay a higher rental rate. However, some will prefer a blank canvas that they can move their own furniture into.
First time renters often appreciate a furnished property, and landlords can charge more for the privilege. Good quality furniture is a must, however, not just for its longevity, but also for its aesthetic appeal.
Be sure to factor in the costs of repairing or replacing furniture if renting furnished, however, and remember that you’ll need contents insurance to cover it too.
Read the guide: To Furnish or Not to Furnish
Property features
Things like high speed broadband, smart security and smart home controls, parking and outdoor space will make a property more attractive to tenants, as well as attracting a higher rental price.
Property market factors
The state of the property market will also be a major influencer of rental rate. Demand and supply varies considerably from one location to another. Some areas can be considered a ‘landlord’s market’, where there is so little property available for rent and such high demand that landlords can literally charge what they like.
On the other hand, other areas may have a surplus of rental property and fewer people looking to rent, which will drive down the amount you can realistically charge.
Rental yield
You will of course want to make a profit from your buy to let investment. After all, that’s what it’s all about.
Rental yield is the ratio of what you invested against what you are making.
To calculate rental yield, divide your annual rental income by the total value of the property. The value includes the initial purchase price, plus any improvement costs already incurred or expected in the future.
Yield can be calculated as net or gross. Net yield includes the running costs and additional expenses associated with the property, whereas gross yield only looks at the property price and improvement costs.
Read the guide: 7 Ways to Increase Rental Yield
How to achieve the best rental rate possible
There are lots of ways in which a landlord can boost the rent-ability of a property and increase the rental rate chargeable.
Invest in a good maintenance and upgrade plan
Well-maintained rental properties attract a better class of tenants, as well as justifying a higher rental rate.
Put a regular maintenance schedule in place so that any problems are addressed quickly. Regular mid-term inspections will help you keep on top of any developing issues.
Pre-let or at the end of the tenancy, investing in a good quality refurbishment and replacing furniture and appliances will go a long way to enhancing the appeal of the property and its ability to rent at a higher rate.
Put tenant-friendly policies in place
From flexible lease terms to allowing pets and children, there is plenty you can do to make your rental property more attractive to tenants who are willing to pay more for such privileges.
If you are allowing pets or children, be sure to establish clear guidelines and decide whether you will charge any additional fees or deposits to cover any repair costs.
Provide outdoor space
Any sort of outdoor space will appeal to tenants, especially those with families. Whether it’s a garden, courtyard or balcony, anything that allows people to spend time outside will add value to a property.
Be sure to set clear guidelines as to who is responsible for the upkeep of the outdoor space, and what everyone’s respective duties are.
Read the guides:
A Landlord’s Guide to Garden Maintenance
How to Attract Tenants with a Well-Tended Garden
Improve energy efficiency
Making energy efficiency upgrades to your property will appeal to tenants who are looking to keep a check on utility bills, as well as those who are concerned about the environment.
A higher Energy Performance Certificate (EPC) rating demonstrates greater energy efficiency, and can be an effective selling point when it comes to setting rental value.
Consider investing in the likes of double glazing, insulation, energy efficient appliances, LED lighting, and renewable energy sources, such as solar panels. It’s also worth considering replacing old style boilers with a combi boiler or air source heat pump to improve energy efficiency.
Read the guide: How to Make Your Rental Property Even More Attractive to Tenants
In summary
From location and property size to features and rental yield, it’s vital to factor everything in when determining rental value, and use proven strategies to boost your property’s rent-ability, and achieve a higher rental rate that attracts quality tenants.
Be sure to keep yourself informed about local property market trends, and continue to enhance your property for the best chance of long-term success as a landlord.