Show me the money – How much rent should I charge?

rental income

So, you’ve just became the owner of an investment property and you’re ready to rent it out. Great!

First things first, how much rent can you achieve? This is the part where it gets interesting. I heard a fairy tale about Property Manager’s referring to the magic chart which determines the exact rent to the cent of any property in any suburb however I am afraid that’s all they are, fairy tales. You may be surprised to hear that there’s scientific approach to determine the rental value, it is not a ‘feeling’. This is one of the hardest things new, and even some existing, owners find difficult to understand. Emotions towards a property are subjective and therefore do not affect the value.

Traditionally there are two ways to ‘appraise’ a property for rent; Direct Comparison and Comparative Appraisal. The first method is quite simple, find a property exactly the same and compare its rental income. The difficulty with this method is that you are immediately limiting your comparable evidence. The only instances where this system is possible is when there is a very newly established suburb with similar construction, of a large complex where a lot of residences become available at the one time. Even here it is very time sensitive as comparable properties can change very quickly in a short space of time.

The second, and most common method is the comparative method. I like to think of this method a bit like the Chuckle Brothers (To me, to you.) It’s all about give and take. This method involves comparing particular elements of a property being size, location, ancillary improvements, and conditions, and making ‘trade-offs’ based on the features. You sometimes have to compare apples with pears.

Let’s look at an example, there are two properties side by side, A and B, built identical by the same builder, and then sold to two different owners. The owner of A decides to leave the interior as is however installs a pool to the rear. The owner of B decides to install reverse cycle air conditioning, an alarm system and solar panels. The cost of both was around the same. In this situation it would be reasonable to assume that these properties can achieve the same rental income. The difficulty with this system is you do have to be stringent sometimes, particularly when it comes to location. There may be two properties in the same suburb with appear to be around the same rental value however one of them falls in the catchment area of a prestigious high school and the other does not. In this instance it is likely the property in the catchment area would achieve more in rent.

There are also other factors which affect the rental of your property which have to be considered when marketing for rent however these will be discussed in a later blog.

For an in depth appraisal on your investment property call Rentwest Solutions for expert advice.