Aaron Bell
Georgia Rose
When renting out your investment property, striking a balance between fair and profitable rent can be challenging. Charging too little could mean missing out on income, whereas charging too much could lead to long periods of vacancy as tenants find better value elsewhere.
3 factors to determining how much rent to charge
1. Your property’s physical value
To determine the rental value of your property, you need to consider:
Location
In simple economic terms, supply and demand influences the value of a property. Properties close to city centres, universities and major employers can experience higher demand, leading to increased rent. However, if a rental market is oversupplied (e.g. a surplus of apartments), it can push rental prices down.
In addition to these economic factors, an area’s crime rates, shopping facilities, public transport, parks and schools also influence the rental prices.
Take a close look at your area and note down the services or landmarks that add value.
Property type
Houses, apartments and townhouses all have different features that appeal to different tenants. For example, an apartment may not have laundry facilities in the unit, but a house typically does. Knowing what’s expected from your specific type of property can help you price it more accurately.
Additionally, the size of the property and use of that space will influence rental income. More bedrooms and space typically means more rent.
It’s also important to consider the target market that aligns with the location and the property type. For example, apartments close to universities may attract a higher demand from students and young professionals, but less demand from families.
Property condition and features
Older properties with structural issues may deter potential tenants, while new appliances, air conditioning, balconies or gardens can translate to higher rents. Investing in upgrades could increase the value of your property moving forward.
Special features can also help attract specific renters willing to pay top dollar. For example, a carport with a lockable gate may be worth more to tenants with a vehicle than tenants without.
Similarly, a pool could be an attractive feature to a young family, whilst someone who travels for work may not see the same value.
Did you know?
You can choose to pay a property manager to deal with the advertising, inspections, rental applications and ongoing communication with tenants. These property managers can charge anywhere between 5-10% of the monthly rent for their work. A good property manager can help find and retain quality tenants, saving you money in vacancy periods and providing ongoing stability in your rental income.
2. Your outgoing costs
If you have a mortgage on the property, you’ll want the rental income to be higher than your repayments in order to make a profit. You should also consider any ongoing expenses that come with owning a property, such as:
- insurances like home and contents coverage
- body corporation costs
- property management fees
- ongoing maintenance costs
- utilities not covered by the tenant
These expenses can influence the amount of rent you need to charge.
Alternatively, you may choose to ‘negatively gear’ your property for tax purposes. This involves keeping your rental income lower than the interest you pay on your mortgage so you can claim a larger deduction.
3. Rents of nearby properties
Look at what similar properties in the area are being rented for to get an idea of the current market. You can find this information on websites like realestate.com.au and domain.com.au, as well as through independent real estate companies that operate in the area.
It is helpful to monitor the market over time. For example, if you notice a property has remained unrented for a long time, this could mean the rent is too high. You may discover your property is one of few that offers a unique feature, like air conditioning or private parking, giving you an edge when it comes to pricing.
Median weekly rents per region
While these figures should be taken with a grain of salt, median rents can give you a better idea of what people are paying in your region.
| Region | Median weekly rent |
|---|---|
| Sydney | $770 |
| Melbourne | $589 |
| Brisbane | $649 |
| Adelaide | $589 |
| Perth | $669 |
| Hobart | $547 |
| Darwin | $617 |
| Canberra | $674 |
| Combined capitals | $659 |
| Combined regionals | $540 |
| National | $627 |
Source: CoreLogic
🤓 Nerdy Tip
Consulting with real estate agents, property managers, appraisers, accountants and tax experts can help you get a better idea of the market and how best to rent your property. Depending on where you’re based, you can find resources for private landlords on local government websites.
Tips for charging a fair rental price
- Talk with property managers: An experienced property manager may be able to give you honest feedback about tenant screening and market conditions, and let you know if the rent you are asking for is within a fair price range.
- Stay flexible: As market conditions change, how much you charge for rent may change too. As tenants leave, you should reassess if the advertised rent should be higher, lower or the same based on these changed conditions.
- Understand the laws: Each state and territory has different laws about rental increases. Knowing these laws will help guide your decisions on when to increase rent and by how much.
- Gauge market response: When you advertise a property with a set rental price, how the market responds will give you an idea of how fair it is. For example, you may advertise your property at $500 per week and receive hundreds of applications, strongly hinting that the property is undervalued. If, on the other hand, you advertise at $700 per week and receive no applications, it probably means you’re asking too much.
Options if your property won’t rent
- Increase your reach: Depending on your situation, you may benefit from increasing your marketing efforts through rental agencies and online platforms like domain.com.au or realestate.com.au.
- Expand your client base: It is possible your screening process is too restrictive. Opening the property to renters with pets, flexible lease terms or a lower bond may attract tenants who were previously unable to apply.
- Make improvements to the property: Painting the interior, replacing old furnishings, installing energy-efficient appliances or new flooring, as well as renovating outside spaces, may increase the appeal.
- Consider short-term rentals: If long-term tenants are not biting, moving to short-term platforms, such as Airbnb or Stayz, could be a better option than the property sitting empty.
- Decrease rent: Decreasing rent will mean less income, but it may be necessary if you are overvaluing the property.
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