Working out the right rental price for your property is one of the hardest decisions you’ll have to make as a landlord in property development. You want to make your investment worthwhile, but charge a price that is still attractive to potential tenants.
The average rent across the UK differs depending on location, so this should be the first thing to look at – both before purchasing an investment property and when deciding on rental price. According to The Guardian, in February 2017 the average rent in Britain was £921 a month. However, these figures also showed that the average rent in London was £1,246 per month and the average rent in Wales was £636 per month – so it can differ greatly by region.
Here at Nick Fox Mentoring, we want to make the process of deciding on a rental price easier for you. So here are a few things we recommend you consider when coming to your decision:
1. Decide on the type of tenants you want in your investment property.
There are several options for tenants when it comes to renting out an investment property. We mainly focus on HMO (House of multiple occupancy) here at Nick Fox Property Mentoring, but there are several other options such as renting to a family. This decision has a big influence on your rental price, as obviously for a HMO the rent is split between the individuals. Whilst you usually gain more money from rent focussing on HMO’s, you have to remember the additional running costs (such as your time, paperwork, finding tenants etc.) that comes with it.
2. Look at other properties up for rent in the area.
There’s no point trying to charge a tenant £1000, when they can get a similar offering down the road from yours for £750. That applies in all businesses! It’s a good idea before even purchasing a property to have a look at the rental yield you could earn, as this should be taken into account when considering how much you would pay for the property. If there is a lot of competition for tenants in your area, try to offer something your competitors are not to attract people to your property.
3. Consider all the costs when working out your yield.
Say you were charging £500 a month (£6000 a year) on a £90,000 property, your yield would be 6.7%. But in reality, this is not the profit you’ll be taking home. Most people will take out a mortgage to invest in a property. Therefore, to calculate your predicated yield you’ll need to subtract mortgage payments from the rent you’ll be getting first. There’s other things to consider too, such as mortgage fees, stamp duty, other legal and survey fees. Even after you have dealt with this, they’ll be on going costs such as insurance, maintenance and letting fees that should all be considered. Take into account all these costs before deciding on your final price to ensure your investment is worthwhile.
We hope you have found this advice useful and it has helped you with deciding on rental prices for your Buy-to-Let properties. If you’d like further information on this area get in touch with our team to discuss the training, mentoring and advice on property investment we offer here at Nick Fox Property Mentoring.
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