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Should I rent my properties for less than market value?

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If you’re a new landlord, one important question you’ll need to ask is ‘how much should I rent my properties for?’ You’ll need to do plenty of research before you decide on a figure – ask too much and you might find it hard to attract tenants and be faced with an extended void period.

How much should I rent out my properties for?

So, what if you charge less than everyone else? Will undercutting your rival landlords pay off by bringing potential tenants to your home in droves? Will the lucky person renting a home from you at a bargain price be so grateful that they stay long-term?

Charging a cheaper rate may work in your favour, but there are other considerations. You need to make sure that you charge enough to cover your costs and bring in an income – otherwise what’s the point? We find out what you need to consider before setting a figure for your rental property.

 

Find out how much you should be charging

However, much you plan to charge in rent, you need to have a clear picture of the going rate for renting a property like yours in your area. Start by using a rent calculator tool to get an instant guide valuation – plenty of property websites have them, including this one from the HomeOwners Alliance.

Then set about researching what’s available with local letting agents – property portals like Zoopla and Rightmove are an easy way of doing this quickly.

While this research will give you an indication of rents in your area, you need to think about other factors too, including the exact location of your property, its condition, whether there’s a garden and what appliances and other features it has to offer.

If your home isn’t close to local transport links or is lacking the appeal of other properties in the area – if it only one bathroom, for example – charging slightly below market rent might be a good idea.

Whether you want to rent out your home as furnished or unfurnished is also a factor. Furnished places tend to demand higher rents.

Speak to some local estate agents too – they’ll be happy to give you a valuation, even if you don’t end up letting with them.

 

Calculate your rental yield

Rental yield is something that gets talked about a lot in the property world. It’s an important calculation because it is used to evaluate whether a buy-to-let property is a good investment.

If you wish to buy a property to let, most experts recommend you consider rental yield as more important than any money you might make from capital growth, particularly with today’s uncertain property prices.

Rental yield is a percentage figure, calculated by taking the yearly rental income and dividing it by the purchase price of the property, then multiplying this by 100. If you want to invest in property, a good rental yield is thought to be one of more than 7%.

For example, the average rent for a property in London is currently around £1,666 a month. That equals roughly £20,000 a year. If your flat cost £250,000 the rental yield would be

20,000 / 250,000 X 100 = 8%

 

Work out your costs

While rental yield is worth looking at, it is not the whole picture, so you should do additional calculations too. Work out how much the property is costing you each year in terms of mortgage payments, letting agent fees and insurance.

If you’re buying the property, you need to factor in property tax – the 3% second home levy on top of standard stamp duty could make this a considerable amount.

As a guide, estate agents usually charge around 8-12% of the monthly rent for a basic tenant-finding plus rent collection service and up to 15% for a full management service. Rates can be higher in London.

Remember that you will also need to pay tax on your profits at 20%, if a basic rate taxpayer, or 40% if you pay the higher rate.

In addition, you need to factor in maintenance and general running costs and leave some contingency in case you are faced with urgent repair bills or a void period – you may wish to take out a landlord insurance package that covers you for this, for a certain period.

 

Consider your options

Having been through the figures, you might feel you’re happy to let the property below market value – maybe to give a local family an affordable place to live in difficult times. You could contact your local authority, which may be looking at landlords who can help people currently living in temporary accommodation.

Alternatively get in touch with Assetgrove. Our guaranteed rent scheme provides you with a fixed income for up to five years. Find out more or contact us today.

Neil Jennings

Neil is the Operations Director at Assetgrove Lettings, London's Leading Rent Guarantee Company, providing Landlords with no voids, property maintenance, fee-free property management and stress-free service.

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