How much rent to charge for your investment property

How much rent to charge

Working out the right rental amount is crucial to the success of your investment strategy.

Setting the rent on your investment property has a huge impact on the performance and overall viability of your investment. You want to maximise the income you can earn each week and therefore increase the return on your investment, but at the same time you don’t want to price the property out of range for potential tenants.

Deciding on the rental amount is a difficult process and there are plenty of pitfalls you should avoid, so read on to find out how you can determine how much rent to charge your tenants.

How to decide on a suitable rental amount

You’ll need to consider the following factors when setting the rent on your investment property:

  • Look at the market. What are the median rental prices in your area? Also, look at population statistics and trends to help you figure out what rental supply and demand is like in your area.
  • Look at your property. Consider the type of property, number of bedrooms, features, parking options and overall condition of your property. These factors can all have an impact on your rental amount.
  • Compare apples with apples. Look around at other comparable properties in your local area to gauge how much rent could be suitable.
  • Consider your expenses. While the rent shouldn’t be determined based solely on your need to cover all the expenses associated with your property and still be able to generate an income, you’ll need to take this into account to determine the viability of the investment.
  • Get an independent assessment. An independent rental assessment can ensure that you charge a fair price for your rent. “
  • Get professional help. As well as seeking an independent assessment, you should consult a property manager and a financial planner to help you set your rental amount to ensure that it suits your investment strategy. Make sure to hunt around for a property manager you feel comfortable with and who has excellent local knowledge — experience can be worth its weight in gold.
  • Adjust the rent. Don’t simply "set and forget" the rental amount; stay up to date with the rental market to work out if you should make an adjustment to maximise your rental returns. For instance, if property prices in the suburb surge by 10% over a 5-year period, you may want to consider charging a higher rental amount to reflect the market conditions.

Property investor? Compare landlord insurance policies and protect your investment

Details Features
Landlord Insurance
Landlord Insurance
Save 15% when you purchase online.
  • Tenant default cover if tenant stops paying rent
  • Optional cover for theft or malicious damage by tenant
  • Cover for fire, storm or rainwater damage
  • Cover for loss of rent if home is not fit to live in following an insured event
Go to site More info
Landlord Insurance
Landlord Insurance
15% off for your first year. Promo code: COVER
  • Flood, fire, theft, and storm cover
  • Cover for burnout of electric motors
  • Optional theft and malicious damage by tenants
  • Optional cover for loss of rent
Go to site More info
Landlord Insurance
Landlord Insurance
Save up to 10% when you purchase cover online.
  • Cover for malicious damage and theft by tenants
  • Up to $20,000 rent default and legal expenses
  • Cover for natural disasters and impact
  • Cover for damage caused by burst or leaking water
Go to site More info
Home and Landlord Insurance
Home and Landlord Insurance
15% online discount. Earn 5,000 Velocity Points when purchasing a new eligible policy by 14/01/19. T&C’s apply.
  • Cover for loss of rental income
  • Cover for loss or damage to fixtures and fittings
  • 21 day money back guarantee if a claim has not been made
Go to site More info
Landlords Insurance for Strata
Landlords Insurance for Strata
Landlord insurance tailored to apartments, units and townhouses
  • Cover for loss of rent and rentable value of your proprerty
  • Cover for tenant theft and/or malicious damage
  • Cover for accidental loss and damage to landlord contents
  • 10% discount before December 31
Go to site More info
Landlord Insurance
Landlord Insurance
Cover for investment property from fire, theft and numerous weather events.
  • Cover for loss or damage by theft, attempted theft
  • Storm, including lightning, wind, hail and snow cover
  • Cover for burnout of electric motors
  • Cover for loss of rent
Go to site More info
Landlord Insurance
Landlord Insurance
Buy online and save up to 10%.
  • Flood, fire, theft, and storm cover
  • Cover for loss of rent
  • Optional theft and malicious damage by tenants
  • Cover for your own landlord contents
Go to site More info

What factors affect the rental amount?

While setting rent at a suitable level might sound like a simple process, it can actually be quite complex. While you might have come across some basic guides and rules of thumb for setting the rental amount — for example $100 of rent for every $100,000 of value in a property — such equations fail to take into account the many factors that affect how much your tenants will reasonably expect to pay.

“It is very important to be up to date with current market activity, trends and cycles,” says Sasha Hopkins, CEO and Head Strategist at investment mentoring and introductory service The A Team Pro. After starting in property investment at the age of 21, Hopkins accumulated a $3.5 million property portfolio on a single income by the time he turned 26. Now aged 27, he says it’s vital for property investors to consider supply and demand.

“If there is a minimum amount of available property in an area, you can ask for the higher end of the market price (demand). If there is a high amount of available rental properties, tenants have more to choose from and therefore you should price your property competitively to attract tenants (supply). It is best to work with a credible local agent (a property manager) to help determine the correct price,” he says.

Miriam Sandkuhler, an accredited property investment advisor and buyer’s agent from property advisory firm Property Mavens, adds that the location of a property and even the time of year can also be contributing factors to the amount of rent you can charge.

“Proximity to amenities such as public transport, schools, shops and lifestyle amenities such as cafes and restaurants will also impact how much rent you can ask for. The closer to amenities, the better,” she says.

“Time of year and season make a difference also; winter and mid December to mid January aren’t great. The end of the year uni term isn’t great either, as students often go home and break leases or end them then and finding a replacement tenant may take a while.”

It’s also important to consider the quality and nature of the property itself: Is it a house or an apartment? How many bedrooms does it have? What sort of condition is it in? Does it include parking space or a gym in the apartment block? These factors can all have an influence on how much rent a prospective tenant would be willing to pay.

Traps and pitfalls to avoid

Just as with any other investment, there are problems you’ll do best to avoid when setting the rent on your property. “Don’t be greedy as your property could sit on the market for a while,” Sandkuhler says, “and always make sure you are offering a property where everything is in good working order, safe and neat and tidy. You have a better chance of attracting the right tenant and ensuring they keep the property in the same condition you have provided it in.”

Hopkins also warns against asking for too much rent in an oversupplied market: “You will find your property sitting without tenants for weeks, if not months,” he says. “It is best to drop $5 below the market price per week to attract prospects. Another strategy could be offering a free week’s rent to get the price you want.”

If you take the time to consider all the factors that could affect the rental price for real estate within your area, you’ll be much better positioned to maximise your rental return — and therefore ensure the success of your investment and the satisfaction of your tenants.

Need a real estate agent? Start comparing your options

Provider Details Get in touch
OpenAgent

OpenAgent logo

  • Compare 30,000+ real estate agents
  • Find the right agent and maximise your results
  • Get a free property valuation
Go to siteMore info
Commingle

Logo for Commingle

  • Compare proposals from qualified professionals
  • Access over 45,000 real estate agents
  • Free property valuation profile
Enquire nowMore info
Conveyancing Logo

Fill in your details to get free real estate agent proposals with Commingle

Receive a free property valuation, compare agent commissions and fees and choose the best real estate agent for you with Commingle.

  • Save time and money finding the right agent to sell your property.
  • Commingle is a free service that can negotiate on your behalf to get the best deal.
  • All your details will remain confidential.

Renata sets the rent

How much rent to charge renata

Renata has just purchased a four-bedroom home as an investment property in Sydney’s north-west. Eager to start receiving rent from tenants in order to help her pay off the mortgage on the property, Renata spends little time deciding on a suitable rental amount. After a quick glance around at some of the rents being advertised for similar four-bedroom properties in her suburb and the adjacent suburb, Renata sets the rent at $750 a week.

What she doesn’t realise, however, is that $750 a week for a four-bedroom home in her area is right at the upper end of the price range in the current market. Not only that, but the landlords asking for this much rent own properties that are newer and in better condition than Renata’s, not to mention in much closer proximity to public transport, restaurants and shops.

As a result, Renata advertises her property for two months and is unable to find a tenant. With her ongoing mortgage repayments starting to make an impact on her finances, Renata bites the bullet and enlists the help of a professional property manager. At the agent’s advice, Renata lowers her asking price to $700 a week and soon receives applications from several potential tenants.

Belinda Punshon

Belinda is a journalist here at finder.com.au. Specialising in the home loans and property sections, she is passionate about helping Australians improve their financial wellbeing.

Was this content helpful to you? No  Yes

Related Posts

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and Privacy & Cookies Policy.

2 Responses

  1. Default Gravatar
    jamesOctober 3, 2017

    If a property is worth $3million, how much rent should be charged?

    • Default Gravatar
      LiezlOctober 3, 2017

      Hi James,

      Thanks for your question. Then suitable rent amount will depend on where your property is located, the average and median rents in your area for similar properties and your property’s potential such it’s condition and amenities nearby.

      A good starting point for working out how much rent to charge is to get an input from a local expert. Real estate agents and property managers have years of local knowledge and experience on the market. They may be able to advise you on changes or enhancements you can make to your investment property that are likely to up its rental return potential. I have emailed you a couple of links that can give a benchmark rent figure.

      Hope this helps.

      Cheers,
      Liezl

Ask a question
Go to site