How much should I rent my house for?
As a buy-to-let landlord, there are two financial benefits to investing in property.
The first is the profit you make on your investment when you eventually sell the house.
The second is the income you receive from renting the property while you own it.
Only one predictable income stream
The profit, or capital gain, you make on the property is dictated by factors outside your control. The economy, the state of the housing market, unemployment, interest rates and so on.
However rental income is more predictable. And entirely dependent on you.
After all, you decide the level of the rent.
Which brings us back to the question we posed above. How much should you rent your house for?
Setting the rent
When thinking about the rent you will charge a tenant you need to remember you are running a business. And like any business, you need to at least cover your costs. But preferably make a profit.
If there is no mortgage on the property you shouldn't think about charging a lower rent. But assuming you are a buy-to-let landlord there will be a mortgage involved.
The rent you charge needs to cover your mortgage payment plus any other expenses. This should include the costs of maintaining the property. It should also cover other outgoings such as landlord insurance and listing fees.
It's important to accurately work out your costs. If you set the rent too low you could end up making a loss.
But set the bar too high and you could deter potential tenants. Which brings us on to...
Assessing the market
To set a competitive rent you have to assess the local market.
For example, there is no point charging London rates in Coventry. Nor is there any realistic chance of finding a tenant at £1,200 per month if an identical flat five doors down is on the market at £800.
You probably researched the area before you purchased the property. But it is worth looking again at the market whenever a tenancy agreement is set to expire.
Always compare apples to apples. If your property is furnished don't compare it to an unfurnished one. You could end up pitching your rent too low.
You certainly shouldn't pitch your rent below the market value. And you could charge a premium if there are extras included. An especially nice garden or a two car garage for example. You could also charge a premium if you are happy to accept pet owners.
You probably heard your mortgage broker talking about this. This can be confusing.
But yield is basically total amount of rent you receive in a year expressed as a percentage of the purchase price. The formula for working this out is income/cost x 100 = yield.
A simple example will make things a little clearer.
- Rental income = £5,000
- Property cost = £100,000
- Yield = 5%
This is the gross yield of course. Your costs will affect the net yield.
This is a very simple example as a buy-to-let mortgage would always return a higher yield. This is because you aren't laying out the whole cost of the property upfront. But it serves as an indication.
Working out the yield on a buy-to-rent mortgage would require an article in itself. So watch this space.
In the meantime don't forget MakeUrMove can help you find tenants so your property is never empty and is always making a return on your investment. Click here to learn more about how we can help you find your ideal tenant.