How to calculate an achievable rent for your property
Work out an estimate of how much rent your investment property will bring in by following these guidelines.
Blogger: Cindy Knight, general manager, Time Conti Sheffield
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Working out how much rent you can achieve for a property depends on a number of factors, including the type of accommodation you’re offering, the location and condition of the property, the state of the rental market in the local area and supply and demand.
While there are online tools available that can assist investors in working out the amount that they can charge prospective tenants, it can be advantageous to consult a professional property manager who has the benefit of years of industry experience and in-depth market knowledge.
Any property manager worth their salt will have a number of resources to enable them to work out achievable rental on a property, which will include mathematical formulae, historical patterns and the latest market statistics. What’s more, they’ll be able to draw on all their experience in understanding market dynamics, decoding statistics and assessing the current supply and demand situation. In short, with their knowledge and intuition, they’ll have the best possible armoury at their disposal to work out the achievable rent on a property.
However, if you want a quick estimate of what your property could attract in terms of monthly rental, here are some guidelines:
Crunch the numbers
A basic rule of thumb is that an investor can charge approximately $100 per week for every $100,000 that the property is worth. In other words, a property worth around $400,000 could achieve a weekly rent of around $400.
However, this is a generalised calculation and there will be numerous anomalies, particularly at the lower and higher ends of the price spectrum. It’s also important to remember that a weekly rental of say $300 does not equate to a monthly rental income of $1,200 – and that’s for the simple reason that there aren’t an equal number of days/weeks in each month, so you’ll need to take care with your calculations.
Understand the costs involved
Working out achievable rent involves more than just calculating a percentage of the net value of the property. To be viable, the income should exceed the costs of the property (which could include mortgage repayments, insurance premiums, cost of maintenance and repairs, rates, fees for property management, furnishings, vacancy costs, and so on) so it is important to have a clear and full understanding of all the various costs involved.
There are several online resources that provide statistical information on the various suburbs, including information on median prices, rental data, forecast average annual growth and current rental yields. These can be extremely useful tools in determining the achievable rental rates for a particular property because they put the property in the context of the suburb and its rental/sales history.
Remember, however, that a skilled and knowledgeable property manager should be able to achieve higher rentals because they have greater market expertise and experience – plus they will have a wide selection of prospective tenants to choose from.
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