With rising rents, how can landlords decide how much to charge on their buy-to-let?

House and coinsRental prices are on the rise in Wales and England, with the private rental sector up 1.8% in the 12 months to April 2017, according to the index of private housing rental prices released by the Office for National Statistics in May of this year. Many lettings agents reported rent increases throughout the summer on properties under their management, but how can landlords decide on the appropriate price to charge their tenants?

Raising the rent can be a risky move, as a tenant can prove costly to replace should they decide to move out following a rent hike, so it’s important all factors are considered so that the landlord can do their best to ensure the balance is right.

Working out how much rent you should charge

As a private landlord, deciding on the rent you’re going to charge can prove tricky – too low, and you could make it difficult to secure a return on the investment, but too high and you may see yourself losing a decent tenant, or failing to attract one in the first place.

Researching the rental market in your local area would provide you with a better idea as to what sort of properties are demanding what sort of prices at that time. Searching for similar rental properties to yours (number of bedrooms, location, garden, garage etc.) and noting the lowest and highest rental prices that are listed, while checking the general condition and furnishing, should make it easier for you to work out an accurate estimate of the rental price you can ask for. Also, take note of how long those properties have been listed, and whether the advertised rent has decreased over time.

This research should indicate a typical ballpark rental price tenants are willing to pay for a property that is similar to yours.

What if your tenant decides to move out?

If you’re letting an empty property, or have a tenant that is already set to move out, then the average market rate is likely to be the best indicator of what you should charge. But if you have an existing tenant who is looking to renew their tenancy with you, raising the rent could potentially prove problematic.

Many tenants who are renting privately will understand that a rise in rent will be likely at some point, but if you raise the rent higher than the tenant can comfortably afford, they may decide to move out instead. If you were left with no choice due to an unexpected increase in your overheads (severe increase in any maintenance charges, for example), or the rent was very under-priced to begin with, you might find that losing a tenant over a rent increase could hurt you financially.

You may think that replacing the tenant with one that is willing to pay the higher rent is the easy solution, but it’s important to factor in potential scenarios and work out your figures. The ARLA Private Rented Sector Report, released in May, found that the average void period between tenancies currently sits at three weeks. Even at three weeks, it could still take you many months to recoup the loss, meaning that a tenant vacating due to a rent raise really does have to be for the right reasons financially.

Are you a landlord looking to rent out your property? If so, our friendly lettings team are available to offer advice and assistance, so get in touch today on 02920 668585, email us at enquiries@cpshomes.co.uk, or pop into one of our Cardiff branches located Roath, Cathays and Cardiff Bay.

06 October 2017

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