What rent to charge for a buy to let

When letting your rental property, deciding the rate to charge tenants is one of the most important aspects to consider.

Charge too high, and you risk putting potential tenants off. Too low and you could end up facing a financial loss. It’s a fine line to tread but getting it right can be the difference between your property performing successfully financially, or not.

We’ve put together some factors to consider when valuing your rental property and how you can be sure you’re charging the optimum rental rate below.

Why It Matters

Charging a rental rate which is too high can be perceived as greedy and will reduce the number of people who are interested in, or can afford your property; particularly if you are charging far above the going rate in the area.

This limits your options when it comes to attracting tenants and may mean that eventually you end up being negotiated down on price or worse still, the property simply remains empty.

Tenancy voids are one of the key factors affecting the profitability of buy-to-let properties and so it’s recommended to minimise them as much as possible. For tips and advice on how to avoid tenancy voids, check out our dedicated blog post.

On the other hand, charging too little rent limits the performance of your property financially and restricts your ability to grow a portfolio of buy-to-let properties should you wish to do so. Charging the optimum amount of rent therefore is the best way to attract and keep the right tenants.

Factors to Consider When Determining the Rental Rate

Whilst there isn’t an exact formula to finding the optimum rental rate, there are a lot of factors to take into account when deciding how much rent to charge:

The Value of the Property

Your rental yield shows you what you can expect to earn from a buy-to-let property based on the property’s purchase price.

In order to compare rental yields across various properties, you can calculate the yearly rent as a percentage of the purchase price. This is an easy and simple way to compare one investment property with another.

It’s important to note however that rental yield should not be what you solely base your rates on; other factors must be taken into account.

The property market has skyrocketed in recent years and so the rental yield on a property which was bought 30 years ago, may not necessarily reflect current market averages and so landlords should consider the current value of the property.

Location

Higher rental rates can be charged in areas which are considered more desirable, and which have access to a greater number of amenities such as transport links, proximity to schools and distance to city centre.

Research the current properties for let in the area and see what other landlords are charging to get a feel for the market.

Condition

A well-presented and maintained property which is pleasantly decorated will help it appeal to a wider range of tenants.

Things such as neutral shades and bright open spaces are generally considered desirable and so by ensuring your property meets these standards, you are likely going to have a greater demand and can reflect this in your pricing.

Property Features

Attractive features of the property will have a bearing on its appeal and therefore how much rent you can charge for it.

Since the COVID-19 pandemic, many tenants value more space both inside and outside the home. Gardens, garages and additional bathrooms have therefore become more desirable and can increase the value of your buy-to-let.

Another appealing feature many people search for is a fast internet connection. With working from home being the new normal for many, a slow internet connection could be a deal breaker for a lot of tenants.  

Furnished / Unfurnished

It goes without saying that if you’re letting a furnished property, you can charge more rent than if it was unfurnished. The increase in rent that can be expected will be dependant on what furnishing is included and the quality of these furnishigs.

Tenants

Very often, the location and property type will determine the type of tenant you are most likely to get. If your property is situated in an area where there are a large amount of highly paid, young professionals living, the average rent is likely to be higher.

On the other hand, commuters and families will have different requirements. Learning who your target market is and tailoring your property to meet their needs can help you attract the right kind of tenants.

Increasing the Rent for an Existing Tenant

Increasing the rent for an existing tenant can be difficult for landlords, especially given the current financial pressures many tenants are facing. However, in order to ensure rental income remains profitable, rates may have to be increased in line with rising costs.

Increasing rent can sometimes mean tenants leave and if they do stay, the relationship may suffer. It’s crucial therefore that rental increases are done professionally and in line with current market rates.

It’s also important to consider the value of the tenant. If they are a good tenant, many landlords may choose not to increase the rent and risk them leaving. Similarly, it’s worth working out how much it would cost to find a new tenant should the current tenants decide to leave and determine whether the increase to rent would be worth it.

Ultimately, the best way to determine the value of your rental property is to have it professionally valued. This takes into account all of the above factors and gives you the most accurate rental rate for your buy-to-let.

Get a Free Valuation with Abode

A professional rental valuation is a powerful tool for landlords as it ensures you are charging the correct amount of rent to attract tenants without impacting yourself financially.

At Abode, we offer free rental valuations for landlords to help you understand exactly how much rent you should be charging.

Book your FREE valuation with one of our expert lettings team or get in touch for more information about valuing your buy-to-let property.