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How much rent should I charge for my investment property
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Latest  /  Property Advice

Setting the right rent to keep both you and your tenant happy

Whether you are new to property investment or an experienced investor, setting the rent on your investment property can be a difficult and research intensive process. Charging the right amount of rent has a critical impact on the performance and overall viability of your investment property and financial strategy. Rent setting is a delicate process; the goal of investing is to maximise the income earned, increasing the return on your investment while at the same time avoiding pricing the property out of range of potential tenants. So how does a property investor find the sweet spot where they can rent the investment property for the most beneficial price? A local financial advisor well acquainted with the local area will be able to help design and implement the right property investment strategy for your personal circumstances; this includes working out the best rent for the market conditions.

How does a financial advisor calculate how much rent should be charged?

Nowadays it seems like there are dozens of websites out there promising to tell you how to analyse your budget and expenses to work out how much rent to charge. These websites and formulas often don’t take into consideration 2 very important aspects of rental price setting: prospective tenants don’t care about your expenses and median rental yield statistics of an area only work if your house falls right into the median. What you need is a more hands on and personalised approach that takes into consideration a much broader snapshot of the macroeconomic factors at play that a financial advisor can provide.

Your financial advisor will look at a number of aspects of your investment including:
  • Factors affecting the local market – A property manager and financial advisor with local knowledge will know and understand the median rental prices in your area, population statistics and trends, supply and demand, development trends and upcoming infrastructure projects.
  • The individual qualities of your property - Factors such as your type of property, number of bedrooms, features, parking options and overall condition of your property all have an impact on your rental amount.
  • Comparing apples with apples – Comparing your investment with other properties in your local area to gauge how much rent could be suitable for the competition.
  • Your expenses, budget and investment strategy – How much you charge in rent should definitely not be determined solely on your need to cover all the expenses associated with your investment and ability to generate an income, but it needs to be taken into account to determine the overall viability of your investment.

How are rental yields performing in Queensland?

2019 has seen some positive news for property investors and landlords with statistics showing that housing oversupply is easing slightly and rent prices have begun rising; up 1 per cent in the March quarter. The CoreLogic Quarterly Rental Review showed Brisbane rents were starting to rise again, with the city’s median weekly rent increasing to the tune of 1.4 per cent over the last 12 months. [1] South East Queensland as a region performed particularly strongly with median weekly rent rising on both the Sunshine Coast and Gold Coast on the back of an increase in tree and sea changers from Sydney and Melbourne. In further positive news for landlords, the report found first quarter gross rental yields were performing better than the last quarter and the same period last year, rising to 4.10% opposed to 3.95% in the December quarter and 3.77% a year ago.

Don’t pay too much in property management fees!

Paying too much can mean a multitude of things when it comes to property management. You could be paying too much directly, with fees of over 7% of your rental income, or paying too much indirectly by a property manager failing to keep your property occupied or in perfect condition. Don’t do yourself and investment a disservice by paying too much for too little.

According to a 2017 study by BIS Oxford Economics [2]  average property management fees vary between 6% and 11% in most cities. There are many different ways agents will work out management fees, with some charging a flat fee while the majority of agencies prefer to collect management fees as a percentage of rent received. Having property management fees as a percentage of rent means there is less chance of a fee hike to keep up with inflation and there is more incentive for your agent to ensure that the weekly rent keeps pace with the local market. Many people find that consolidating their financial and property investments into a single financial strategy gives them a more streamlined way of keeping their finger on the pulse of their financial health. Choosing an agency with expertise in Superannuation, financial planning, insurance property management and capable of giving legal advice will provide you with the comfort of knowing you are looked after in all areas.

[2] – Page 2, Table 2.1