How to set a rent price for your investment property: 6 key factors

Setting the perfect rent price can feel like walking a tightrope – if your rent is too high you risk vacancies; too low, and you miss out on potential income. So how do you strike the right balance?

Finding that sweet spot is crucial for any property investor aiming to maximise returns while keeping properties occupied. Here’s how to figure it out.

1. Understand market trends

To set a price that’s both competitive and profitable, you need to have your finger on the pulse of the local rental market. This means diving deep into current trends and staying updated on any shifts that could impact your pricing strategy.

Research the local market

Start by looking at rental listings in your area. Realestate.com.au, Domain, and local real estate portals can give valuable insights into what similar properties are charging. Pay attention to the average rent prices for properties with comparable size, amenities, and location. This will help you set a benchmark and ensure your rent price aligns with the market.

Find comparable properties

To accurately assess your rent price, find and analyse comparable properties. As above, these are properties similar in size, condition, location, and amenities. Look at their rental prices, occupancy rates, and how long they typically stay on the market.

Consider economic factors

Broader economic factors play a significant role in rent pricing. Keep an eye on local job market trends, population growth, and new business developments. For example, new amenities developed nearby can create an increased demand for rental properties allowing you to charge a higher rent, while an economic downturn or increase in unemployment rates might require more competitive pricing to attract tenants.

2. Calculate costs

Setting the right rent price isn’t just about aligning with market trends; you also need to make sure the rent covers all your expenses while still providing a profit.

Mortgage payments

Start with your mortgage payments. This will probably be your biggest monthly expense. Calculate the total amount you owe, including both principal and interest. The rental rate you set should at least cover this cost so that you’re not operating at a loss.

Property maintenance

Regular maintenance is crucial to keep your property in good condition and your tenants happy. Set aside a budget for routine maintenance tasks like lawn care, minor repairs, and seasonal upkeep.

Remember to take into account unexpected repairs, like a leaky roof or malfunctioning toilet. A good rule of thumb is to save about 1-2% of the property’s value annually for maintenance.

Insurance and taxes

Don’t forget your property insurance and property taxes! Property insurance is essential to protect you against potential damages and liability, while property taxes are just unavoidable. Combine these costs to get a clear picture of your annual obligations, then break it down into a monthly figure.

Other expenses

There are always extra unexpected expenses. Strata fees, utilities, and property management fees are all things that need to be considered.

3. Decide on profit margins

What do you want your Return on Investment (ROI) to be? You want to set a ROI that makes your investment worth it. A common goal for investment properties is 6-8% annually, but this can vary based on your investment strategy and market conditions.

You can calculate ROI using the formula: (Net profit / total investment) x 100. This can help you gauge whether your rent price is aligned with your financial goals.

4. Think about tenant demographics,

Different groups have different needs and budgets. What kinds of tenants do you want in your property? Tailoring your property to meet the needs of your target demographic can maximise your rental income.

Decide on your ideal tenant

Are you targeting young professionals, families, students, or retirees? Each group has different preferences and financial capacities.

For example, young professionals might prioritise proximity to work, public transportation, and nightlife. Families will look for rental properties located near good schools and in safe neighbourhoods. Understanding these needs will help you align your property’s features and set a rent price they are willing (and able) to pay.

Amenities and features,

High-demand features like in-unit laundry, modern appliances, air conditioning, pet-friendly policies, and ample storage can justify a higher rent. Other amenities like a gym, pool, or covered parking can also attract higher-paying tenants.

Effectively marketing your property is crucial here. You want to highlight these features to attract the right people. A property management team can often help with the marketing of your property and finding a tenant that fits your needs.

5. Set a competitive price

This is the tricky part – setting a rental amount after all that research and consideration.

The rental market is dynamic and can change quickly. Flexibility is key. Regularly review your rent prices based on market feedback and changes in demand. Monitor local rental listings and vacancy rates to see how your property compares.

You might find rental demand fluctuates with seasons, and in that case, you might need to adapt the amount of rent you’re asking for.

6. Consider legal and ethical factors

Regardless of the above, you always need to make sure you’re operating legally and ethically.

• Residential Tenancies Act: Each state and territory has its own Residential Tenancies Act. This covers lease agreements, bond requirements, rent increases, and dispute resolution. Make sure you understand and comply.
• Rent control laws: There are regulations on how often and how much you can increase rent, and this differs state to state. Make sure you’re across these laws in your state.
• Ethical pricing: Set a fair rent, be transparent about costs, and provide accurate property descriptions. Don’t introduce sudden, steep rent hikes.

Take the hassle out of property management

Did you know that having an experienced Perth property management team on your side means you don’t have to worry about all of the above? With expert market knowledge and real estate experience, we maximise your returns and keep your property in top shape.

Get in touch today for transparent communication and seamless, worry-free management.