How Much Rent Should You Charge?

Deciding what rent to charge is one of the most important parts of being a landlord. Ideally, you should have an idea of what sort of rent you can charge before you buy a property.

The exact level of rent you set will then be determined by various factors within your control. To explain further, Mark Burns, Managing Director of Pure Investor shares his insights on how much rent you should charge. 

Understanding rental yield 

Your rental yield is essentially your profit from the property. It is usually expressed as a percentage. For example, If you are charging £1000 a month but your costs are £900 a month, then your yield is £100 a month or 10%. 

In the residential rental market, landlords are only permitted to charge additional fees to tenants in specific circumstances. It is explicitly illegal to charge tenants for routine expenses such as lettings agent fees, insurance and maintenance. 

This means that you need to be confident that you can set your rent high enough to cover all of these costs and still make an acceptable profit. You may not want to set your rent as low as you possibly can to give yourself some room to manoeuvre. At the same time, you may not want to set it as high as you possibly can, to make yourself attractive to tenants. 

Regardless of what approach you take to setting rent, you need to know what you potentially could charge for any given property. Here are the factors you need to consider. 

Location 

This is usually the most important factor in anything to do with property. In the context of property investment, it will heavily influence the market(s) you can rent to. For example, if you buy property near a popular university, your most obvious target market will be students. If, on the other hand, you buy property in a suburban area, then you are more likely to attract families. 

It’s generally quite easy to find average rents and rental yields for an area online. There are, however, a few caveats to keep in mind. Firstly, you need to be sure that you’re researching the right area. This is particularly important in cities. These tend to be comprised of numerous micromarkets. Each of these has its own characteristics, including rents and yields. 

Secondly, you need to make sure that you’re comparing like for like within a market. For example, if an area is popular for short-term lets, it may look like it has very high rents and very high yields. This may, technically, be the case but it obscures the fact that the dynamics of the short-term lettings market are very different from the dynamics of the residential lettings market. 

Dynamics of the local market 

You should familiarise yourself with the dynamics of any local market where you are thinking of buying. You want to get a feel for the level of competition and the extent of the demand. You also want to know where the demand is coming from (e.g. students, young professionals, families…). This will all influence the level of rent you can charge at the present time. 

Ideally, you should also see if you can identify pointers as to where a particular market is headed in the near, mid-term and long-term future. In other words, you should look for any signs that an area will become more or less popular. For example, try to research what is happening with its job market and see if it will benefit from any infrastructure projects. 

Size of the property 

This is usually the second most important factor in anything to do with property. With that said, it is definitely not the case that bigger properties attract bigger yields. Instead, what is important is that the size of the property is suitable for the type of tenant you want to attract.

For example, a single young adult who worked on-site might be very happy with a small property. By contrast, a single, young professional working from home might want somewhere larger so they had space for a proper home office. 

Assuming they were in the same location, the rents on these properties would be very different but the yield could be the same. If they were in different locations, the rents might be the same but the yields could be different.

Features of the property 

Unless you are dealing with listed property, you will generally be able to influence its features to some extent. You will need to take a case-by-case decision on whether you wish to do so to obtain a higher rent (or more demand).

Here are the key points you should assess. 

Security 

There is a strong connection between location and security. With that said, location is definitely not the only factor that determines whether or not a property is secure. Security is a top priority for most tenants. It should therefore generally be a top priority for most landlords. 

Energy-efficiency 

Residential rental properties already have to meet minimum energy efficiency standards (MEES). If, however, you can go above these, then you will make your property more attractive to tenants. 

Pet-friendliness 

Landlords have traditionally not been keen on tenants with pets. It may, however, be time for a change in attitude. Instead of trying to ban them (which may be illegal), just charge for them. Many tenants will be happy to pay extra in return for being able to have pets. 

Functionality 

A property has to function effectively as a home for people in the modern world. This is why modern properties generally tend to be the preferred option for landlords. Look at the overall layout. Ask yourself how practical it is and how well it flows. For example, is there an obvious place to eat?  If so, is it in or near the kitchen? 

Kitchens and bathrooms are often very important to tenants. This is because there’s generally very little they can change about these areas. If your property is intended for more than one or two people, then extra bathrooms are often valued. Even just an extra toilet and washbasin can add a lot of convenience. 

Installing a washing machine can save your tenants time and money on trips to the laundrette. Dishwashers can also be much appreciated. 

Furniture provided 

If you’re letting to young adults, then it’s best to provide furniture. Again, choose this to suit your market. If you’re letting to students, then you can probably get everything you need from IKEA. If, however, you’re letting to young professionals, then you may want more premium options. 

Internet access 

Generally, this is a must and the faster the better. 

Smart technology 

Smart technology can make a home much more functional and convenient. It’s therefore appreciated by most demographics, including older ones. 

Overall appearance 

Properties with attractive features may have an edge over those that don’t. This does, however, need to be viewed in context. For example, if a period building is energy efficient, it could be very popular. If, however, tenants have to choose between period features and energy efficiency, they will almost always choose the latter.