|August 30, 2019||No Comments|
Setting a rent at the correct level is quite a demanding task, whether you are a landlord or a letting agent. As one of the established Edinburgh letting agents, we have been serving a variety of landlords. Some are portfolio landlords with many properties. Many are investing in residential properties – with their main interest being in maximising their rental yields. Others are individuals who inherited their property or used to live there. Quite often the latter results in an emotional attachment to the property and when such landlords consider a suitable rent, their mortgage payments should be used as a guide.
What other factors should be taken into account when setting rent levels?
Your rental property is a form of investment, so in the first instance, we recommend you calculate how much this investment has cost you. You should take into account all fixed or constant expenditure:
After doing your sums, you will know the minimum amount required to break-even on your investment. Please bear in mind that there are different property strategies. Some landlords like to invest in upmarket or fashionable areas (Morningside, West End, Bruntsfield – generally EH10 and EH2) or city centre EH1 locations. Their mortgage payments are very high, so the actual rental yield is low, but this may be a good long-term investment. Landlords buying such properties calculate mainly on property appreciation, so rental yields in real terms are of secondary importance. On the other hand, some investors buy former council houses. While their mortgage payments will be lower and the rental yields on post council properties are significantly higher, such properties do not appreciate in value as fast as in fashionable areas.
Once you have established your monthly property outgoings, you need to decide on the rent you ask for. There are two seasons in the Edinburgh lettings market: (1) the busiest time commences in May and ends in October (with really hectic August and September, when students push nearly all other types of potential tenants out of the market). (2) November to April are slower, so rents considered reasonable in August tend to be higher than similar rents achieved in these months.
If you need any help with rental valuation of your property, feel free to use our Valpal online instant valuation tool; ask us for a desktop / Zoopla Pro valuation based on similar properties in your postcode area that have recently been let, or give us a call to arrange a face-to-face valuation of your property.
While there is not much you can do about the location and size of your property, there are a range of variable factors that may affect the value of your rental investment: general standard; decoration; double or single glazing; gas or electric heating; parking space; furnished or unfurnished etc. This means that any two properties in the same postcode, with the same floor plan, may have different rental valuations.
Please have a look at this sample Valpal valuation:
It shows quite a broad a rental range and three values: minimum, average and maximum. So how can you tell if you are asking for the correct rent? The answer is quite easy – analyse the market!
If you (or your Edinburgh letting agent) are inundated with phone calls and email enquiries from potential viewers flowing like a river, then most likely the advertised rent is too low. Obviously, the most sought after flats (for example, 1 bedroom flats in Leith, Gorgie or Morningside) will generate more leads than larger apartments in more remote (e.g. Gilmerton or Newhaven) or less fashionable areas (such as Granton or Wester Hailes). Hence, the property location must be taken into account.
If you are not receiving many enquiries and your potential tenants tend to cancel viewings, it suggests that the advertised rent may be too high. Another tell-tale sign of rent being on the high side is the abundance of ‘higher risk’ viewers. If all your calls are from undergraduate students, new arrivals with no credit history or individuals in need of guarantors, then you have likely priced the property too high. You may be fortunate enough to let your property anyway, especially in the busy season, but your tenants will likely move out sooner rather than later, if they realise other comparable properties could be let at a lower rent. Your property is likely to end up back on the market – and voids cost money. One month of an unnecessary void amounts to around an 8% rent discount, assuming that tenancy lasts 1 year.
If the market response is somewhere in between, the advertised rent is within market expectations and you should be able to let it quickly to quality tenants looking for a long term rental.