If you’re a landlord, it’s understandable that you want to make money from your investment, but knowing what level to set the rent can be tricky. You don’t want to be a greedy landlord, but you also don’t want to be too generous either. It’s a fine line you need to tread.
Collecting an amount of rent each month that is deemed fair by all parties means you will minimise the risk of the property being empty for too long and keep a healthy and sustainable flow of cash coming your way.
So how can landlords be realistic with the amount of rent they charge? They can start by doing some research…
Rent prices around the UK
Rental prices around the UK can vary hugely and are based on a number of factors – including the area the property is located.
According to data from HomeLet
, the average rental price for a new tenancy in the UK was £953 per calendar month in December 2019. That’s an increase of 3.5% on the previous year. Looking at the data more closely, the average rent in London was £1,630 (an increase of 2.1%) for the same period.
Excluding London from the figures makes the average UK rental value £793 (an increase of 3.9% from December 2018).
These high rents in the capital are causing many people to move to other regions including the South East (Brighton and Southampton), the West Midlands (Birmingham) and the North West (Liverpool, Manchester, Blackpool and Preston).
A survey from property website Zoopla shows that rents rose fastest in Nottingham, Leeds and Bristol
between September 2018 and September 2019. At the other end of the scale, rents in Aberdeen, Coventry and Middlesbrough all dropped in the same period.
Compare prices of similar properties
There is a tendency among landlords to overcharge. After all, when you’ve put your heart and soul into getting a property ready for tenants its value in your eyes can grow. In reality, most tenants don’t care what a property looks like, so long as it is habitable and meets legal standards.
To make sure you are not over-charging (or under-charging) tenants, it’s good to check the rental prices of similar properties in the area. The easiest way to do this is by checking for similar properties on Rightmove (to find the average rental price), Gumtree (to see what other landlords are expecting), and with local letting agencies (to tap into their local knowledge).
Even if you don’t plan to use an agency to manage the letting of your property, it’s good to know the climate of an area and what postcodes are particularly sought-after.
What happens when you don’t have tenants?
The most common way a landlord can lose buy-to-let income is if a property lies empty for a period of time. Void periods are a serious risk for landlords and cost around £3 billion a year in lost rental income. That’s an average of £1,000 per property.
Richard Donnell, research and insight director at Zoopla, explains that homes in the UK take an average of 17 days to rent. It might not sound like a particularly long stretch of time, but it will still have an impact on your earnings.
If your property becomes empty for any length of time, you will have to cover a range of costs as well as the loss in rental income. You may also want to think about unoccupied home insurance if you know the property is going to be vacant long term.
How much does a rental void cost?
Avoiding void periods should be a top priority for landlords – not least because they can be so expensive.
Not only will you be out of pocket in lost rental income, there are other costs that could come into play, these include: mortgage repayments, service charges, home insurance
, utility bills, council tax (if the property is furnished), maintenance work, and remarketing the property.
The other cost to consider is that of your time. It takes time and effort to find tenants to fill a rental property – a task you can either do yourself or pay someone else to do. Either option is not ideal.
The key is avoiding a rental void situation in the first place. A good way to do this is by making sure you’re charging a fair amount of rent each month.
Make sure the price is right
When tenants are spoilt for choice in terms of rental properties, it is important to get the price right. In a price-sensitive market, even if you set your property’s rent just 3-4% above the going rate, potential tenants will soon look elsewhere.
If the property is getting lots of viewings and is in good liveable order but you are struggling to secure a tenant, chances are you have set the rent too high.
If you have tenants in the property and rents are falling, the temptation might be to lower the rent. However, rather than chasing the market downwards, a better option is to spend money on improving the property.
As well as home improvements, you can also keep tenants happy by ‘sweetening deal’, for example, offering free broadband or a free TV licence.
How to manage tenant deposits legally
Some landlords feel it is OK to rent a property to a tenant without taking a deposit. In the majority of situations this will be fine, however it is not advised.
A deposit gives landlords a financial safety net and covers them should a tenant cause any damage to the property or steal any possessions. A deposit is typically equivalent to four to six weeks rent and should be no more than two months’ rent.
Since April 2007 it has been a legal requirement that all deposits are placed into an approved landlord deposit scheme within 30 days of receiving them. In England and Wales, deposits can be registered with:· Deposit Protection Service
· Tenancy Deposit Scheme
One advantage of these schemes is that they offer a free adjudication service at the end of the tenancy – useful if there are any disagreements about whether a portion of the deposit should be deducted.
When it comes to deciding how much rent to charge on your buy-to-let property, it’s all about balance. Setting a price below market value will sell your property short (and put you out of pocket), but too high and you will deter potential tenants.
Stay realistic and protect your investment
Make sure you do your research and remain realistic. There may be times when your property is empty, so make sure you are prepared to cover the costs associated with that.
Having unoccupied home insurance
in place will give you the cover you need and can be limited to a certain number of days per year or restricted to certain events. At Insurance Choice, we can arrange unoccupied home insurance
to suit you and your property’s needs.
Get in touch with the team to find out more or to get a quote today.