How do you price a rental?
This is one of the most common questions asked, and it is sometimes a difficult one to answer because there is no set rule for determining the rental value of a property. Rental appraisals can be tough because not every property is the same, but using the below tools you will be able to determine what you may achieve in rent.
While we all have different goals when it comes to investment properties, most people invest in property to make some kind of profit. So that question of ‘how much will my property rent for?’ is asked to ensure the financial goals can be met. We have heard that some people use a general guide for rental appraisals where achievable rent is around $100 for every $100,000 worth of a property. That is extremely general and a pretty blunt gauge. Research, combined with expert advice, is crucial to ensure you get the right rent for your property - and sometimes you just have to test the market to see what it throws back at you.
Tenancy Services (www.tenancy.govt.nz) release Market Rent statistics each month. These statistics show the average rent for different types of dwellings across suburbs around New Zealand. They are calculated from information gathered from Bonds lodged with Tenancy Services over the last six months, removing the top and bottom 5% to allow for special circumstances. And, although it is historical data, it does provide a guide of say, what your average three bedroom home in Burnside is achieving for rent. We use the Market Rent statistics as a starting point for our rental appraisals as well as to see any trends of rent increases/decreases in certain areas of Christchurch.
Websites such as harcourts.co.nz, realestate.co.nz, trademe.co.nz and a variety of others advertise properties for rent. Explore them to see what a property similar to yours is advertised for rent, see how long they have been advertised for or if incentives are being offered. If they have been advertised for quite some time or incentives are offered then you can assume the property has either not been priced right or the area is oversaturated. It’s important to remember that these websites show what investors are trying to get for rent for their properties. It does not show what they actually rent for which is why it is crucial to be scanning these websites daily for your rental appraisal to be accurate. There are even websites with rental appraisal calculators which can also assist in calculating your rental yield.
Property Managers live and breathe this stuff, they scan those websites every couple of hours. The good ones are able to leverage off their experience and their knowledge of the current market demands to determine an very accurate rental appraisal. Adding small additions, or making some changes, can sometimes make the property more desirable to tenants. Property Managers have a good idea of what tenants are wanting and what they are willing to pay for feature-wise.
We highly recommend a combined approach when finding how much your property will rent for. Most property management companies do offer free no-obligation rental appraisals to provide that expert advice.
Just recently my parents were looking to see how much their property would rent for in Wellington - a market I knew very little about. I looked into the market rent statistics and had a look on Trademe to see what similar properties were available. My problem was, their property was unique. It wasn’t your average four bedroom apartment. I suggested we get a rental appraisal, which came back $400 higher than the market rent statistics! Some might say, ‘they are just trying to get your business so said a high price’. It could be (although they never did ask for the business), and we won’t know if that rent is realistic until it has been tested on the market.
Sometimes, even with research and expert advice, the property still might not rent for what it is perceived to be worth and what your rental appraisal had proposed it to be. Market demand is forever changing and it can change all of a sudden. If you have very little interest after 48 hours, or definitely after a week of the property being advertised, it is probably overpriced. Consider lowering the rent and ‘refreshing’ the listing.
Remember that regardless of how much rent you would like to charge, it’s the market and the tenants that dictate how much you will be able to achieve.