Establishing a fair rental price

By Jessica Anne Wood

The aim of any property investor is to make a good and fair return on their rental investment, stated Grant Rea, RE/MAX Living Rental Specialist. The first way to ensure this is to begin by establishing an accurate and fair rental price to charge tenants.

“When the property investor has an accurate market based rental price, then they will attract a good calibre, long-term tenant. The combination of a fair-market-related rental price and attracting a responsible tenant is what will guarantee the consistent long term return from the rental property investment,” Rea explained.

How does one establish a fair market-related rental price?

Rea offered a few tips on setting the right price:

-Do your homework and obtain a fair comparative estimate from a trusted rental agent who is familiar with the area and has a good sense of the ‘market and demand’.

-Establish the market-related selling value of the property. “The national average yield (gross) on rental properties or their rental-to-sale-value ratio is approximately 6% to 7%, both nationally and in many good suburbs in Cape Town.Naturally some suburbs have higher levels of demand and will obtain higher rental values, but this is a fair guide for a reasonable property with reasonable finishes,” highlighted Rea.

-Do a comparison analysis of other similar rental properties online to get a good idea of market offerings and once again, price.

“Remember that the better value units will always rent first a private landlord can definitely start their search online and delve into some of the busiest online destinations where average tenants will start their search as well.Be aware of comparing ‘asking’ or ‘listed’ prices as these are often overinflated in the hope that these units will achieve more than the average, however, rentals are often concluded at lower figures.”

-Cater to your desired target market by offering fair rent to attract fair tenants.

-Make a checklist determining if the property has what prospect tenants would look for: Location, ample space, safe parking, balcony or outside area, views, modern bathrooms or kitchen, bathroom options, efficient plumbing.

“Whether setting the asking price to sell a property or letting one out, finding the right price is highly important to ensure that the property appeals to the right buyer or tenant,” stated regional director and CEO of RE/MAX of Southern Africa, Adrian Goslett.

As property investors the key is to be aware that “tenants are far more equipped with information and options in their hunt for the right rental property than ever before, so they are choosing more wisely and cautiously,” added Rea.

What to do when current rental price is well below expected market related rental price?

In cases where the landlord finds that the rental price is far beneath market standard, Rea suggested offering fair notice to tenants about a rent cost increase within 40 to 80 days.

“Unless a provision has been made within the lease agreement referring to the maximum annual escalation, and provided the landlord is being reasonable and can show due diligence in establishing the new rental price there should be no reason why the landlord cannot increase the rent to get in line with a market related level, even if this means increasing the rent by more than 10%,” Rea explained. 

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