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Knowing what to charge for your rental rate is far more complex than saying you will take 0.8%-1.1% of the property value.  This is a base line and nothing more.  Today I want to discuss some of the remaining factors that will influnce your rental rate.  Your main goal will be to set your rent rate at the highest value, but still remaining at a relatively competitive rate as to not out bit yourself with competitive rental units in the surrounding area.  Vacancy Cost should not be a common accurance for any rental unit.  Your rental income should at the very least cover your expenses and a large part of the monthly mortgage or be that profit if the property is paid off.

1.  Desirability will determine the correct Rent Rate.

You shouldn’t charge the same for all your one bedroom apartments, or have the same difference between a one and two bedroom.  This is an old way and lazy way of thinking about your rental units.  Rather consider the desirability of the unit.  Consider the extras such as fix fittings, cupboard space and if the unit gets good light or have a spectacular view.  You will be surprised how much people will pay for a unit with a great view and excellent light.

Never underestimate the ‘assets’ of your property.

Rental rates should be based on:

View

Apartments with a clear view (city view/garden view) will always be more desirable than those looking out on to the parking lot.

Updates

Apartments that are kept relatively modern and up to date with the fashion trends will always rent faster and for more.  Renters know they aren’t allowed to make big changes (not that they would want to) so that gives you the opportunity to ask more for a ‘updated’ unit.

Square Meterage

Size does matter!

Layout

Renters care about how the unit flows from one room to the next.  If you have something like a loft unit (that is actually only one big room) then I suggest you have fixtures that can be moved and changed in order to create ‘separate room’ section within the loft, people like rooms in the long run.

You should also be aware that RailRoad apartments tend to rent for less than (lets compaire to) your square layout apartments.

Floor Level

The higher your unit the more desirable the unit will be.  Remember you most probably paid for a higher unit more than a lower one.  Your rent should reflect this.

2.  Be on par with the competitors.

Your competitors should give you a very good idea of what the going rate will be in your area.  It is suggested that you keep an eye open for rental adverts in your area and consider their rental rates with the type of unit and type of fittings and features of your unit.  It is also a smart idea to steal with the eyes, go view these units and ask question like how many people have viewed the advertised unit.

Another factor to be aware of is that if many of the competitors in your area offer free services, like internet or tv then you might be in an oversaturated rental area.  This unfortunatelly will mean that you will not be able to ask you full desirable price.

However if this seems like too much work (which it is), then consider getting a rental agent like Mafadi.  Mafadi as a rental agent and property management company will manage your property and the renters, giving you actual piece of mind.

3.  You should attract tenants.

No matter your unit, you should always be able to attract tenants.  The only consideration is will you attract prospective tenants with your current rental rate.

Asking a high rental rate will attract prospectives, but you have to ensure your unit is actually worth the increase rate.  Meaning; is it clean, up to date with the fashion, does it have a good view, is it on one of the higher floors?

Asking too little can be a very bad thing.  Simply because people won’t even come view the unit because they think there must be something wrong with the unit.

All of these small factors will play a significant role in the act of whether prospective renters will even come look at the unit.  I can tell you that a complete summary of the unit and excellent photos will make a massive difference.  Us humans are visual creatures and we want to see those pics!

4.  Correct rent is based on market demand.

Rent is like inflation, it can never decide where it want to be.  As such you should adjust your rent as the demand changes.

A good economical period may mean that larger apartments can go for more, people have more to spend.  A weak economical period may mean a higher rental rate for smaller apartments, because people might have to downsize from their homes.

This theory is seen throughout the world economical changes.  When South Africa had the massive real estate crash house price above the 2mil drop drastically.  But house price below 1mil increased drastically.

Always be aware that one man’s misfortune can be another man’s fortune.

5. Correct rent will lead to profits.

Your rental income should at the very least cover your expenses and your Piti mortgage (20 year loan) of the property.  If this is not the case then you should re-evaluate your rental rate or the property as a whole.

But remember the unit should also increase in capital every year by at least 5-6%.  If this is not the case then your money will be better of in save (blue chip) stocks where you will at least get a full 10%.

I suppose these are the basics to finding the correct rental rate and that there are other factors to be considered as well.  But I always start at the basics, for if they aren’t correct you will never get the finer detail correct either .

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Written by Lizl Brink, Lizl is copywriter and designer based in Johannesburg, she is also a frequent contributor to the Mafadi blog, and as an Urban investor and rejuvenation shares a passion for urban regeneration, go check out her personal portfolio here
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