Tips for Landlords: The Right Way to Determine the Optimal Rent

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    Jan 13, 2014
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Tips for Landlords: The Right Way to Determine the Optimal Rent Photo by Tom Dwan

One of the key moments for every lessors is to determine how much to charge for his rental property. Actually, deciding the price of the services you offer, no matter whether you fix cars, treat patients and so on, is a keystone of every business. Unfortunately, even these days with all the experience we have over the years, it is still not clear which is the best strategy. Business owners use mainly a few models, but there is not such a thing like a "perfect price". Still if you are familiar with the main concepts, it will be easier for you to take the right decision in your specific situation. Now, let me present you the most popular ways thatr people nowadays use in order to determine the fees for their rental units.

  •     Adding Percentage

This is one of the most common and basic strategies and it is based on taking your expenses and adding a percentage to them. Let's assume that you have a rental property and it costs approximately 500$ to maintain it both short and long term. Then you can decide how much you want your profit to be and add something like 25 percent, so the final amount will be 625$ per month. Some landlords are concerned that the tenants will not keep the place in proper condition and charge extra, so that if there is need they can refer to professional cleaners in Geelong, for instance, to fix the problem. However, most often lessors keep part of the security deposit or sometimes the whole amount in case the unit is in poor condition. The problem with this pricing method is that it does not take into consideration some dynamic factors such as vacancy rates, rising costs and so on. That's why you must consider adding a "fudge factor" which will cover such unexpected costs.

  •     Comparing to Ownership

Some landlords use another method to decide which is the most optimal fee for their houses and apartments. They simply compare the prices of mortgage payments for properties with similar sizes. I personally don't find this strategy very effective though. The last few years while the home prices were falling down, the rents were oppositely going up. The explanation is quite straightforward. When houses become not that attractive, people will still need a place to live, so instead of investing in properties, rents will become more preferable at this point.

  •     Market Rates

Other properties owners go for another pricing method. They compare the rates of similar rental units which are in the same neighbourhood and have similar number of rooms. Then they set a similar price to their homes, sometimes a bit less or a bit higher depending on several specific factors. For example, if you have invested in some improvements, it is normal to ask for more money.

My personal experience shows that probably the most adequate method to determine the price of your rental unit is the last option I just mentioned. Often you will be able to end up with a higher profit than your competitors.

Author's Profile

Tom Dwan works for professional cleaners in Geelong. He is there for several years and before that have worked for the furniture giant IKEA. In his spare time he enjoys playing chess, football and computer games.

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