How to determine how much rent to charge

As a property owner there is one question that you probably ask yourself at least once a quarter. What should I be charging for my rental property?

At times it seems that it can be like plucking a figure from mid-air and we are often guided by what we believe the market is willing to pay.

Well, do not fear! There are a number of tools that you can utilise to ensure you make an educated decision, otherwise you can call on the expert advice and guidance of the friendly team at McPherson Property Management.

The first tool you should check out is the Market Rent data provided by the Ministry of Business, Innovation and Employment.

Market Rent Data

Using the Market Rent data collated by the Ministry of Business, Innovation and Employment, you are able to review bond lodgment data that has been collected within the different Christchurch suburbs. The collated information is broken down into the number of bedrooms, types of dwelling (house, flat etc.) and then provides average rent rates, median rates, upper and lower quartile values.

For example, if we review the data for the suburb of Addington, you’ll receive the following.

If you were a landlord of a 4 bedroom house in Addington, an asking rental value of $453 is bang on the average rent for this particular accommodation type within the suburb. Alternatively if you were asking $506 or higher, you are getting into the upper limit of potential occupancy. It may be that you have a high end house that can ask for this price, but it is important to be realistic in your asking price based off the ‘standard’ of your property.

But what can people afford to pay?

In most centres or towns what people can afford to pay will generally drive the asking price of a rental.

Unfortunately for Christchurch, the 2011 earthquake created a huge divide within the supply and demand balance, forcing prices up as accommodation became a premium and the market became extremely competitive.

What eventuated was that many people and their families were unable to afford rental in Christchurch and were forced into less that desirable options – either having to shift out of the Christchurch region or into shared accommodation.

The NZ Herald has put together an interactive map that looks at the household income of individuals, based off the 2013 Census Data. It provides an approximate breakdown of locality vs annual household income.

For example, looking at the suburb of Riccarton you could make a general assumption based off this data that the area is home to potentially lower earners – due to the higher proportion of $0-50k earners noted in the map.

This tool is extremely subjective and should be used with caution, however it may provide an indication of the potential affordability of a house within a short period of time.

Comparable Comparisons

As you have probably noted reviewing this information, an individual dwelling’s rental value is not going to be found through just reviewing the median rental value for a suburb or the average annual income of a household.

It requires some leg work! By looking through websites such as Trademe and rental companies, you can also view what else is on the market in that area, searching for comparable properties and seeing how many similar properties there are. The more there are, the more choice the market has means that you may need to determine how you can stand out from your competition to avoid long vacancy periods). Other factors that you may also review are the period of time that similar properties have been advertised for. If these properties have been on the market for a long period, there may be a problem with the rental price that they are asking for.

Conclusion

With each of these data sources, it is important to look at the individual houses within the suburb and their own special characteristics, as this will dictate the rental value and whether it is above or below the median value.

There are a myriad of factors that will impact upon what to charge and drive your motivation for requesting more or less in terms of rent. Factors that will impact your decision making process, will include:

– the number of rooms in the dwelling

– the state, age and standard of the house

– parking arrangements – whether there is built in garaging or off-street parking

– additional facilities such as a pool or spa bath

– whether the house is semi- or fully furnished, and

– access to neighbourhood facilities – especially school zones, etc.

While the individual characteristics of a home will drive your final decision of what to charge in terms of rental, the tools discussed here give some great background information on where your starting point should be and an indication of the elasticity of the potential rental range.

There is always the opportunity of getting this analysis undertaken by a professional, so if in doubt, contact McPherson Property Management and have a conversation with us about your potential rental value and yields. And if it all seems a little too hard or complex, leave it in the safe and capable hands of one of our property managers. Contact us today.