So, you have a property that you wish to rent out. But how do you set a fair price? If you set the price too high, you’ll probably struggle to find a tenant. On the other hand you would like your investment to be as profitable as possible. By doing thorough research you can establish your rental sweet spot. Here are a couple of factors to bear in mind:
Inform yourself about the general trends in your area. For example, the property boom that Cape Town has experienced over the past couple of years seems to be coming to an end and rental agents currently have up to 30% of the properties under their management standing vacant. If you are renting out property in Cape Town, you probably won’t be able to continue increasing the rent by the percentages that the market has tolerated over the past couple of years.
Establish your bottom line. Make sure you know the minimum rent you need to cover your costs. You may find that your bond repayments will not be entirely covered by the rent and you will need to make a contribution. Do your budget and work out how much you can afford to pay in.
Study the TPN Rental Monitor. TPN’s quarterly Rental Monitors are jam-packed with valuable information about the rental market, including the tenants’ payment performance in all the provinces and also across rental bands. Here are some interesting statistics to be gleaned from the Rental Monitor:
- In the Western Cape 89% of tenants are in good standing, as opposed to Gauteng (82%) or the Free State (78%).
- If your rental is between R7 000 and R12 000, you are much more likely to have a tenant in good standing (87,9%), whereas the tenants who rent for more than R25000 are less likely to be in good standing (78,9). Below R3 000 good standing is down to 74,6%!
Consider your requirements for the security deposit. Tenants that are busy moving from one rented dwelling to the next often battle to afford the deposit with the previous deposit still tied up. If the deposit is too high, it may scare away prospective tenants.