Rental pricing
Buy2LetExpert recognise pricing the rent is a balance. Too high and
there will be fewer or no viewings, too low and there will be too many
enquiries. So as an example three bedroom property with a rent of £360
per week might attract a good number of viewing from single (recently
graduated) working applicants. Raising the rent to £390 per week at the
same property will start to attract more potential occupants for the
same property as well as less potential enquiries. A typical viewing at
the same property might be two couples for two of the bedrooms and a
single person for the third bedroom. In this example raising the rent
£30 per week means five tenants rather than three. There are a number of
reason why Buy2LetExpert would take the lower rent:
- Increased wear and tear. Five people at a property
(versus three) clearly impacts on appliances such as washing machines
which receive
almost twice as much use. Redecoration intervals, replacement carpet
frequency, general repairs and much more also increase. Against this
the rent has increased by £1560 per annum. However,
some of this will be swallowed up with the increased wear and tear
costs.
- Increased Voids. The more people who live at a property,
the more chance one or more of these tenants will wish to move out.
There is more chance for example of a job locality change,
unemployment, decision to move in with girl(boy) friend, etc etc.
These life changes are quite normal but almost 70% more likely in
our example of five tenants versus three. One tenant moving out may
be replaced. However, such a replacement must be approved and
referenced by Buy2LetExpert and a new contract formed meaning a new
inventory and deposit registration. This whole process costs money.
It may be that the tenants wish not to renew at the end of the
tenancy rather than find new tenants. Finding new tenants,
advertising and more costs money and time even if there is no void.
A one week void in our example costs £360 further cutting into the
£1560 gained from the higher rent. At the re let, “holding out” for
the extra £30 per week costs £360 per week...or put another way, it
takes 12 weeks to recover the one week void!
- Legal Issues. Legislation regarding Houses of Multiple
Occupation (HMO) has been changing in recent years and continues to
do so. The area is quite complex but broadly a property with two or
more stories with more than four unrelated occupants require to be
registered as an HMO.
The Main Market
In short, do not be greedy. Good tenants are best in the long term
even if they pay a little less. In the main market there is usually
quite a tight range of pricing for a similar target market. So, if the
target is a single employed graduate the rental price for a 3 double bed
apartment close to transport in Balham, London is say between £320 and
£380 per week. But2LetExpert would suggest presenting the property to
its maximum potential... and better than the competition, marketing it
well and then charging at or slightly below the market price potential
(say £360 per week). It is important that the tenant feels they have
good value for money and they could not have got the same elsewhere.
This strategy will ensure a good quantity of quality viewings which is
essential when targeting reduced tenant turnover, low voids and caring
civilised tenants who pay rent on time.
The Premium London Market
Pricing in the high end premium London market is a little different.
Such properties have a very small target market of high net worth
individuals. Many applicants will be from overseas, possibly working in
London for a couple of years. Rental prices may be affected by currency
rates, bonus levels and other drivers that have no impact on the main
market.
In this market, again, pricing should be researched carefully via
property portals etc. However, one difference with the main market is
that property is presented with a 'target price'. Potential clients
would then be expected to make an offer and negotiation could continue.
Advertising in this market might result in two or fewer viewings a week
but all viewing are likely to be serious and are likely to result in
repeat viewings. Compare this with the main market where you might
expect several viewings a day and tenants competing. Certainly no 'rent
offers.'
Finally, in the premium market, where rents can exceed £2000 per week,
the costs of voids are enormous. Hence a two year contract versus a one
year is always preferable even if the rent is a bit lower. Longer
contracts should consider inclusion of inflation (CPI) clauses on rental
prices beyond the first year. Buy2LetExpert can advise in more detail
but suffice to say the premium rental market has a few aspects that are
slightly different from the main market.
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