November 22

The buy-to-let landlord’s guide to maximising rental income profit: Part 3

Buy To Let Landlords Rent setting tips

Outlinging strategies to help buy-to-let landlords maximise rental income profit in the first two posts of this four post series, I discussed factors like covering expenses and the cost of void periods. Here, I began to explore how setting the right rent is key to maximising buy to let landlord profit from rental income.
I look at what affects rental values, and the work that’s needed to make sure you’ve set the right rent. I’ll outline how you can increase the rental value of your investment property, and introduce you to emotions, and the part they play in a tenant’s decision to rent your property.

Setting the right rent for the right reasons

Well before buy to let landlords commit to buying an investment property, you’ll want to know the rental income you can expect to receive as a landlord. It’s an integral part of cash flow planning, and your objectives might include investing in buy-to-let property for positive cash flow and not capital gain.
All too often, clients who have never worked with us before have not done the hard yards to establish the right rent on their buy-to-let property. They end up trying to rent at too high a price and suffering prolonged void periods, or renting at a rate that leaves them in unnecessary negative cash flow. Either way, rental profits fail to live up to expectations.

How do you know what the right rent is?

There’s only one way to know what the right rent is for your investment property, and that is by knowing the rents for similar private buy to let properties in the same area. You have to discover what tenants are paying for rental properties of the same size, same standard, and with the same access to amenities and facilities. Here are the crucial factors used to compare rental values:

·      Buy to let property location

Limiting your research by location is crucial. A two-bed apartment in the centre of London will have a far higher rental value than the same property in the middle of Hull. Okay, so that might be a little extreme as a comparison; but you can see what I’m trying to stress for you – location and locality makes a difference.
For example, an apartment within five or ten minute walk from a tube station will probably command a higher rent than one fifteen , twenty or twenty five minutes away.

·      Property type and size

It’s not a good strategy to compare apples to oranges. They may both be fruits, but you’d be a fruitcake to expect them to be in the same demand and sell at the same price. It’s the same with buy-to-let investment property. You may have bought in the best places to invest in property UK, but that doesn’t mean a period two-bed house will rent for the same price as a new build two-bed apartment.
When comparing buy-to-let investment properties for rental values, buy to let landlords must benchmark against other similar property types and size to benchmark effectively.

·      Location and aspect on development

Not all buy to let properties are equal either, even if they are located in the same development. A two-bed ground floor apartment over looking a street probably isn’t going to rent at the same price as a two-bed fifth-floor apartment with a stunning view. One with a view over open fields will have a different appeal (and price) to one that faces a skyline or a station car park. Plot choice is critical and different plots appeal to different tenants for different reasons.

·      Development amenities

Increasingly, developers of new build properties are including appealing amenities in the development. Underground car parks, heated swimming pools, concierge service, gardens and gyms are just a few. A development where tenants enjoy such facilities will usually command higher purchase prices and rental prices than similar developments that don’t have all the bells and whistles. Buy to let landlords need to be careful what you’re actually comparing to ensure you’re comparing like for like and your anticipated reaturns and expectations are realistic.

How a buy-to-let landlord sets the right rent

Now you know what affects the rental value of your property. You can start the hard work of rental price discovery.
A. Start by searching the Internet, making a list of similar properties to yours close by. If there are some on the same development, that’s even better.
B. Don’t forget to look at the local press, as well as letting agents’ windows, another valuable source of information.
All of this work is necessary to give you a feel for rental prices, but it won’t provide accurate pricing. For that, you need to go a step further and speak to letting agents, and plenty of them. To get a handle on the real rental value of your investment property, you need to wear two hats:
Wearing your buy to let landlord hat…

  1. Phone letting agents and ask about the rental value they think you’ll get as a buy to let landlord of your specific property type.
  2. Try to call at least five agents, being as comprehensive as possible.
  3. Ask if they act for landlords like you, with properties similar to yours
  4. There’s little value in asking an agent what they could get you for an inner city apartment when they only rent out country pad

Next, wearing your tenant hat, phone the agents and pretend to be a prospective tenant, wanting to rent a property like yours in the same location.

  1. Get an idea of how many similar properties are there for let on the market at the moment
  2. What sort of volumes have they rented out in that area/ how fluid is the market over the last 12 months
  3. What sort of fees do they charge tenants and how long does the process take to get the keys to a property

I know it all sounds a little secret squirrel, but here’s what you’ll learn: there are two prices for the same property – one for buy to let landlords and one for tenants.
Agents want to secure your business as both a buy to let landlord and a tenant. They know as a landlord you’re most likely to go with the agent that says they can get you the highest rent. As a tenant, you’ll probably sign up with the agent that says he can get you the lowest rent or the best properties within your budget.
The agent then manages both landlord and tenant expectations – moving the landlord’s price down and the tenant’s price up. In other words, by posing as both a landlord and an agent you’ll get an upper range of rental prices and a lower range – the real correct right rental value is always somewhere in the middle.

How buy to let landlords increase the rental value of investment property

The value mostly determines your property’s rental price that a tenant thinks they are getting. Those factors I laid out earlier are all about value – how close is the property to local transport, what amenities does the development offer, what’s the view from the apartment like, etc.
The equation is simple: increase perceived value, and you’ll increase the rental price. Here are just three ways to increase the rental value of your investment property:

  1. Furnished properties can command a higher rent (though not always). However, furnishing an apartment or house can be expensive, so you’ll need to be careful that the costs don’t outweigh the benefits. Think about your target tenant and whether they will have their furniture, before going all-in with furnishings.
  2. Up-to-date white goods are a big selling point. Fridges, freezers, washing machines, etc. are all necessary items in the kitchen. You’ll be surprised how much value new appliances can add to an apartment’s rental potential. A package of matching appliances could cost less than £1,000 and pay for itself within a year.
  3. Including utilities and other bills in the rental price might be risky, but could increase the rental value. If you have owned the investment property for a while, you’ll have a good idea how much the utility bills are. If these average, say, £130 per month and you raise the rent by £175 per month; you will have increased your rental income profit by £540 per year. Be clear in the tenancy agreement which bills are included.

Use tenant emotions to increase your rental income profit

By now, you’ve established the market rent and will be considering ways to increase the rental value of your buy-to-let property. Now it’s time to tug on the heartstrings of prospective tenants. If you’ve ever moved house or searched for a new home, you’ll know what I’m talking about. The place that feels right is the place you want to move into. It’s the same for rental properties.

·      It’s about perception

Your first opportunity to use emotions to sell your buy-to-let to new tenants at a premium value is by clever marketing and highlighting those features with the benefits they bring, not the features themsevels. Make sure you have fantastic photos highlighting all your property’s best features, and an equally fantastic written aspirational description accompany these. You have to create the desire to live there by selling the dream – or the lifestyle your prospective tenants want to live.

·      It’s about the landlord

Tenants want to know they are renting from a great landlord. They’ll be fair with you if you’re fair with them. It’s surprising how tenants are prepared to pay a few extra quid to rent from a landlord with a good name and reputation who’s easy to deal with and professional.

·      It’s about communication

Tenants want to know they can get hold of the landlord (or property manager) easily and when needed. We have an issue or problem reporting system helps them do just that – 24 hours a day, 7 days a week. We give all your tenants an emergency number for issues that can’t wait. You take the credit and you’ll be thought of as a great landlord, without any of the day-to-day hassles of tenants wanting you at their beck and call.

·      It’s about the urgency

To maximise your rent, buy to let landlords should try and create a sense of urgency with prospective tenants. One of the strategies we use to achieve this is to schedule showings that roll one after another as well as having open sessions where people can see others who are viewing the property. It adds an element of competition and a fear of losing out on a great property.

Once the rent is set, buy to let landlords need to review it

Setting the rent at the right price is not a one-time exercise. You’ll need to maintain a keen eye on the local market to remain competitive while maximising your rental income profit. It is just one of the benefits Ezytrac offer to our landlord clients.
We’re a national property management company with a local focus. We make it our job to do all the legwork for our clients when assessing the rental value and setting the right rental price. We’ll help you with maximising rental income profits while ensuring our standard of service to you and your tenants are second to none. We’ll ensure that your tenancy agreement provides for rental reviews, and work with you to make certain that your property remains in demand.
In the final part of this four-part series, I’ll look at how to raise rents and retain the best tenants.
In the meantime, if you have any questions or queries about any aspect of property management or how to maximise your rental income profits, feel free to contact me or one of the Ezytrac team on +44  1522  503  717.
Yours in effortless property management,
Brett Alegre-Wood MARLA MNAEA


but-to-let landlords, rental income

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