How to set the right rent price for your BTL

Summary

You want to make sure you’re charging the right rent for your buy-to-let (BTL) property. Set it too high, and your property may sit empty for months. Set it too low, and you’re leaving money on the table that could help pay off your mortgage.

Before we show you how to set the right rent price for your BTL, let’s consider the factors that determine rent price.

In the UK, landlords are allowed to raise rents once a year, and most property owners seem to be exploiting this to match inflation rates. Rents are seeing an upward trend in the country, with private rental properties recording a 6.1% hike between October 2022 and October 2023. With demand continuing to outstrip supply, now is the time to make sure you have the perfect price point for your rental.

3 Factors that influence your BTL rent price

Several factors can influence how much rent you charge for your buy-to-let — external and internal. External influences on rental prices include economic conditions, location, and the local housing supply. On the other hand, internal factors are determined by the property’s condition.

1. The property’s location

Rent is largely influenced by the location and neighbourhood of the property. Developments situated in sought-after areas that feature excellent connectivity, reputable schools, and low crime rates typically command higher rent. To gauge the local rental market, it’s beneficial to check platforms like Rightmove to compare prices of similar properties.

2. Property type and condition

The type and condition of your property are significant factors as well. Newer properties or those recently renovated can charge a higher rent compared to older ones that require extensive repairs. Larger flats and houses also tend to fetch higher monthly rents owing to their size.

3. Balancing costs with profit

It’s crucial not to neglect property expenses. The rent should adequately cover essential costs such as mortgage payments, insurance, taxes, utilities, and maintenance while also ensuring a profit. If these expenses aren’t met, the investment might result in a net loss.

A good understanding of these factors puts you in a better position to set the right rent price for your rental property. With that out of the way, let’s discuss valuable tips to adhere to when setting the right BTL rent price.

How to set the optimal rent price

Having analysed the above rent-influencing factors, heed the following tips to ensure you’re neither overpricing nor underpricing your rental property:

Negotiate with a higher starting point

Begin with the maximum price range of properties similar to yours. Remember, negotiation can always bring the price down, but it’s challenging to attempt to increase it once a lower number has been put forth. So, aim as high as possible—but not too much—to avoid future regrets.

Perform a rent analysis

Consider conducting a comprehensive rent analysis for your specific property type and location. This should factor in the condition of your property, the amenities it offers, and your incurred expenses. A thorough analysis will help you arrive at a price that’s both fair and profitable. Aim for a price that covers at least 10% of the total property value on a yearly basis.

Be flexible with low demand

During periods of low demand, it might be necessary to compromise on the rent to reduce turnover and minimise vacancy. It’s generally more beneficial to have a tenant paying a slightly lower rent than to have a vacant property not generating any income at all. Therefore, consider lowering the price if there is a scarcity of tenants.

Manage annual rent increases

When it comes to increasing rent, you want to ensure you don’t hike prices such that they exceed the annual inflation rate. This strategy is particularly effective in retaining good tenants. Large rent increases risk, driving away tenants to cheaper accommodations.

By carefully considering these strategies, you can set a rental price that balances profitability with tenant satisfaction, ensuring a steady income stream from your property investment. Also, when you streamline rental operations with a property management software like Rentila, you can adjust rent prices with just a few clicks. However, there are certain mistakes to avoid for the best results, as we’ll observe below.

4 common BTL rental pricing mistakes to avoid

Evading common errors when determining your BTL rental price can save you a substantial amount of time, money, and potential headaches.
Here are the most common pitfalls to steer clear of when it comes to fixing rent prices:

1. Underpricing

Again, be cautious about setting the rent too low. It’s easier to reduce your asking price than to increase it once tenants have already moved in. Begin with a higher quote, leaving room for negotiation.

2. Overlooking costs

While you can’t possibly cover your entire building cost in rent, ensure it covers all operating costs plus a reasonable profit margin. This includes mortgage payments, insurance, taxes, utilities, and maintenance. Failure to account for these can eat into your profits, making your investment less lucrative than anticipated.

3. Ignoring market trends

Staying abreast of market trends is crucial for a successful BTL investment. Regularly check rental comparisons every 6–12 months and adjust your rental price accordingly for new leases. This can help you stay competitive and attract quality tenants.

4. Choosing odd price points

Select a rounded, memorable number for your rent. For instance, choose £900 instead of an unusual figure like £873. A straightforward, rounded figure is easier for potential tenants to remember and can subtly enhance the attractiveness of your property.

By avoiding these pitfalls, you’ll be in a stronger position to set a rental price that hits the sweet spot of profitability and attractiveness. Do your due diligence, know your numbers, and don’t undervalue your property. However, as mentioned earlier, it’s important to review your pricing regularly to stay competitive — the next section explains how to do that.

Regularly reviewing and adjusting your rental price

The rental market is akin to a living, breathing entity, always in flux, so it’s crucial to regularly review and adjust your rental price in tandem with the latest trends. While a minor increase might seem insignificant at first, failing to adjust rents periodically can culminate in a substantial loss of revenue over time.
Let’s walk you through how to effectively adjust your rental prices below.

Understanding the impact of location and neighborhood

The appeal of a neighbourhood can shift rapidly, significantly influencing what tenants are prepared to pay. Regularly analyse recent sales and rental listings in your vicinity to gauge whether rents have escalated or declined. Depending on the trend, you might need to decrease your price to stay competitive or seize an opportunity to hike it up.

Assessing demand and vacancy rates

If securing qualified tenants becomes a challenge or your vacancy rate exceeds the average, it could suggest your rent is overpriced. Consider reducing it to spark more interest, even if only temporarily. Once you have a steady tenant base, you can contemplate reinstating the rent to its previous level or marginally higher.

Balancing rising expenses

The costs of running a property are perpetually changing, and your rent must cover these expenses while ensuring a reasonable profit. If taxes, insurance, utilities, or maintenance fees have recently surged, you might need to increase the rent to maintain your financial equilibrium. Before making any arbitrary decisions, always do a precise calculation of your different landlord expenses.

Benchmarking with comparable properties

It’s advisable to survey recent listings for comparable properties in your area to understand what they’re charging for rent. Ensure these properties are genuinely comparable based on criteria like the number of rooms, square footage, amenities, and overall quality or condition. To remain competitive, aim for an average to slightly above average rent for similar properties.

By keeping an eye on key factors (like demand and vacancy rates, property management costs, etc.) and regularly adjusting your rental price to match, you can ensure your property remains attractive to potential tenants and profitable for you.

Frequently asked questions

How do you work out what rent to charge?

To determine the rent to charge, consider local market rates for similar properties — the location of your property can significantly affect the price. Evaluate the condition of your property and any included amenities or furniture, too. Also, be aware of any rent control laws that may apply in your property’s location/region.

What should my rent be?

Your BTL’s rent should reflect local market rates, the property’s location, its condition, and any included amenities or furniture. Bear in mind that many tenants follow the rule of spending about 30% of their gross income on rent. Always check for rent control guidelines to ensure you’re on the right side of the law.

Can a landlord increase rent by 20 per cent?

As a UK landlord, you’re permitted to raise the rent once a year, but it’s crucial to consider market rates and tenant affordability. A 20% increase may seem high and could lead to vacancies. Always research local rental prices, consider your tenants’ situation, and understand local rental laws before deciding.