Landlord Advice

Rental Pricing Strategy Part 1: 5 Factors Influencing Rental Fees

Written by Diana Santos

This is a two-part article series that’ll teach you how to create an effective pricing strategy for your rental property. In this article, you’ll discover the 5 factors that can affect how you calculate your rental fees.

Your chosen rental pricing strategy plays a huge role in the earning potential of your portfolio. If you want to maximise the revenue that you get from your rental properties, make sure you’ve set the right price for it.

Before you can calculate a reasonable price for your rental property, you have to understand the factors affecting it first.

In the first part of this 2-part article series, you’ll discover the importance of setting the right rental price and the 5 factors that can influence your pricing strategy.

Importance of Setting the Right Rental Price in London

Getting that sweet rental price spot can be tricky. As a landlord, you are bound by the rules set by the Rent Act 1977. You have the legal obligation to make sure that your pricing is just right. You don’t want to charge too little and you also don’t want to charge too much.

Of course, the profit margin is also an important reason.

If you charge too little, you could compromise your property’s earning potential. You’ll reduce the profitability and you won’t be able to expand your portfolio. With no extra money to spend, how can you grow and invest in more assets?

On the other hand, if you overcharge your rental fee, that would mean more money will go to your account. But it’s not entirely good news for you. It also comes with negative effects. Unaffordability is one problem. With rental prices in London rising by 6.9% in January 2024, some people will prefer properties with lower rental fees. If your property is one of the expensive ones, they’ll lose interest in renting your unit. This could lead to longer void periods and even lower retention rates. With a high turnover, your overhead costs will be higher – not to mention the fact that it leads to more work. The bottom line is, that you may end up with a lower net income from your rental property.

The question is, how can you determine the right rental pricing strategy for your property?

5 Factors to Consider When Calculating Rental Prices

To calculate the right rental price that’ll maximise profitability and keep your property competitive, you need to consider a couple of factors. While you’re free to price your property higher than the average, you need to make sure it’s justified and worth the value.

Here are 5 things you have to consider to determine the best pricing strategy for your property.

Location and Community

When calculating your property’s rental price, consider the location first. Where your property is located and the community surrounding it has a huge influence on your pricing strategy.

Some locations command a higher rental fee than others – like London or the South East area. If your property is located in these areas, you have every right to put a higher rental fee.

You can also set a higher price in less expensive neighbourhoods if the property is new essential amenities, public transport systems, schools, entertainment centres, business districts, etc.

Property Value and Condition

Check the worth of your property regularly. Property values rise and fall over time and you can let that dictate the rental fee that you’ll impose on guests and residents. If you own a premium property and the condition is high, you can set a higher rental price compared to other rental properties in the area.

If it’s been newly renovated or upgraded, this will increase the value of the unit. Fresh paintwork, new floors and improved curb appeal are enough to validate an increase in rental fees.

Property Type and Size

The type of property and size can also determine the rental price. A studio unit won’t have the same price as a 2-bedroom flat. A 40sqm flat will be more expensive than a 30sqm flat even if they are both 1-bedroom units. Two 40sqm 1-bedroom properties won’t have the same price if one has an outdoor space and the other doesn’t.

These structural differences influence the rental price that you can set. Consider the living space that occupants will enjoy and you should be able to set a reasonable price for it.

Amenities, Furnishing and Features

Even if a unit is small in size, if it has the right amenities, you can set a higher rental price for it. Equipping it with modern appliances, extra rooms for office space, smart home devices, parking space and other features can boost its value.

Think about who your target tenants are and consider the features and amenities that are important to them. A spacious office space or pet-friendly units can boost the appeal of a property. If you give people what they need in a home, they won’t mind the amount that they have to pay to stay in it.

Reviews and Ratings

The higher the reviews and ratings, the better it’ll be for your property. 5-star ratings and positive feedback increase the perceived value and desirability of your rental space. People will know that your property is worth paying a high rental price because of the exceptional experience that past guests or residents had while they stayed in it.

If the reviews give potential guests a glimpse of the cleanliness, comfort, convenience and other features of the property, it’s a more trustworthy description. It’ll attract more bookings and increase your rental earnings.

Of course, negative reviews will have that same effect. If your property gets a lot of negative feedback, that can lower the perceived value and appeal of the property. That can also affect your rental pricing strategy.

Get Expert Help to Calculate the Right Rental Price

Using the right rental pricing strategy is crucial to maximising the earning potential of a property. If you want to optimise it to get more returns on your investment, you have to choose the right strategy to implement.

Fortunately, there are guidelines that you can use to help you calculate the right rental price. It’ll be the sweet spot between maximising your rental income and staying competitive in London’s thriving rental property market.

If you want to know more, read part 2 of this 2-part article series. The second part will give you specific tips to calculate your rental price and how you can increase it to boost your portfolio’s profitability.

To get professional assistance in calculating the right rental price, City Relay is here for you. Get in touch with us so our property experts can show you how we optimise the yields of the properties we manage.

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