How to set the best rental price as a landlord in 2023

Landlords, find the sweet spot between a too-low or too-high rental price with this advice from Seeff Property Group.

Determining the correct rental price for your property isn't just a numbers game - it's a strategic move that could spell the difference between a thriving investment and a financial headache. Whether you're an experienced property mogul or a first-time landlord, setting the right rental price is a nuanced task that warrants a deep dive (and expert insight).

A survey by TransUnion revealed that 84% of landlords consider payment issues a top concern. Evictions due to nonpayment can lead to costly court expenses, legal fees, and the effort required to fill unexpected vacancies. All the more reason to choose the right rental price upfront.

• You may not attract your ideal tenant if rental rates are too low. Conversely, overly high rates could dissuade potential tenants and leave you with a vacant property indefinitely. 
  
  
• The correct rental price offers you a great opportunity for profit. As a landlord, you could pocket a portion of the rent as profit, ranging from zero to six percent of the monthly rental income.

Seeff guides you through the key factors you must consider to price your property accurately in 2023:

Rental Price Should Align with Local Income Levels

Consider the average income of individuals residing in your property's location. Your rental rate should cater to renters with comparable incomes, ensuring quicker occupancy.

If your property is located in a middle-income neighbourhood, asking for sky-high rent akin to luxury apartments in posh areas is impractical and detrimental to your investment.

Conversely, if you set the rent too low, you might attract tenants quickly but risk under-valuing your property.

• First, consider the demographics of your target renters. Are you in a coastal town aiming for retirees, or are you located in a vibey, bustling city full of students and young professionals? 
  
  
• Do your research. Browse your local property databases for insights into average income levels and prevailing rental rates. Talking to other landlords or a trusted real estate agency is also smart to gauge the local market.

Rental Price Should Cover Mortgage Costs

Your property is an investment, and it's vital that your rental income covers all expenses associated with the property. Setting an appropriate rental price ensures that you can meet mortgage payments without financial strain. Your rental will practically pay for itself! You also want to consider the costs involved in maintaining the property. Can you cover these costs with your rental price? 

Property Amenities Will Influence Your Rental Price 

Traditionally, the accepted benchmark for calculating rental amounts has been to charge around 1.1% of the property's value. But be aware that property value changes. Amenities also play a significant role in a property’s value.

Features like in-unit laundry, parking availability, security systems, number of bathrooms, and outdoor spaces all can justify higher rent prices. It’s wise to highlight these unique selling points in your rental listing if you want to attract tenants willing to pay more for added conveniences. In South Africa, where power outages are commonplace, an item such as an inverter will be a major drawcard for tenants.  

Seasonality Will Influence Your Rental Price

The concept of seasonality isn't just reserved for retailers during the holidays or hotels in tourist destinations - it's also a factor that affects the rental market.

Demand for rental properties often ebbs and flows with the changing seasons, showing noticeable peaks during the warmer months of spring and summer. Conversely, the chill of winter usually brings a slowdown, making it challenging to fill vacancies.

Savvy landlords should consider dynamic pricing strategies that adjust based on seasonality: 

• During peak periods, you might have the leverage to ask for higher rents due to increased demand. 
  
  
• During off-peak months like winter, consider offering incentives to attract tenants. This could range from discounted rent for the first month to added amenities like free parking. You might even consider short-term leases that end just before the next peak season, setting you up for a potential rent increase when demand is high again.

Location Will Influence Your Rental Price

Rental price varies significantly based on province and city. Robust economic hubs like Johannesburg and Cape Town often have higher rental prices than smaller towns. However, as small towns grow in popularity, those rental rates will presumably increase, too. Pay attention to supply and demand and area hotspots, as these can substantially sway prices.

When determining the amount you want to charge for rent, compare it with the properties in your area.

• Find out what your fellow landlords charge for similar units and use that as your starting point. You'll want to look at the neighbourhood, recreational facilities, educational institutions, business districts, proximity, and accessibility to public transportation.
  
  
• It's important to note that your property could have the same value and features as another unit a few kilometres away. Still, it could have vastly different rental rates due to the property's location. 

Market Trends Will Influence Your Rental Price 

Inflation and changes in the local market can impact your rental income over time. You should regularly review your rental price and make fair adjustments to stay competitive and account for changes in the cost of living.

Important: You should always notify your tenant in advance of any changes that will be made.

South Africa no longer has rental control laws, which favour the landlord. Without these laws, landlords can increase their rental amount however they see fit. While this provides more breathing space for you, it is still important that you adhere to ethical and fair practices and familiarise yourself with landlord and tenant rights and responsibilities. 

Bonus Tip: Be Prepared to Negotiate Your Rental Price

While setting a competitive rental price is important, it's also wise to have some flexibility for negotiation, especially in South Africa’s current economic climate. Times are tough, and tenants seek affordability. You don’t want to lose a perfectly amicable tenant simply because you aren’t prepared to lower your rental price.

A willingness to negotiate also helps to create a positive relationship between parties.

It is important to note that the above guidelines are just a fraction of the expertise that an experienced Property Practitioner will possess. We highly recommend that you speak to your local Property Practitioner about setting a realistic and attractive rental price; their role extends beyond rental income, as they can advise on lawful tenant management.

If you are ready to rent your property, explore Seeff’s landlord services.