Having a rental property gives you an opportunity to earn a steady income every year. However, before you rent out your property, it is imperative that you know the right rent price. Property owners must determine the accurate rental value for their property according to the market rates. Pricing your rental property at the right price based on your location will help you get a quality rental deal and balance your finances.
How to assess the rental value of a property?
A property’s value keeps changing. Thus, one must calculate its value periodically. Property valuation involves estimating a property’s selling price, rental value and market value using various methods. Finding the actual market value of your rental property can equip you to negotiate and get the best deal.
Determine how much rent other property owners in your locality are charging for similar properties in terms of area, number of bedrooms, age, etc. Analyse the properties that best match your property and determine the rental charges and occupancy rate. One should note that some owners may charge high rent for properties that have been vacant for a long time.
You can approach professional property evaluators or use an online property valuation calculator to determine the rental value of your house.
Why is property valuation important?
Setting the rental price has a direct impact on your financials as rent may be a significant source of income for most individuals. Renting a property often involves undertaking renovation or essential repair work to make the property suitable for tenants. It is also necessary to consider the monthly mortgage and other costs, including taxes, you may have to bear if the property had been vacant. This will help you set a good value in line with the market rates.
One should note that a higher rental value can turn off prospective tenants. On the other hand, a lower rental value can imply losses for a landlord. Thus, knowing a property’s actual rental potential by considering various factors will get you good returns.
Things to consider when calculating your property’s rental value
Rental rates
The annual rental returns of a house may range between 2.5% and 3.5% of its market value.
Example: The market value of a house is Rs 45 lakh. Then, the monthly rental value is calculated as:
If rental yield is 2.5%
Rs 45 lakh X 2.5/100 = Rs 1,12,500 per year
Monthly rental value = Rs 1,12,500/12 = Rs 9,375
If rental yield is 3.5%
Rs 45 lakh X 3.5/100 = Rs 1,57,500 per year
Monthly rental value = Rs ,57,500/12 = Rs 13,125
Thus, the monthly rental yield ranges between Rs 9,375 and Rs 13,125.
Make sure you set the rental amount based on the prevailing rental rates of similar properties in your locality.
Market value
Market value refers to the property’s current value, which is influenced by several factors such as location, upcoming infrastructure projects, etc. An area with an upcoming metro project can witness a rise in a property’s value, which will lead to a higher rental rate. Alternately, the current market value can drop due to factors such as declining circle rate, delayed infrastructure projects, rising pollution, etc.
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Harini is a content management professional with over 12 years of experience. She has contributed articles for various domains, including real estate, finance, health and travel insurance and e-governance. She has in-depth experience in writing well-researched articles on property trends, infrastructure, taxation, real estate projects and related topics. A Bachelor of Science with Honours in Physics, Harini prefers reading motivational books and keeping abreast of the latest developments in the real estate sector.
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