A rental appraisal is a great way of navigating the complexities of renting out your investment property. Whether you've just bought a rental property and you need to know how to calculate monthly rent, or it's been a few years and you need to keep your rental competitive, a rental appraisal letter helps take out the guesswork.
But what exactly is a rental appraisal?
A rental appraisal is similar to an evaluation of your property, except you're evaluating the rental price you should be charging as opposed to the sales price of the home itself. In a rental appraisal, the agent analysis the market, suburb trends and activity, the property itself, and gives a recommendation for what you should be charging on a monthly basis.
You have a few options here: you can get a property manager or real estate agent to give you a rental appraisal, or you could have a go at doing it yourself! We'll tell you all about it, as well as how to go about calculating the monthly rent yourself.
How to get a rental appraisal
The best way to set the rent price for your house is through a rental appraisal. There are three ways of going about it:
- Get a rental appraisal letter from your property manager
- Calculate monthly rent by yourself
1. Through your real estate agent
Most real estate agents and property managers should offer a rental appraisal letter. Some offer it for free and some charge you for it. Just ask your property manager or real estate agent and they should be able to help you out.
The benefit of asking your personal property manager directly is that they're more familiar with you and your situation, which might help give you more certainty.
2. Calculate the monthly rent yourself
A free rental appraisal is relatively risk-free so we can strongly recommend that, but it's still perfectly viable if you'd rather do the research yourself.
It can be a great practice for getting your head around the real estate market in Australia, especially in your property's local area.
That being said, it's a lot of research and you might lack a lot of the same tools property managers have, but it's worthwhile if you simply want to learn more about rental property valuation.
It's a great idea to get a rental appraisal letter and conduct your own research to compare the two reports. That way, you can ask your agent some great questions and improve the quality of your rental appraisal.
If you want to go down this path it can be hard to know where to start. We've made a little guide for how to calculate monthly rent to get you going.
How to calculate monthly rent on your own
For those of you braving the rental appraisal on your own, there are four key steps to follow in your process. To give you an idea of what to expect, we've set up a case study, following Kim's process as she calculates the monthly rent on her hypothetical investment property.
Do like Kim and use our five-step guide to calculating the monthly rent on your investment property.
Step 1. Look at your property's details
Before beginning any research, you need to have a solid understanding of what your property has to offer. Consider the number of rooms, bathrooms, car spaces, amenities (e.g. washing machine, dryer, aircon and so on), and location (including proximity to public transport, schools, shops and restaurants).
To give you more of an idea of what this looks like, here are the details Kim made note of when she analysed her property:
- Location: The property is a small house located in the central Brisbane suburb of Paddington. Public transport is nearby, and the property has beautiful city skyline views. There are lots of shops and cafés nearby. It's a vibrant atmosphere, so this is a suburb highly sought after by young professionals, families, and students.
- Number of rooms: There are 3 bedrooms, making it ideal for a small family, group of students or young professionals.
- Number of bathrooms: 2, including one ensuite in the master bedroom.
- Number of car spaces: 2 - in a suburb with limited street parking, this is a great asset and worth taking note of.
- Any additional amenities: The property also houses a laundry with a washing machine and dryer included; is fully air-conditioned; has built-in wardrobes in all three bedrooms, and has a small backyard with a clothesline (and very cute veggie patch!).
- Age of the property and any existing damage: Kim’s property is only 7 years old and in pristine condition, currently requiring no maintenance.
Step 2. Research the local market
Next on the agenda is taking a look at other properties on the market to get an idea of where yours fits in value-wise. Domain and realestate.com.au are your best points of reference. Have a gander at similar houses in the area. See what they have to offer and compare it to your property, then look at what they're charging.
In Kim’s case, she searches for other 3 bedroom properties in and around Paddington.
She sees that 3 bedroom, 2 bathroom houses in Paddington are ranging from $590 to $750 per week, depending on the age of the property and what amenities it offers. Those with 2 or more car spaces, that are recent builds and in excellent condition, are closer to the $750 end of the spectrum.
However, Kim also notices that very few other properties have A/C! This will help her out a great deal in making her rental property stand out in such a competitive market, and she can charge more for that.
Step 3. Add additional expenses
Before finalising your appraisal, it’s a good idea to consider whether there are any additional expenses to incorporate into your rental price. You may choose to include internet and electricity in the rent, though most landlords decide not to as some tenants prefer to manage these expenses themselves, students being the exception.
Kim has chosen not to include electricity and internet in the rent. As there are no other expenses to consider, she’s good to go!
Step 4. Finalise the rental appraisal
Now it’s finally time to crunch the numbers! Consider what you’ve learned about the market in your area, the age and state of your property, and any additional expenses before finalising your rental price.
After closely examining the property market trends and evaluating her property’s place in the Paddington real estate market, Kim is confident that her house should be rented out for between $760-$790 per week.
The reason why Kim decides to set the rent a bit above similar properties in the area is because she has a competitive advantage. Since he has an A/C and others don't, she is able to charge a bit more.
After you've done this you have the choice of getting a rental appraisal letter online and comparing that to your findings. Trust us when we say that something really insightful usually comes of it!
Once that's done, it's time to get the property on the market!
Step 5. Monitor your property's performance on the market
Once it's on the market the rental appraisal isn't over yet!
No matter how many precautions you take and the amount of research you do, there's always the possibility that you've missed the mark, and so is the case for your property manager.
Make sure that you keep an eye on a few performance metrics:
- Are you getting less than 2-5 applications a day on average?
- Have you gone 6-7 weeks without a tenant in your property?
If one of these falls true, it might be an indication that you should reduce the rent on your rental advertisement.
To help you out, you can use our guide for reducing rent on rental properties where you'll learn when you should do it and how much you should reduce it.
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