Private Property Issue #5

"What Rent Can I Charge?"
5th May 2022

In last week’s Private Property, you saw this map showing how rents have increased astronomically across the country due to inflation, interest rates and new tax rules.

So many property investors are thinking, “should I raise the rent?”

But, raising the rent can be an emotional topic. Rent is your tenant’s largest expense. And as an investor, you don’t want to feel like you’re taking advantage of vulnerable people.

So I want to introduce you to the RightRent system. It’s a systematic, fact-based framework that helps you decide what rent to charge.

So how does the RightRent system work?

You find out what similar properties in your area are renting for. You can then charge a similar amount.

You’re probably thinking, “Andrew, that is so obvious. What’s so special about this?” The thinking behind it is self-evident, but here’s how you put it into practice.

You need to create a structured table to help you figure this out. I’ll walk you through a case study of how to use this below.

But, here’s an example of the sort of table you should fill out in Word.

What rent do I charge in Christchurch

Here’s a case study. I was trying to set the rent for one of my properties. It’s a 2-bed, 1 bath, 2 car park apartment located in Central Christchurch.

It’s currently renting for $405 – well below the market rate.

So first, I went to TradeMe to see what similar properties were being advertised for.

I found this one – a 2-bed, 1-bath, 1 car park apartment advertised for $490 per week.

This is where you now need to switch your mindset and think like a tenant. Ask yourself, “if I was a tenant, and both these properties were advertised at the same rent, which one would I choose?”

If I was a tenant, I’d pick the other property. Even though my apartment has an extra car park, this other one is in a better location, is newer and has a slightly larger floor plan.

So the other property is superior to mine. So now you put that in the table with the justification (that is very important).

How Much Rent Can I Charge

I then repeated the process 5 times to get a snapshot of the rental market.
What do we see?

Properties better than mine are advertised for $490 to $500. So, I can’t charge that much. The maximum I could consider is $480 ($10 less).

Properties that are inferior to mine are being advertised at $450. So I can charge more. So the bottom of the market range is around $460 ($10 more than the other properties).

So the fair market rent for this property is between $460 - $480.

You can now make a judgement call about what rent to charge.

In this case, my tenants haven’t caused any issues. So I’ll offer it to them at the lower end of the market range – $460.

If they decide to leave and find somewhere else to live, I’ll likely advertise the property at the upper end of the range – $480.

Why is this process so powerful?

You’re grounding your pricing decision based on facts and data. You can then hand this assessment to your property manager and tenant to justify the new rent.

It also forces you to be realistic. Sure, other 2-bed apartments are being advertised for $500 a week. But I can’t charge that much because those properties are better

One final tip – make sure you save the photos off TradeMe.

Don’t just link to the listing. Because as soon as the property is taken off TradeMe, the link stops working. That means you can’t see the photos anymore, which is likely something your property manager and tenant will want to refer to.

So, save the photos into your excel spreadsheet or word doc.