How to price your rental property
In the case of renting out an apartment, it is very important to be able to price the apartment properly before the advertisement is posted, as for the maximum rent possible, you will need a properly valorized apartment. It happens frequently that the owners start to advertise the rental property at a higher price, expecting a dream revenue — which is often based on unrealistic expectations — saying that “we will reduce the rent” if it cannot be rent out at this price. However, this is a pretty bad tactic, as consequently a poorly priced property (that is, advertised at a price that will have no or little demand based on the property’s features) can be vacant for a long time and the and this will mean a significant loss of revenue or loss of several months’ rent for the owner. This is an alternative cost besides our future income, so if you finally find someone who temporarily rents the property at a poorly calculated price, you will have to subtract from it the few weeks or even months when the property was empty and generated no income. Therefore, for continued occupancy, it is important to be informed before the apartment is advertised to be able to determine what is the reasonable rental fee for your property. For this, we collect the most important aspects for you!
The first, and perhaps the most obvious, but also the most important piece of advice is to try to think like a tenant when pricing an apartment, besides keeping in mind the market pricing, of course! As a tenant, one of the most important considerations when looking for an apartment is the location of the property. This can, of course, impact the rental fee significantly, as the security of the area, the level of infrastructure, the type of the property (block of flats or detached houses) are all decisive factors. However, all this in itself does not mean an exact guideline for determining the price, as there is no use if the apartment is in a great location if it needs to be renovated technically and aesthetically as well. While the value of a property — for example, in the case of a sale — is even more significantly influenced by its location (as the development and appreciation of the neighborhood can mean that the value of the property increases), this value increase will understandably be a less important factor for a tenant using the property for only a few months or years (so ideally it will impact the rent less as well). In many cases, if you do not take into account the essential differences between properties, such as technical, aesthetic and functional condition (e.g. the condition of the property, the number of equipment, furniture or component in the property), you can determine a disproportionately high rent by looking at apartments for rent in the neighborhood on different advertising sites and determine the rent based solely on their similar location (“if this apartment is worth that much, mine can be worth more!”) without considering the condition and equipment of the apartment.
In compliance with the things described above, thinking like a tenant, location matters not only in terms of which quarter of the city center the apartment is located, but also in terms of how long it takes to get to work, school or downtown in the chosen district, what public transport options are close to the apartment, what kind of shops are in the neighborhood (i.e. what is the infrastructure and the level of development in the neighborhood). For families, it may also be important to have kindergartens and schools nearby. When choosing the tenants (especially the tenants in Central Europe), the question of who you would like to rent out your apartment to what is your target group is somewhat related to the area. If the property is located nearby a university, students are the easiest to target, and if your house is in a suburban area, families and young adults are likely to be the right target group and all this will affect the price as well.
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As we have already mentioned in connection with the location, the condition also plays a key role. Of the two apartments located next to each other in a good neighborhood, the one that is in a good technical condition (water conduits, electric wires, etc.) and aesthetically pleasing (renovated premises, claddings in a good condition) can be rented out at a higher rental fee. And for a tenant, renovation does not mean only freshly painted walls either. If at least one room in the property (e.g. the bathroom) has not undergone a real renovation (the repair/replacement if needed of the tiles, water conduits, ventilation system and heating) do not advertise the property as “renovated” as during the pricing you are misleading yourself, along with the disappointed tenants. It’s a good idea to phrase your advertisement honestly and accurately, to indicate the renovations by writing down the facts, as this can help to have continuous occupancy. Moreover, the apartment in the previous example that has the proper equipment, mechanization (kitchen appliances, washing machine, etc.) and furnishings (kitchen furniture in a good condition) can be rent out at a higher price — and the emphasis here is not whether the apartment is furnished or not. It is more important for the apartment to be equipped with functional furniture that is of good aesthetic value and has a good condition than the fact that the apartment is furnished or not. Furniture from the 1980s — or from earlier — will not increase the value of the apartment not only because of its appearance, but also because of its functional quality, as for most tenants this type of furniture is only a nuisance — difficult to move, clean and it is uncomfortable — in this case, it is advised to rent out an empty apartment if you cannot or do not want to spend money on new furniture, and in this case, the fact of furnishing should not be added to the property as significant value. Do not make the mistake of pricing only the positive aspects of the apartment and not taking into account its bad features!
As we have discussed above, landlords often make the mistake of determining a rental fee for the rented apartment relative to a hypothetic selling price. This is of course partly understandable, as you want to compare the return to value, but several problems may occur. On the one hand, it is quite rare to determine the selling price through a real valuation, so what you compare the rental fee to is often only a price only assumed by you. On the other hand, when selling a property, pricing is based on other characteristics (such as long-term value growth, charges on the property, planned investments in the area, and whether the property is rentable or not). Moreover, when selling, buyers may be able to pay “more easily” a higher price — slightly more than the “real” value — for an apartment they like, if they have the opportunity, as the apartment becomes their property, so they may choose the property differently. For this reason, the selling and renting market is not, or significantly more difficult to compare, than to be able to determine the rental value from the sales price you envision. The other typical mistake is to disregard the current return of other investment vehicles. Today in Hungary and in Europe in general, real property is still a very good investment vehicle. It is a relatively low-risk investment vehicle with a good return on investment, ranging from ~3.5% to ~8% (you can read about the return in Hungary here). This is something to keep in mind when buying a new home, as you can easily fall into the mistake of overpricing the property striving for an unrealistic return — especially if the new owner got it at a high price — (while chances are you wouldn’t get a better interest rate on any similar investment). So do not want to get the price of the property back as soon as possible with an unrealistically high rental fee, stay realistic and strive for continuous occupancy! As a landlord, the most important thing is not to think of the rented out property as an investment only in terms of the income. An investment also has costs sometimes, no matter what kind of investment vehicle it is. This doesn’t mean that you shouldn’t want your property to generate a fair income, on the contrary, if you are expecting a good return on our property, you have to create the conditions for it by optimizing your property according to the demand, in this case, according to the tenants, and to consider its features when pricing the property. With this, you can ensure continued occupancy and a better revenue.
With all of this in mind, you can find the right rental fee for your apartment easier, but if you still have doubts, write to the BES team, with years of experience in the housing market we can help you find the highest rental fee you can realistically have free of charge, since the right pricing is our common interest!
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