All Topics / Help Needed! / Calculating a fair rent

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  • Profile photo of Lach_alexanderLach_alexander
    Member
    @lach_alexander
    Join Date: 2008
    Post Count: 1

    Hello all,

    My dad has an investment properrty in Jan Juc, Victoria.  It is on Domain road (for those who may be familiar) which is a great location: short walk from the beach, quite street, close to shops etc.  It has three bedrooms, a 1 car garage, 1 bathroom, but is relitively small.  After research on some comparable houses I believe the value of the house is about $450 000 to $550 000.  The rent that dad charges is $105 per week.  Is this enough?  Is there a formula what looks at the value of the property and get .05% of it or something to give me the rent? 

    Regards,
    Lachlan

    Profile photo of LalibellaLalibella
    Participant
    @lalibella
    Join Date: 2007
    Post Count: 116

    Hi Lachlan, welcome to the forum.
    I'm not aware of any particular formula for calculating rent, its usually market forces. Supply and demand etc. Also what others are paying in comparative houses and area.
    $105 sounds like a bargain (and a poor investment for your Dad).
    There was only one house for rent in Jan Juc on Domain and it was a 3 bedder for $380/week.
    When was the rent last reviewed and by whom?
    Personally I review the rent every 6 months to check if its appropriate. I don't necessarily raise (often cant or dont want too )however I'm not a charity and it makes poor business sense to not know what your product is worth.
    Perhaps getting a market appraisal from a local REA may help. Good luck.

    Profile photo of ducksterduckster
    Participant
    @duckster
    Join Date: 2004
    Post Count: 1,674

    Does property have built in robes, air conditioning, ducted heating, modern kitchen , good bathroom, recently painted
    What you have to do is compare what other properties are renting at. And what features they have as mentioned in the first line of this comment. I looked on www,realestate.com.au
    http://www.realestate.com.au/cgi-bin/rsearch?a=s&cu=fn-rea&s=vic&ss=&ag=&t=ren&snf=rbs&chk=0&lead=&ty=&searchFormSource=advanced+search&tb=jan+juc&u=JAN+JUC&is=1&pm=&px=&pme=any&pxe=any&minbed=&maxbed=&cat=&p=10&o=def
    There are 5 properties on it.
    So if you have a tenant already in the place you cannot jack the rent up from $105 a week to say $300 a week. The tenant can complain to the tenants tribunal that you are raising the rent by an unreasonable level. Regular reasonable rental increases every 6 to 12 months conditions the tenant to rental increases and your dad can slowly catch up with the current rental market rent levels. For example a $10 a week increase is like a 10% rent increase to the tenant
    Where as a $105 to $300 a week increase is approximately a 200% rent increase to the tenant which may be seen as unfair by the tenant..
    I was in the same predictament but my previous tenant broke the lease for personal reasons and I was able to increase my rent to market value minus $20 ($20 a week reduction due to not having ducted heating, garage, ect) for the next tenant.
    about 8 years ago I made the mistake with one of my tenants in not increasing the rent regularly over 8 years and the rent fell behind so I increased the rent from$130 a week to $135 a week and the tenant abandoned the property. $5 a week was about a 5% increase and it caused the tenant to leave. The market rent was $160 a week when I increased the rent by $5 a week.

    If your dad has not increases the rent for a number of years for this tenant you might find the tenant moves when faced with a reasonable 10% rental increase as they are not used to having rental increases and realize the good low rent is a thing of the past and they will be facing rental increases from now on.

    Unless the current tenant moves to another house and then you can increase the rent to the market value in one hit.

    Formula

    $105 a week = 105 * 52 = 5460    per annum 
    yield = 5460/450000 * 100 = 1.2%

    $300 a week = $15600
    Yield is 15600/450000 = 3.4%

    Other areas in Victoria have rental yields are between 4.0% to 6%
    Worked out by going on http://www.realestate.com.au and looking at what is being sold that has a current tenant renting at $x per week. Unfortunately None at Jan Juc selling with tenants. So at a lower 4% yield value.

    450,000 * 4.0/100 = 18000 per annum.
    rent = 20250/52 = $346 a week

    Check local real estate agents that rent properties. Might be worth having them take over the management of the rental property as they can assess the achievable rent.

     neighbouring torquay
    http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=104615838&f=60&p=10&t=res&ty=&fmt=&header=&cc=&c=37047593&s=vic&snf=rbs&tm=1227648990
    rent $400 a week value is $490,000 – yield is  4.2% yield

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