The best time to review the rent is at the end of a fixed-term tenancy. If your tenants are on a periodic tenancy (weekly or monthly basis) then rent is usually reviewed once a year.
Remember that any rent increases have to be ‘fair and reasonable’, which basically means in line with similar properties in the area. However, if you’re new to being a landlord or you’re out of touch with the market after long-term tenants have moved out, then you need to know what monthly rent is realistic for London.
Knowing how much rent to charge
Just like negotiating a salary at work, knowing how much rent to charge is part art and part science. You can look at similar rentals in the area, but the final call depends on many variables that are unique to your property.
Go too high, and your place will be sitting empty. Go too low, and you’ll end up undervaluing your investment.
Begin with your market research
In London, rents can change considerably depending on new developments in the area and access to Tube lines. Here are some of the variables that will push the rent up or down.
- Compare the number of rooms, type of property and whether it’s furnished or furnished.
- Adjust for commodities such as white goods, in-built technology, available parking spaces, access to garden etc.
- Check our properties to rent in London (or portals like RightMove and Zoopla) to find out what other properties cost to rent in the area.
Try to narrow the potential rental income down to a bracket between £x – £y. We recommend setting a realistic price that strikes a balance between maintaining a healthy return and minimising any down periods between tenants.
For Keatons, setting realistic rent prices has actually led us to achieve higher returns for customers compared to other letting agents in East London.
A word on buy-to-let mortgages
If you have a buy-to-let mortgage, then you’ll want to make sure the rent more than covers the mortgage repayments. A few of the hidden costs of being a landlord include:
- Repairs and maintenance (1% of the home’s value per year depending on the property).
- Solicitor and surveyor fees if you are buying the property.
- Letting and management fees (you can find our landlord fees here).
- Stamp Duty (you’ll usually have to stump up 3% on top of the normal SDLT rates if you’re buying a property that is not your home).
As a minimum, rental income should ideally be around 125% of the mortgage repayments.
Understanding rental yield
The ‘yield’ is basically how much annual return you get on your property. It’s shown as the difference between the rental income for the year and how much the property cost.
For example, imagine you charge £400 per week to rent your flat in East London. The annual rent is £20,800 (the weekly rent multiplied by 52 weeks). If the flat cost £200k to buy, then the yield on your investment would be 10.4%.
What’s left after expenses is your net ‘yield’.
This is the figure you really need to know if you own a buy-to-let because this is the amount that you’re taxed on, and is what ultimately makes it a profitable investment or not.
If you want to know how much rent your property can achieve, we always recommend speaking to a local agent that knows the climate of the market and has relationships with potential tenants. At Keatons, we look after landlords across London (many of them in East London) and have one of the lowest rental arrears in the industry. Request a free valuation and we’ll tell you exactly how much rent you can expect in your bank account each month. If it makes financial sense, being a landlord in London can be a rewarding experience and can help to put money towards future goals such as retirement. However, if your property shoots up in value, don’t forget that you will eventually need to pay Capital Gains Tax on any profits when you come to sell.
See our full list of property advice articles in our Knowledge Centre.
Keatons has been based in East London for over 20 years and has since expanded to the north and south of the city. We have an outstanding Trustpilot rating from customers and we are known for helping sellers and landlords achieve the best possible market price for their property. To find out more, visit our website.