From Losses to Gains: How to Calculate House Rental for Optimal Returns

As homeowners prepare to rent out their property, one of the biggest challenges they face is determining the ideal rental price. Striking the right balance between attracting tenants and avoiding financial losses is crucial. However, calculating the optimal house rent involves more than simply picking a number out of thin air. In this insightful blog post, we will delve into the essential factors that influence rental pricing and serve as key determinants for homeowners. Join us on this journey as we explore these factors with the help of PropertyScout.

Calculating based on Market Prices

The first method of calculating house rent involves comparing similar properties in the same location. This method is applicable when there are properties of the same type and similar size available. By comparing these properties, you can obtain a more accurate rental price that closely aligns with the market value.

The advantage of using this approach is that it not only provides us with the average price but also gives insight into the price range at which competitors are renting their properties. This helps us determine a suitable and competitive rental price in the market. However, if there is a limited number of comparable properties available, it can be challenging to find an accurate rental price. Additionally, in a highly competitive market, using this method may not yield significant profits as it might require lowering the rental price to compete and attract tenants.

To begin, start by searching for rental properties in the same location with similar characteristics on online platforms or listing websites. Create a table to compare the rental details of each property for easy reference and calculate the average rental price. If you want to rent out your property quickly, consider setting the rental price slightly below the average to attract tenants more effectively.

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Calculating based on Rental Yield

Calculating house rental fees based on rental yield is the most reliable method for optimal returns. It requires surveying price and rental data in the area to determine the average. Then, reverse-calculate to find the appropriate rental value.

This method may be complex but yields accurate results. Typically calculated as a percentage, the average rental yield is used to determine the suitable rental fee. Additionally, reliable sources provide investment returns for specific projects. Multiply the average yield by the property's value, divide by 12, and you'll obtain the monthly rental price.

For example, if you wish to rent out a property in Bangna at a purchase price of 3,000,000 Baht, consult trustworthy listing websites to find the average rental yield in that area, around 4%. Use the formula below to calculate the profitable rental price:

1. Multiply the house price by the rental yield percentage (3,000,000 x 4% = 120,000). This gives an annual rental yield of 120,000 Baht.
2. Divide the annual rental yield by 12 (120,000 ÷ 12 = 10,000). This results in an initial monthly rental price of 10,000 Baht.

Note that you can adjust the rental price up or down from this initial amount, depending on factors such as additional property enhancements or amenities.

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Calculating based on size (in Square Meters)

If you want to use this method, start by calculating the price per square meter. Divide the rental price by the area in square meters. Then, multiply the resulting price per square meter by the total area of the house. This will give you the monthly rental price for the house.

For example, let's say you have a house with 4 bedrooms and 3 bathrooms, priced at 4.5 million Baht and has an area of 200 square meters. To determine your rental price, compare it with other similar houses in the same location. In this scenario, we are comparing with the one that is being rented at 45,000 Baht per month for the size of 150 square meters. Use the following formula:

1. Divide the neighbor monthly rental price by their usable area (45,000 ÷ 150 = 300 Baht). This gives a rental price of 300 Baht per square meter.
2. Multiply the price per square meter obtained in step 1 by the area of your house (300 x 200 = 60,000 Baht). This gives an initial monthly rental price of 60,000 Baht.

Keep in mind that the calculated price is for an unfurnished house. The landlord or property owner can adjust the price higher or lower based on factors such as beautiful interior decoration, attractive furniture, and selected appliances, which can add value and justify an increased rental price.

Calculating based on Property Value

For this method of calculating house rent, it is commonly used when there are no comparable projects available for comparison. Instead, it relies on the property's purchased value. The rental price is typically set at 1% of the property's value.

For example, if PropertyScout has a house for rent with an area of 200 square meters, 4 bedrooms, and 3 bathrooms, priced at 4.5 million Baht, the calculated rental price would be 45,000 Baht per month. However, you can adjust the rental price lower or higher based on the condition and suitability of the house.

Closing Comments

Achieving an accurate rental price is crucial to prevent financial losses when renting out a house. Furthermore, landlords and property owners must have a deep understanding of crucial elements such as the rental agreement. By ensuring the agreement is written clearly and comprehensively, it fosters mutual understanding between parties. Most importantly, in case of any future disputes, the rental agreement serves as a legal foundation for potential litigation or enforcement actions. Safeguard your rental venture with precise pricing and a well-crafted rental agreement.

Looking to list your property? List with us for free on PropertyScout for a convenient, hassle-free process today!