The age old question, how much rent should you charge? We get it, you want to make bank, but we’re also in the middle of a rental crisis, with interest rates though the roof. Check out our guide below on how to charge fair rent for both sides that will help you keep your wallet and your tenants happy.
Whether you’re a property owner, live-in landlord, investor or head tenant, charging the correct rent is crucial for the longevity of your household.
If you’re using a rental agent to find tenants for your property, you can rely on them (and your own market research) to find the right price. But if you’re renting the place out yourself, you’ll likely need to work out not just what the property would rent for as a whole (again, quick research on realestate.com.au will tell you that), but what to charge for each bedroom in the property. To help you out, we’ve put together this quick guide on the five most popular (and practical!) ways to split the rent. There’s sure to be an option here to suit you.
5 Ways to split the rent
The even split
The most obvious way to split the weekly rent is into equal shares. If you’ve got an older-style home in which the bedrooms are roughly equal in size, there’s one bathroom and everyone has equal access to the features of the house, this is probably the way to go. It keeps things simple as well as being logical. Nice!
Charge extra for extra perks
As homes become more lavish (bedrooms with en suites, balconies or walk in robes; off-street or secure parking, the list goes on!), charging tenants a little more for those extras might make sense, especially as there are likely to be others in the property who don’t get those perks.
The question is, how do you work out what the extra charge should be? Here are two options you can use to make sure the rent you charge is competitive with your local market.
The first way is to look at how much that extra perk adds to the total rent of a typical property in your area. Let’s say we’re talking about an off-street car park. Research comparable rental properties nearby that have an off-street car park, and that don’t. What’s the typical price difference between them? That figure represents what you should charge on top of the rent for exclusive use of the car space at your place. You can also check-out handy sites like Park Hound, that will give you a fair idea of what a parking spot in your neighbourhood is worth.
You can also work out the premium you’ll charge for perks by comparing your place with others that have those same perks. So, if you’re offering a master bedroom with an ensuite for rent, compare it with other master bedrooms with an ensuite for rent in your area. Look at the size as well as the standard of quality of the room and bathroom, then set your price accordingly.
Price per square meter
Look at the bedrooms in your place: how many are actually the same size? Usually there’s at least one that’s bigger than the rest, but in many cases each bedroom will be a different size.
The fairest option in this case may be to set the rate for each room based on the number of square meters it includes.
- Grab a tape measure and take the length and width measurements for the room. Then multiply them to get the total square meterage (eg. A width of 3 meters times a length of 4 meters equals 12 square meters in total). Do this for all the bedrooms, then add the figures together to get the total square meterage that is dedicated to bedrooms in your house. Let’s imagine it’s 30 square meters.
- Next, do your research to work out what a home the size of yours would typically rent for in your area. Let’s say it’s $300 a week.
- Divide that average value by the total square meterage of all the bedrooms in your property to get a per-square meter rent rate. In this case, 300 divided by 30 equals 10, or $10 per square meter.
- Now you can multiply that by the size of each bedroom to calculate the rent you’ll charge for each one: a 12-square-meter bedroom will be $120 (12 times 10) a week in this property.
Have housemates bid for the room
This can be a risky but necessary technique if you have multiple housemates and multiple rooms available where your flatmates are all fighting off which room they would prefer. It can also work when you’re offering a single room, and there are a few potential candidates who want it. Having would-be tenants bid for the room (or the particular room they want if you’re offering more than one) can take the pressure off you to work out the right price. Your tenants can send their price to you via text message, for example, and you can work out the winner for each room from their offers. So long as the bids are at or above the price you need, you’re laughing.
…or are you? One drawback of this method is that someone who really wants a room might bid more than they can really afford, which might see them missing rent payments down the track, or having to sacrifice everyday things to pay rent. Remember that we are currently in a rental crisis with not enough homes available for everyone who needs a place to live and many locals are being priced out of the market. Desperate times call for desperate measures and tenants will do almost anything to secure a home right now. Make sure that if you take this path, each of your tenants gets a fair price that they can reasonably afford.
Divide rent by income
This approach is a good one if you’re renting with mates and you want the deal to be fair for everyone. It requires, at the very least, you as the owner or landlord to know everyone’s income, so it’s not likely to be a good way to work out the room rate with a stranger.
Here’s how it works: two people want to lease a 2-bedroom apartment where the rent is $300 a week. One of the friends earns $50k a year; the other earns $100k.
- Divide the larger income by the smaller one. In this case (100 divided by 50), we get 2. That means Person #2 earns double what person #1 does. It also means there are three “shares” in the rent ($50k plus $100k, divided by $50k, equals 3).
- Divide the weekly rent ($300) by 3, which equals $100.
This means Person #1 pays $100 per week (1 “share”), while Person #2 pays $200 (2 “shares”). They’re both contributing the same percentage of their income toward the rent, and hopefully it’s affordable for both of them.
Should couples pay more?
Good question! It’s tempting to say no, since the room size remains the same regardless of whether one or two people rent it. But consider this: rent isn’t just about repaying, say, the mortgage for the property itself. The landlord also has to cover the cost of “normal wear and tear” on a rental property — things like wear to flooring, blinds, paintwork and kitchen appliances. The more people you have living a property, the more wear it will sustain and the faster the landlord will need to make repairs.
So you’re justified in charging an extra percentage to a couple. What should that percentage be? That will depend on the market for rental properties in your area and how desirable your property is within that market (again, do your research), but the extra percentage for a couple could range between 15% and 25%, or more.
What about if bills are included?
Including utility and any maintenance bills in the rent is a good way to help potential flatmates know if they can actually afford your room. And in the case of fixed bills (like Internet or cleaning services), it’s easy: just divide the cost up by the number of bedrooms.
When it comes to bills like power, water and gas, which vary by usage, it can get complicated. You’ll want to take the average usage for your rental household in the past (if you’ve had a past group of renters in the house!), and add a fair buffer — say 10% or 20% — so that you’re never paying for someone else’s usage. And feel free to put caveats on the inclusion, too. For instance, the price assumes no one works from home. If they do, you’ll likely need to add a percentage to cover their extra utilities usage. Make sure your tenants know all of these conditions before they agree to rent, ideally through a written flatmate agreement or tenancy agreement.
The most important thing to remember when calculating the rent, is that the rental price is fair. 75% of our audience live in share accommodation due to financial reasons and share accommodation is one of the most unregulated markets in Australia. We want everyone to find a fantastic home and flatmate and to sleep easy knowing they are charging or are being charged the correct and fair rental price.
