As an owner, you might feel uncertain as to how much should you charge when renting out your property. It’s important that your rate is competitive among others and at the same time, you shouldn’t be losing out on a good return on investment for your property.

Here, we have listed out four factors to help make your calculation easier.

What Are The Factors That Influence A Rental Rate?

1. Location

   The value of a property is highly determined by its location. If the property is within a good distance to amenities, commercial centres, shopping malls, schools and workplaces, it has the potential to fetch a good price. Areas with good accessibility also tend to be in higher demand than those within the outskirts.

2. Type of accommodation

   Two different types of properties within the same area will have different rental rates. For example, a landed property will usually cost higher rental rates in comparison to an apartment within the same vicinity.

   But in certain types of properties, there are exceptions to this. Even though a condominium may be smaller in size than a landed property, it can be more expensive due to the luxurious features and facilities that usually come with a high-rise residential package.

3. Furnishing and interior design

   If a property is fully furnished with items such as refrigerator, air conditioner, washing machine and furniture, renters generally don’t mind paying more for rental as they don’t have to worry about purchasing or installing these things once they move in. An attractive interior design of the property may also put a higher value to your property in comparison to a basic and empty unit.

4. Parking space

   These days, it is quite common for a single family to possess more than one car. In this case, a property with a good parking space will draw good rental rates. This is especially true if the property is close to the city, where parking space is hard to find.

How should I calculate the monthly rent?

Firstly, ensure that you fully understand the concepts of how much yield a property can get from rental. Then, you can calculate the amount using a rental yield calculator.

Bear in mind that the calculation should be as detailed as possible, so you should add in some additional costs to it, such as:

• Maintenance and repair costs
• Renovation and repairs
• Utilities and supplies for short-term rentals
• Property management fees (if applicable)
• Taxes
• Agent costs
• Insurance

What is Rental Yield?

Rental yield calculates the profit you gain from your rent on an annual basis, as a percentage of the total price you paid for the property itself. A rental yield is similar to the return of investment ratio calculation. You would only break even if the rental amount you gain is enough to cover the maintenance costs that will continuously incur to maintain that property. In that case, your property is not capable of generating income for you.

How Rental Yield is Calculated?

Your rental yield can be broken down into gross rental yield and net rental yield:

• Gross rental yield

The rental income percentage from the property. This excludes all other expenses incurred from property maintenance, against the total price of the property.

• Net rental yield

Includes your property financing into account when calculating the rental yield.

Gross Rental Yield Formula

In Malaysia, a rental yield of around 4 – 5% is generally accepted as a decent amount.

Here’s an example of how to use a rental yield calculator for a property with the following figures:

• Purchase price of property inclusive of all related cost = RM500,000
• Rental income per month = RM3,000
• Annual rental income= RM3,000 X 12 = RM36,000
• Total maintenance cost = RM4,500

Following the previous gross rental yield formula:

(The total income from rental per annum/total price of the property, including all other related costs) X 100):

(RM36,000/RM500,000) X 100 = 7.2%

On the contrary, when following the previous net rental yield formula:

(The total income from rental per annum – maintenance costs/total price of the property, including all other related costs) X 100:

(RM36,000 – RM4,500/RM500,000) X 100 = 6.3%

Both rental yields are above the average of 4 – 5% as per local average. You will be able to get your estimated rental rate easily by checking out the approximate rents of properties in the neighbourhood along with the four factors mentioned above. Knowing how to calculate your rental yield also allows you to know if the rent you are charging is reasonable or otherwise.

The statement and information in the articles are the opinion of the writer and meant only as a guide. Any property purchase, rental or lease involve many legal issues and other complication depending on the individual facts and circumstances. Readers and Users are strongly advised to seek professional advise including from qualified and competent lawyers, bankers and/or real estate agent to verify the information and the statement before embarking on any purchase, rent or lease of any property. To the fullest extent permitted by law, we exclude and disclaim liability for any losses and damages of whatever nature and howsoever cause and arising including without limitation, any direct, indirect, general, special, punitive, incidental or consequential.