As a landlord, there are several factors to consider when determining how much rent to charge for your Ho Chi Minh City property. Factors such as comparative rents, market situation, vacancy periods, and bottom line all play an important role to help landlords set the rental price. A perfect rental rate is not only profitable for your property, but also competitively priced to attract good tenants in a timely manner.
While most landlords in HCMC usually get aggressive and charge a high starting rent compared to other similar units resulting in long-term property vacancy. Conversely, setting the rent too low will hurt the bottom line of your property investment. This article helps property landlords in HCMC determine the right rental price, as well as provide tips for getting a good rent estimate.
In This Article [Hide ]
▸ Charging an appropriate rent price is important
Setting an appropriate rent price is the difference between attracting good tenants and minimising vacancy period. So, you can potentially save costs related to an extended period without a tenant paying rent. The importance of an appropriate rent price cannot be understated can help you as follows:
- Maximise your rental income.
- Cover your mortgage payments and other holding costs.
- Attract good tenants and get paid on time.
Majority of transactions tend to be abouts the average market rent in a specific area. A market rent is how much rent your property can command at a specific point in time. And is determined by how much tenants are able and willing to pay. Note that market rents are dynamic and are sensitive to periodic changes as demand and supply shifts.
The right rent helps to pay for the property
Everyone has a different goal when owning a property. Regardless of your goal, the right rent should, at a minimum, be enough to cover all of your expenses for holding the property and with extra to support in paying your bank mortgage loan (if any). The rent should at least cover:
- Part of your bank mortgage payment.
- Maintenance and repairs in upkeeping the property.
- Costs incurred when property remain vacant.
Keep in mind that many property owners, especially those with significant bank mortgage loans, do not see an actual profit until they sell their property or until they have owned the property over a long period of time. Regardless, if the unit is not benefiting you in some way each month (paying down your mortgage or putting money directly in your bank account, you have either not set the right rent (more on this later) or worse over-paid for your property.
▸ The right rent price is determined by rental demand
Setting a price for your rental is not a one-time event. Landlords must constantly monitor the property rental market and adjust the rent based on demand. When there is greater demand for your property unit, you can charge a higher rent. When there is less demand, you may have to lower the rent to be able to attract tenants. For example, when the economy is bad, there is a greater rental demand for smaller/cheaper property because people have to downsize.
Additionally, seasonality can also affect rent demand and in turn prices. The demand for rental property is highest during January and August and tends to slowdown during the year end period. This happens for many reasons, but mainly because expatriates start their new employment contracts at the beginning of the year. While, the international school term starts in August and most people want to relocate in time for their children’s school year to minimise disruptions.
Keep in mind, if there are fewer prospective tenants looking to relocate for whatever reason, then your rental property may stay vacant longer. Also, if your rental property price is not competitive with actual rental demand, you will have difficulties finding a tenant. For example, if you charge a higher rental price compared to majority of the other landlords in your area, you will face vacancy issues.
Informed landlords opt to offer a lower rent price during the downtimes to avoid loss of revenue opportunity due to a vacant property. Note that the comparatively cheaper property units will enjoy higher rental demand. Only after these units are tenanted, then the higher priced units will start to get interest from the market. However, this is just a simple rule of thumb. Rent pricing versus demand gets more complicated to gauge as units differ from each other with some being more desirable than others as this article will touch on later.
▸ Understand rental value of a property
Knowing what tenants want in a rental property will help landlords determine the rental value of their property unit. Rent price is influenced by the building facilities and neighbourhood characteristics it is in. Typically, an overwhelming percentage of renters want to live in a neighbourhood that is safe and at least more than half says that their commute to workplace or school influences their choice. Below is a list of factors that tenants consider when selecting a property to rent.
Top preferred building facilities
- New construction: Tenants are willing to pay more for rentals in newly constructed buildings.
- Outdoor recreation areas: An outdoor swimming pool, tennis court, park or pet area are example of features that attract tenants.
- Indoor activities: A gym, business centre, karaoke or movie theatre are types of features that draw in prospective renters.
Highly important neighbourhood characteristics
- Safety: Security is always a priority, as it gives tenants a peace of mind about their general safety.
- Commute: Ease of daily travel between home and workplace/school is a significant factor for renters.
- Walkability: Proximity to local goods and services plays an important part in decision making. Having a desirable location that is near to neighbourhood conveniences and amenities can increase your property’s attractiveness to tenants.
The more factors that are satisfied, the better desirability and the higher a property’s demand. Making it more valuable and give you leverage to set a rental price at a premium compared to other properties. And allowing landlords to justify a higher rental price.
▸ Gauging the right rent price
Every landlord knows that setting the right rental price is important, but determining how much to charge tenants can be more complicated. There are various factors to consider before you narrow in on the right rent price for your property.
The right price minimises vacancy period
Minimising rental property vacancy should be a priority for landlords. Starting with a higher-than-average price and adjusting down if needed is a common practice among landlords in HCMC. Sometimes, such a rental pricing strategy pays off and a tenant is willing to pay a premium. This strategy is ok only if you have a tenant already in place and have a bit of time to test the rental market. If your property is currently vacant, pricing high might result in a longer vacancy period, and vacancy period is considered a loss in income.
Knowing your competition helps you to price right
It is important to know how your property compares against other properties in the area that enjoy similar facilities and the same number of bedrooms/bathrooms. Using your competitors as a baseline, decide how much more you can charge in rent for the extras your property offers.
Remember to adjust your rent according to amenities. Do not follow exactly the rent prices you reference on listing websites blindly. Often property units differ slightly from each other. If you find a comparable property that is similar in size to yours but lacks an important feature or amenity, then you may be able to justify a higher price. Base your rent price on how desirable your property is. Rent prices can deviate from each other due to:
- View (Example: A property with an unblocked view is more desirable than one with a view of a neighbour’s unit.)
- Interior Improvements (Example: Units with new/modern appliances and interior renovation are more desirable than those in original condition.)
- Useable Floor Area (Example: A 100 square meter 3-bedroom unit is more desirable than an 85 square meter 3-bedroom unit.)
- Floor Level (Example: Higher floors are generally more desirable. The exception is when lift usage is overloaded and waiting time increases.)
To determine the average rent price in your area, you should find out the rent for at least 10 properties that are comparable to yours. The number of bedrooms and floor area should be the same, and if possible, you should try to find units in similar fitout condition. For example, a same inventory of furniture and appliances or having the interiors designed to a similar extent.
▸ Ways to check market rents
You will want to be aware of the average, minimum and maximum rental price in your neighbourhood so that you can set an appropriate rent price. Here are some ways that landlords can adopt to help check what the market rents are like in order to avoid charging rent that is too high.
- Checking with property managers who manage the building.
- Talking to members of the building owners’ management committee.
- Asking a real estate agent that is specialised in your property.
- Looking at rental advertisements on classified listings websites.
The straight forward way is to get real estate agents’ opinion. Landlords can have several real estate agents to come view your rental property to get a rent price opinion. A agent that is specialised and focused on your area and building will have a good idea of which units and prices are renting quickly and how your rental property compares to the competition.
Landlords wanting to do your own survey and research instead of speaking to real estate agents can do so on the internet on classified listings websites. Through online advertisements of rental property on websites such as Batdongsan, Dotproperty and Mogi, you can easily search out comparable properties for rent in your neighbourhood. By investing time and effort to monitor closely the property listings advertised, you can keep track of the properties that get rented quickly, those that lower their prices or those that have been listed for a long time.
▸ Mistakes when setting a rent price
When you want your rent price to be right, it is important that landlords should refrain from some of the common pricing mistakes out there. Here are the top common mistakes that you should avoid while setting a price for the rental property.
Not regarding online listing websites: Nearly all tenants begin their search for a rental property online. Therefore, it is important to use online listing websites while setting your rent price. Property search websites influence the market price perceptions of potential tenants. Therefore, you should determine the existing price range (minimum and maximum price) and paying attention to the date of the listing.
Relying fully on online prices: When we take reference from the available for rent online property listings, beware not to take things at face value. The internet serves as a great source to get a big picture overview of the value of your property. However, they might not always be accurate at the same time. Landlords should always counter-check with other sources an adjust your rent price accordingly.
Benchmarking property price with non-comparables: Landlords often set the same asking rent price (or higher) for their property as other similar properties they search on the internet. What they did not put into consideration is if the advertised properties they referenced was truly comparable. For example, if the properties had the same fit-out condition, high or low floor levels, view or no view from the windows, et cetera.
Overestimating the market: The price at which you rent out your property is not comparable to that of its purchase price. The rent price of property always follows real estate market trends and fluctuates based on the economic and real estate market situation. Therefore, you should aim at avoiding market overestimation at all costs.
Setting price based on property holding costs: What a landlord requires to cover loans payments and other holding costs of a property has no relation to its achievable rental income. The asking price for your property should not reflect the total amount of money needed to pay-off the total monthly holding costs. Always keep the rent price relevant, whether or not you are earning a profit. Your current financial situation should remain separate from the tenant renting your property.
Not being updated on current rent prices: In the property rental market, it is critical for landlords to be kept updated with the latest market trends. This is the same for deciding on prices as well. The rent prices might vary amongst properties; thus, it is important to gauge the right market value.
You should arrive at a price conclusion that gets the attention of potential tenants. Therefore, you should not assess your calculations on what other properties asks for. Instead, you should focus on the prices that are achievable in the given market. Have access to accurate market information in order to determine the right rent price.
▸ Conclusion
Your rental property could possess unique characteristics to attract the attention of prospective tenants. However, unless you set the right rent price, it is of no value. If you want to set the right rent price, it is important that you should refrain from some of the common pricing mistakes. Make the most of your rental property in generating income by pricing it right. Landlords can get more prospects when you set the rental price right.
Setting your rent price too high
Should you set your rent price too high, prospects will stay away or if your unit does not have the location or amenities to back up the higher price tag, prospects will pass it over for other properties. This is when as a landlord you know that you made a mistake in setting your rent price.
Something we experience frequently, is a landlord holding out for say USD 900 per month with the property sitting vacate for 1.5 months. What was really needed was to adjust down to USD 850 to secure a tenant immediately.
The calculation is simple. At USD 900 a month the landlord has just lost an income USD 1,350 (1.5 months vacancy period) in the first 12 months the property in available. Versus if the property was rented within the first week for USD 850 the landlord would have saved an additional USD 187.5 over the same period.
Setting your rent price too low
If landlords advertise their property below market rent price, you might possibly attract quality tenants that are looking to stay for a longer period helping to minimize vacancy/turnover period. Although the opposite is also true that setting a rent price too low attracts lower budget and quality tenants, which will result in early termination of rental contract, default payments and higher vacancy rates due to turnover. The main thing to consider is that this is a rental property investment, you need to maximise your returns. So, renting your property considerably below market makes little sense.