Knowing exactly what the current market rent is for your property is crucial. Especially if you or your co-owner are disagreeing on the amount. To keep this process as simple and effective as possible, we advise the following steps to be taken.
You Need a Minimum Of Two Rental Appraisals
We find having two or more appraisals is the most effective way to calculate the rent between co-owners. You would need to approach at least two independent property managers and ask them to provide a written rental appraisal. We find local property managers are the best at calculating the true market rental amount based on recent statistics and demand in the area.
If you or your co-owner decides to obtain more than two appraisals this is also fine.
Calculating The Rental Amount
The next step is to calculate the average amount based on the two appraisals received.
eg. Appraisal 1 = $400 per week. Appraisal 2 = $500 per week.
Market rent average = $450 per week.
If there were more than two appraisals, you would add all of the appraisal amounts together and divide it by the total amount of appraisals received.
eg. Appraisal 1 = $400 per week. Appraisal 2 = $480 per week. Appraisal 3 = $500 per week.
$400+$500+$480 = $1380 divided by 3 is your average rental amount of $460 per week.
We then use this rental amount to determine how much the owner investor will receive as a rental return and how much the owner occupier is required to pay.
eg. If the Owner Occupier and Owner Investor both own 50% of the property. Therefore the rental amount per week for the Owner Occupier would be based on 50% of the average rental amount, this would then be passed onto the Owner Investor as their rental return. Based on the above example of $460 per week the rental amount would be $230 per week.
How Often Should You Review Rent?
Rental reviews should be carried out annually. The rental market does change over time and is dependant on many factors. We find annual rental reviews are fair to both co-owners as the rental market can fluctuate.