What to Charge For Fractional Rental of My Property Or Real Estate?
Filed Under Leasing Renting | Posted on August 8, 2009
I'm asked this question all the time by people who have a property, boat, or motorhome which they only use a few times a year.They're considering finding one or two people that would rent it from them on a long term fractional basis, let's say giving them the right to use the asset for one week every month.
The actual price will depend upon the quality, size and location of the asset, the local market, and the negotiating skills of the parties involved, so I cannot ever give the actual charge.But I can tell them how to establish the range of charges that should apply.
The first question is “what are the alternatives?” What is the cost of buying and of hiring the asset for the same amount of time?
The second question is “what are you looking to gain from this?”It may be to cover or contribute to the running costs. For some people it may simply be to ensure that the asset is in use, because it deteriorates when it isn't being used for long periods and the financial element is a bonus.
Here is an example for renting a weekend cottage in Suffolk, valued at 100,000.The cost of holiday letting this cottage would vary from about 250/week in the low season to 450 in the high season.
Thus the cost of buying outright would be approx 6% per year or 6,000 (either paying for a mortgage or if there is no mortgage, the income you are not getting if you had simply invested the capital).This equates to about 500/month.Running costs would be a further 200/month.So the cost is approx 700/month.(It would have to be furnished as well but these costs are conservative.)
The cost of hiring is more complex, but if one assumes a three month high season, four month mid season and five month low season, with a mid season rate of 325/week, then the total cost for a week per month is 3,975/year or 331/month.
There are likely to be some additional running costs if it is being used one week a month extra, particularly cleaning and heating costs, maybe 50/month.
From these figures, I would suggest a monthly rental of between 200-250/month for one week a month's use.Let's say 225/month, which would give an overall income of 175/month.This is good value for the person hiring and covers a good part of the renter's costs.
If two people each rented the cottage for a week/month, then the income would be approx 450/month, giving an overall income of 350/month once additional running costs have been deducted.
A similar calculation can be done for a boat or motor home, to generate an indicative range of prices.
Sophie recently launched yours2share, an on-line service which helps you to find like-minded people with whom to share property or any other valuable asset Sharing can be achieved through joint ownership or fractional rental.
yours2share has a downloadable investment spreadsheet that shows you how to calculate the various costs in a range of scenarios.
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