Should landlords rent their properties furnished to maximize returns?

There are a number of ways for property investors to make their property available for rent:

  1. Fully furnished and equipped – In this instance, all household items are included: everything from kitchen utensils and cutlery to beds and desks.
  2. Fully furnished – You, as the landlord, provide all the furniture to the tenant that would expect to live freely and easily without buying all the items themselves.
  3. Partly furnished – Partly furnished properties come with partial furnishings e.g. lounge, coffee table, chairs, but no electrical or whitegoods.
  4. White goods only – Some or all of the white goods are supplied
  5. Unfurnished – You don’t provide any furniture with the property with the exception of necessities such as a stove/oven.

When furnished properties can work:

BUSINESS TRAVELLERS

Professionals will often move to an area on behalf of their company while they complete a job. Typically, this tenant will be looking for a furnished property to suit their transient lifestyle. Their company will sometimes sign a 12-month lease for their employee. In this instance, having a furnished property is a great opportunity to score a tenant who will be willing to pay a higher weekly rent to move into an already furnished property.

REGULAR BUSINESS TENANCIES

Having a good tenant through a large company on your lease can, in some instances, be a good deal for you. The company may have large projects which will require people living away from their home base for extended periods. If your investment property is situated in an area where the company needs housing, you could have a great opportunity at hand. In most cases, the company will want to enforce high standards for their property and furnishings and will likely be willing to pay a premium for a nice house with included furniture.

SHORT-TERM

Furnished apartments are a perfect solution for vacationers, students, expatriates working overseas on contracts, or people going through a relationship breakdown. In addition, with a higher turnover, you have the freedom to inspect the property more frequently.

FINANCIAL

The main benefit of furnishing your rental property is that it can provide additional returns above the standard rent on a property that has a long term tenancy such as 6-12 months. People are more willing to pay a higher rent for the convenience of moving into a furnished place given their outlay is minimised. Secondly as you have bought the furnishings yourself and have the tax invoices to prove it you should be able to claim depreciation value as part of your investment strategy.

What risk comes with having a furnished property?

FINANCIAL LOSS

Unfortunately, for every person hunting for a furnished, well-presented rental property, there are probably a lot more young families or couples who need a place for the long-term. Consider this: Your $500 per week investment might get $600 per week if rented as furnished, but what happens if you have to wait 3 months to find the tenant who is willing to pay the extra dollars? Furnished accommodation is for the minority in most markets.

PURCHASING AND MAINTAINING FURNITURE

If you furnish your property, be mindful that you will need to monitor your furnishings and ensure your inventory is well maintained. Items need to be replaced promptly if they’re not working properly. Naturally, if you’re going to furnish your property, you’ll have to buy all the furniture. Unfortunately, this is not a ‘set and forget’ solution. Furnished properties, whether short or long term, require a higher level of maintenance and attention. You will also need to factor in costs such as electricity and gardening, unless they’re included in the price you charge. Your insurance premium and coverage may also change and you need to make enquiries with your insurer if you do change the property from unfurnished to furnished.

Rental Bonds

There is a misconception that a landlord can ask a tenant to pay down more bond money. This is not always the case and laws differ from state to state.E.g. in NSW the maximum bond that can be charged is 4 weeks rent whether the property is furnished or not.

VACANCY AND LEASING FEES

Generally, unfurnished properties will be longer-term leases with minimal vacancy and wear and tear. With a furnished property and the likelihood of shorter lease terms (usually between 3-12 months), you may need to factor in a higher tenancy turnover, which means an increased possibility of vacancy and more frequent leasing fees. Advertising, marketing, taking care of rental viewings and more of a business involvement will not suit all landlords. Remember that furnished properties also have seasonal rental periods. Be mindful that you need to be able to manage potential cash flow disruptions that can come during the off-peak.

Quality and having the best of both worlds

If offering your rental property as furnished makes sense for you right now, don’t skim on quality furnishings. Buy reasonable near new or brand new to attract the right tenant for your market place. If you are going to skim on quality you will likely attract a less quality tenant.

Consider aiming your rental property this way: target people who not only want a furnished property, but also the other 90% of people who don’t want a furnished property. An easy way to do this is by placing in the ad description: “The house can be furnished for an extra $XX per week,” and be sure to check ‘Furnished’ in the property features. This way, you won’t accidentally cut off tenants who have their own furniture. A good way to increase the number of enquiries on your property would be to include a list of furniture that is available with the property both on the property listing and during rental viewings.

If you would like more information on whether to list your property as furnished or unfurnished, contact John Gilmovich on 0418 600 806 or [email protected]. You can also reach us via our website > http://www.realpropertymanager.com.au/contact