Many investors debate which one is more profitable. Furnished or unfurnished properties? The former requires a more upfront investment but could be more lucrative, while the latter requires a smaller initial investment but may not be appealing to potential tenants.
Let's explore the pros and cons of furnishing a rental property, along with the key factors that should inform your decision.
Key Highlights:
- Furnished rental properties can generate higher rental income since tenants are willing to pay more for the convenience of having essential furniture and appliances already provided.
- A fully furnished unit may limit the tenant pool by discouraging renters who prefer to bring their own furniture.
- They appeal to tenants without furniture, providing a competitive edge in the rental market.
- Replacement costs can add up over time as furniture becomes outdated or damaged.
- Owners may benefit from tax deductions on furniture and can charge higher security deposits to cover added value.
- They require a larger upfront investment to purchase essential furnishings and appliances.
Benefits of a Furnished Rental Property
Higher Rental Income
Property owners can generally charge higher rent if the rental property or unit already has basic furniture, such as a couch, a dining room table, a bed frame, and some appliances. That means you’ll get your return on investment much faster.
Competitive Edge
Some tenants prefer fully furnished rentals since they don't have their own furniture yet, so between furnished and unfurnished rentals, they’re more likely to choose the ones that save them money. A furnished apartment will need less effort from the tenant, especially since moving furniture can be tedious.
Better Staging
A furnished rental is a lot easier to stage, especially since you won't have to rent furniture for staging and photos. You'll notice that listings often show pictures of fully-furnished properties, and prospective tenants will frequently opt for rentals with an established vision of what it could look like.
Potential for Short-Term Rentals
If you want to turn your residential property into a short-term rental, you’ll need to have the property furnished. This gives you more options as to how often you want your rental to be occupied. Short-term renters will not rent an unfurnished or partially furnished rental.
Tax Deductions
Furniture and appliances are included in expenses that you can deduct from taxes. The tenants must use the furniture provided to qualify for the tax benefit. Using it yourself personally will remove the potential benefits, so it works differently from short-term rentals.
Higher Security Deposit
For unfurnished rental properties, you can charge an equivalent of one month's rent for the security deposit. Furnished rentals tend to demand a higher amount since property owners have to account for the cost of the furniture and/or appliances. A furnished apartment can fetch the equivalent of 1.5 months of rent for the security deposit.
Risks of a Furnished Rental Property
Normal Wear and Tear
While a furnished apartment can attract long-term tenants, you eventually have to worry about wear and tear, especially if your furnished property doesn't use durable furniture. This is inevitable for furnished long-term rentals, even with vigilant maintenance.
Higher Upfront Costs
A rental property typically requires a wide range of items, even for semi-furnished apartments, including basic necessities such as dining furniture and kitchen appliances. That means your upfront costs will be much higher. This can be a problem for property owners if their initial budget is small.
Replacement Costs
The property's condition is crucial to tenant satisfaction, which means broken furniture will not be tolerated by most tenants. While high-quality furniture has a longer lifespan, you’ll still need to replace it eventually when it becomes too worn out or appears outdated.
Limited Tenant Pool
Just as it can attract tenants who don't have personal belongings, it will deter those who want to decorate an unfurnished rental with their own style. This is usually common for single-family rental homes, where renters typically purchase their own furniture or need the space for their personal belongings.
Increased Insurance Premiums
This is one of the many reasons why landlords charge a higher rent price. A furnished property will have more contents to insure, raising the insurance premium. If you want to protect your long-term investment, acquiring insurance is a must.
Expensive Cleaning Costs
An unfurnished property is relatively easy to clean, as you usually only need a few household cleaning items. A fully furnished unit will require more effort from you to clean the upholstery, wash the carpets, and so on. If you do hire a cleaning service for turnovers, furnished properties will be more expensive to clean.
Factors to Consider:
- Target Market: Learn whether your target market would prefer having the property unfurnished or not. Families, for instance, may have their own furniture and appliances, whereas students will not.
- Budget: With high upfront costs, you need to calculate whether you can afford to furnish the rental as needed. You can try partially furnishing it by skipping furniture like coffee tables or bed tables.
- Storage Availability: You should ensure that you have enough storage for tenants in case they have their own furniture and appliances that they want to store instead.
- Style: Preferred decor shifts often, and you might need to redecorate every now and then to keep up with the current trends. Even then, potential tenants might not always like the design you have established for your rental.
- Involvement in Management: How much work are you willing to put into property management? Furnished properties take more time and effort to maintain, and you have to be prepared for the responsibility as well as ongoing costs.
Furnished Rental FAQs
Are furnishings recommended for short-term leases?
- Yes. Tenants who prefer short-term leases usually don't have their own belongings, which means they will prefer a property they can simply move into.
What do I do when my tenants break items in my rental?
- You can either charge them for damages or deduct it from the security deposit. If you do the latter, be sure to provide an itemized list to comply with state laws.
How to weigh the pros and cons of furnishing my rental?
- Simply make a list of all the factors that apply to you, and determine if the benefits outweigh the risks, or if your risk tolerance is high enough despite the potential downsides.
What are the basic furnishings in a rental property?
- You can place items like couches, bed frames, dining tables and chairs, lamps, laundry facilities, kitchen appliances, curtains, carpets, and living room appliances.
We Can Help You Protect Your Investment
Managing furnished rentals is a lot harder since you also have to maintain the appliances and furniture that come with it. Negligence can lead to high repair costs or replacements, which will affect tenant satisfaction and increase turnovers.
Let Green Tree Property Management help you protect your investment with vigilant property management. With regular inspections and routine maintenance, your property will stay in good condition and retain its value.
Contact us today to learn about other ways we can help maximize your investment.
