Should You Furnish Your Investment Property?

Once you've acquired an investment property, the question arises to furnish, semi-furnish, or not furnish at all for rental purposes. This decision may very well impact the type of tenant attracted to it, the amount of rent that can be charged, or perhaps even the speed at which the property finds its tenant. The furnished apartment may lure short-term tenants such as working executives on an assignment, students for a few months, or families relocating to a new city. Unfurnished apartments, on the other hand, could appeal to a long-term tenant planning to bring along their own furniture and set up a home according to their tastes.

Therefore, this decision is not just a matter of furniture or no furniture; it is a strategic business decision. For some landlords, furnishing means a higher rental rate and fewer vacancies. For others, it conjures up images of more costs, more upkeep, and even more transient tenants. In this article, we will delve into what a furnished investment really looks like and weigh its pros and cons to enable you to determine if a furnished investment would work for your purpose, finances, and target market.

Understanding a Furnished Investment Property

Generally, the term “furnished” implies that the property comes pre-wired with either all major items or appliances for tenants to move in without major shopping. Think move-in-ready! This usually refers to furniture such as beds, wardrobes, sofa, dining table, chairs, along with major kitchen appliances such as the fridge, stove/oven, washing machine, and maybe some smaller appliances or décor items. The intention is to make the tenant's transition as smooth and effortless as possible by providing as close to a ready-made living space as possible.

Difference between furnished, semi-furnished, and unfurnished

Furnished: An entire setup. Tenants can walk in with just their suitcases. Normally consists of beds, seating and dining furniture, appliances, lighting, and, very occasionally, décor, cookware, or linens.

Semi-furnished: This lies between totally furnished and completely unfurnished. It provides some basics such as major appliances, built-in wardrobes, and perhaps one or two furniture pieces (like a bedframe or sofa), but tenants still would have to bring a fair number of their own items.

Unfurnished: The only things normally found in an unfurnished apartment (i.e. empty) are built-in fixtures, cabinetry in the kitchen, and, in some instances, window coverings or light fittings. Tenants use their own furniture and appliances.

The furnishing category is quite important since it caters to different tenant types and affects how much rent may be charged.

Examples of typical furnishings for rental properties

A furnished apartment or rental may include:

• Living room: sofa, coffee table, TV stand, side tables
• Bedroom: bed and mattress, bedside tables, dresser or wardrobe
• Dining: table with chairs
• Kitchen: refrigerator, stove/oven, microwave, basic cooking utensils or cookware
• Miscellaneous: lamps, curtains, rugs, wen artwork, washing machine/dryer

A semi-furnished flat may have only the appliances (fridge, oven, and washer) along with built-in wardrobes and maybe one bedframe or a sofa.

An unfurnished property mainly offers only the permanent fixtures: kitchen cabinetry, plumbing, built-in wardrobes, and sometimes window blinds.

By explaining these categories upfront, your readers will know precisely what you mean when later discussing the pros and cons of furnishing an investment property.

The Pros of Furnishing Your Investment Property

Higher Rental Income Potential – attract premium rents

A fully furnished unit, by virtue of the more expensive weekly or monthly rent compared to an unfurnished one, is a rarer breed to find. This is true, as they pay not only for space but also for the convenience of moving straight into a unit and not having to buy any furniture or appliances. In a hurried rental market, or where demand is high, landlords are most likely able to obtain a somewhat increased rental for a well-furnished home. This can add to your rental yield and enable you to recoup your initial furniture investment more quickly.

Attract Short-Term or Corporate Tenants – better for Airbnb, student rentals, expats

Ready-to-move houses are attractive propositions for a bunch of people, including business travellers, corporate transferees, students, and expatriates. They often look for flexible or short-term leases, not wanting to go through the wear and tear of furnishing. Places like Airbnb, serviced apartments, or student accommodation depend on these ready-to-move spaces. By furnishing your property, you've fully opened up to a wider pool of these potentially lucrative tenants.

The facilities thus provided prove to be very attractive to renters as business travellers, corporate transfers, students, and/or expatriates come under their appeal. These tenants usually want short-term or flexible leases and do not want the hassle or cost of furnishing a place. Thus, those people rent furnished accommodation to avoid hotels, serviced apartments, or student housing. These types of accommodation are heavily relied upon for ready-to-live spaces. By doing this, your property will be open to broader opportunities from these tenants.

Faster Tenant Turnover – easier to fill vacancies quickly

Because tenants who need an immediate housing solution find furnished properties attractive, such properties tend to fill up vacancies faster. A person relocating for work or studies can almost immediately occupy the accommodation, thereby limiting the property’s downtime and rent loss. Thus, even if tenants stay for shorter durations, quick re-letting of the properties can take care of the high turnover.

More Competitive Advantage – stand out in the market

In zones where most rentals are unfurnished, offering a furnished unit will naturally draw attention to your listing. Attractive photographs of a trendy furnished interior further entice inquiries online and generate interest at viewing appointments. This competitive edge means your property would be easier to market and would spend less time sitting vacant.

Potential Tax Benefits – depreciation of furniture and fixtures

In some countries, depreciation on furniture, appliances, and fixtures can be claimed by landlords as part of tax deductions. The effect would be the offsetting of furnishing costs over time by reduced taxable income, thus increasing the overall return on the investment. (Always check local tax laws or consult an accountant regarding exactly what you can claim).

The Cons of Furnishing Your Investment Property

Higher Upfront Costs – furniture, appliances, décor

Furnishing a rental property is an expensive initial investment. Beds, sofas, dining sets, appliances, lighting, maybe decor pieces. Even choosing mid-range items can quickly run into some considerable money, especially if you're an owner of several properties. This is money you need to spend before you even start collecting rent and it might take quite some time to recoup through increased rental income.

Maintenance & Replacement – wear and tear, breakage

Once furniture and appliances have been provided, you will also be responsible for their upkeep. Sofas will stain, beds will sag, and appliances will fail with time. This requires your regular inspection, repair, and replacement and can get costly and time-consuming. On the other hand, in an unfurnished property, tenants bring in their own items and maintain them, cutting down on some of your liability.

Shorter Lease Terms – may attract transient tenants

Fully furnished houses are likely to attract temporary tenant types such as students, temp workers, or people between homes. This could mean more frequent turnover and less long-term steadiness than unfurnished houses, which attract families or professionals who are planning to settle in for years. Although shorter occupancy usually means less time, money, and energy spent in the turnover, turnover increases the amount of time and energy dedicated to advertising, tenant screening, move-ins, and move-outs.

Higher Insurance Costs – coverage for contents

You are also insuring all the assets apart from the building itself. This puts up your premiums for landlord insurance, especially when the assets include high-value appliances or interior decor. Losing your property has bad financial consequences when items go missing or get damaged, as you'll be without adequate coverage.

Logistical Challenges – moving furniture, storage between tenancies

Managing furniture does not end at the purchase and maintenance stage; it involves the management of such between tenancies. When a new tenant opts not to keep certain items, it may become necessary to move or store such items, adding complexity and incurring additional costs for the transport and/or storage. Whereas in an unfurnished property where tenants bring their belongings, scheduling new leases can be quite complicated compared with a furnished property.

Conclusion

Furnishing an investment property can generate better rental income, bring in occupancy faster and attract a larger pool of prospective tenants, but it comes with higher start-up costs, continuing maintenance considerations, and possibly, shorter lease durations. There is no one-size-fits-all answer; the decision best aligned with your target market, budget and long-term investment objectives is the one you should pursue. Should you still be in doubt, consider testing it out with one property, allowing for results truly felt before launching into a larger commitment.

Ready to make the most of your investment property? Whether you’re considering furnishing or leaving it bare, start by understanding your market and goals. Get in touch with our team today for tailored advice and tips on maximising your rental returns.