As a landlord, you're always looking for the edge over other properties in the area. And yet, some of the decisions you have to make are complex. Even a seemingly a simple choice like renting your apartment or home furnished comes with a number of variables that deserve special consideration.
Yes, you can charge more for a furnished rental property. How much exactly depends on your location and the type of tenant you're looking to attract. More importantly, though, getting to that extra revenue requires additional upfront investment, more upkeep, and other, more subtle points that you might not consider at first.
The question, then, becomes not just about whether you should furnish your property but how these variables affect your larger strategy and rental plans. Consider these five advantages and disadvantages of renting your property fully furnished before you make that crucial decision.
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5 Advantages of a Furnished Rental Property
First, let's consider a few reasons why you should rent your property fully furnished. Before getting into the details, it bears mentioning that each of these benefits is relative; the exact extent of it, as mentioned above, depends on your location and situation. Still, they generally hold true for rental properties throughout the nation.
1) Increased Revenue Potential
To answer the titular question, you can unquestionably charge more rental for a furnished property. How much depends on your location, but the general estimate is an upcharge between 20% and 30% of what the property would go for without any furniture. Naturally, over time, that means more revenue for you.
The increased revenue potential also extends to the security deposit. You are still limited to your state's maximum deposit rules, which in most states ranges between a one and two-time multiplier of a monthly rental payment. Most landlords realistically choose a single monthly payment for an unfurnished property, and a security deposit equal to two monthly payments for one that comes with furniture included.
2) More Attractive Property Listing
Experienced landlords know about the importance of the property listing. It's where almost all tenants start their searches. And naturally, they're attracted to images that allow them to visualize themselves in the space.
Furniture can help you stage those images in a way that attract more eyeballs. You can show just how the property is best laid out for efficiency and comfort. That's true for all listings, but especially for layouts beyond right angles that might be difficult to envision with furniture otherwise.
3) The Possibility of Short-Term Renters
This advantage largely depends on your strategy as a landlord. You might specifically look to attract long-term tenants, in which case you can feel free to skip to the below. But if short-term renters (such as contract workers or traveling workers) are part of your intended audience, a furnished property is an absolute must.
To understand why, let's consider the audience that moves into this type of apartment or house. Typically, these are transient professionals who take on short-term jobs. They often move across the country or at least state lines, which means they will not always pay for a large moving trucks. Especially in areas where these positions are in high demand, a furnished apartment can be very desirable.
4) Fewer Maintenance Needs
As we'll discuss in one of the disadvantages below, this benefit is conditional. Renting out a furnished property does not mean your maintenance troubles go away. However, at least in one sense, you do have to worry less about maintenance between tenants.
That's because your tenants do not have to move bulky pieces of furniture in and out of the property when they move. Experienced landlords know the damage that can arise from these issues, from nicked walls that require new paint to a broken ceiling lamp. Some of that might be covered by security deposits, but it still requires extra work between tenants that a fully furnished apartment or house will not.
5) Potential Tax Advantages
Finally, consider the tax benefits of furnishing the apartment. Yes, you have to make the investment in the actual furniture. However, all of that investment (along with any costs required to upkeep the couch, appliances, and other bulky and expensive items) are deductible for tax purposes.
This benefit combines with the additional profits from the actual rent to make for a solid long-term play for the landlord. You can invest profits into furnishing apartments, then get the tax deductions, rather than claiming these profits at the end of the year and having to pay taxes on them. It's not a natural fit for a single-property landlord, but makes sense for professional managers with multiple properties who want to diversify.
4 Disadvantages of a Furnished Rental Property
None of the above benefits, of course, exist in isolation. Instead, they are all only part of the equation, a piece in the larger puzzle that is the question of whether or not you should furnish your apartment. If you are considering this option, it's only natural to consider some of its disadvantages as well.
1) Larger Initial Investment
The first potential drawback is relatively obvious. Depending on the size of the apartment, it costs about $5,000 to furnish it. Of course, that price tag can fluctuate significantly based on how many rooms you have to furnish, the quality of furniture your audience will expect, and your specific location with any delivery fees.
In the right area, that initial investment pays off in higher rent over the long run. But that doesn't mean you have $5,000 (or even up to $10,000) to easily invest into the property. When you don't, even 30% higher rent becomes a non-starter. As you make the decision to furnish the space, price out furniture first to understand this initial investment.
2) More Significant Landlord Responsibilities
Equipping space to be rented out with your own furniture comes with a significant shift in liability. When a tenant brings their own furniture, they're responsible for it. When the furniture breaks or simply ages out, they need to worry about replacing it. Within a furnished property, the opposite is the case.
You will need to cover normal wear and tear on any furniture, and are responsible for keeping each piece in working order. Of course, your tenants are still liable for any destruction of the furniture.But in most rental agreements, tenants might only be held responsible for the amount of their security deposit. If the cost of destroyed furniture goes above that amount, you still have to pay for it.
3) Additional Insurance Needs
The above point is exactly why many landlords who rent out furnished apartments take out extra insurance for the furniture in that apartment. That standardizes costs, ensuring that you don't suddenly need thousands of dollars but can pay a steady monthly amount to cover potential expenses.
Additional insurance, of course, comes with its own challenges. It's another set of paperwork and legal contracts, especially if you plan to furnish multiple apartments. Insurance, in other words, can help you cover costs more easily but also brings with it complications that are important to consider.
4) Higher Tenant Turnaround
Finally, the downside of the type of tenant you attract with a furnished apartment is the higher turnover rate. As explained above, the clients most likely to look at your listing are transient professionals who only plan to stay in the area for a short while. Another potential audience are first-time renters who are looking at the space as a sort of starter home until they can find something more permanent (and buy their own furniture for it).
Regardless of which category your audience falls in, their turnover is likely to be significantly higher than for most other renters. They don't consider your apartment their final home, or even one that's designed to last for a few years. Instead, they need a quick solution, one that comes with minimal complications and logistical challenges.
Should You Furnish Your Property Before to Attract Tenants?
As each of the above points shows, the question of whether or not you should furnish your property on behalf of your tenants very much comes down to your specific situation. If you do, you can expect a monthly rental income up to 30% higher. But you'll have to pay for that through an initial long-term investment as well as additional responsibilities.
If you are looking to prioritize low turnover among your tenants, it's probably not the best choice. The same is true if you don't have significant cash on hand and are just looking to get short-term from a single apartment or two. Beyond that, it might very well the right fit. Examine the above advantages and disadvantages closely to make sure you make a choice that's right for your financial future as a landlord.
Whether or not you furnish your rental property, you will need the right software to manage the process. You need to be able to find the right tenant, manage your rental payments and finances, and keep your paperwork well-organized. That's where we come in. Contact us to learn how our property management software can help you improve both your daily tasks and strategic aspirations, allowing you to maximize both rental profits and tenant satisfaction over time.