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How much influence can you exert on the rent a tenant will pay for your property, over and above natural market variables?

Any savvy property investor with a watertight strategy for wealth creation will tell you that maximising rental return is essential to success. After all, you rely on the cash flow as your income stream to help pay the mortgage and maintain your portfolio.

But how much influence can you exert on the amount of rent a tenant will pay for your investment, over and above natural market variables?

Although manufacturing returns can be challenging, it’s certainly not impossible. One of the ways you might achieve additional monthly income is by either partially or fully furnishing your asset.

Before you race off on a shopping spree, however, you need to consider a few essential questions…

1. Is your property suited to the furnished rental market?

Location is key when it comes to determining if tenants will pay more for furnished rental accommodation.

Fully furnished properties are best suited to certain demographics, namely ‘short-termers’ like tertiary students (especially from overseas), young adults flying the family coup and corporate tenants seeking alternatives for extended ‘out of town’ work commitments.

Hence, if your asset happens to be in or around the city, close to infrastructures such as large hospitals and universities or besieged by bustling international business hubs, then a furnished ‘home away from home’ could indeed attract a higher rental price.

Of course, while your furnished property could attract a premium of $100 to $250 per week (depending on market), tenancies are more likely to be sporadic and short term.

2. Does this approach suit your investment profile, objectives and plan?

If you acquire an inner suburban family home, with an underlying investment strategy geared toward set and forget long-term financial stability, furnishing it will probably cause more grief than good.

Providing furnishings and appliances means that you, the owner, assume responsibility for the cost of any repairs and replacements throughout the lease term.

Although there are a certain number of tax benefits that come with furnished rentals, including the capacity to claim additional depreciation, no property investor has ever become wealthy by adopting a ‘save tax’ strategy.

If your property is in the right location and your investor profile lends itself to chasing top tier cherries, knowing that you are restricting your tenant demographic to attract greater short-term returns, then perhaps fully furnished properties will perfectly complement your portfolio.

3. How will it impact your bottom line?

Initial costs for furnishing your investment could run as high as $20,000 to $50,000 when you consider the price of appliances alone. High-end tenants expect modern, easy to maintain design, so if you plan on asking top-shelf prices, you have to provide luxury finishes.

If something breaks down or is damaged beyond repair – human nature suggests people are more likely to look after their own possessions with more care than a stranger’s – you’ll be liable for replacement costs.

As a property investor, you must account for these costs when calculating cashflow, along with the potential for furnished properties to incur lengthier vacancy periods.

4. Is there a happy medium?

While fully furnishing your rental property is a costly proposition, providing some well thought out extras can prove quite profitable.

Storage is always at the top of a tenant’s wish list, so if bedrooms are lacking in wardrobe space consider installing built-ins (preferable and affordable) or providing freestanding robes. Is there enough workspace in kitchens and laundries? Or could you incorporate some shelving?   

Of course some things are essential, such as ovens, however providing additional appliances in a sleek, contemporary home has become quite common in recent times. Tenants are willing to pay more if they perceive a higher degree of comfort, so luxuries like dishwashers, air conditioners and even built in microwaves and refrigerators can mean a little cream on top of returns. Increasingly, a dishwasher and air-conditioning is seen as an expectation by many tenants and not having these amenities could prove to be a significant factor in the desirability and as a result the vacancy of your property.

How to go about it

If you decide to partially or fully furnish your rental property, here are some tips to minimise any associated risks and maximise returns.

  1. Be sensible with your budget and selections. Choose goods (and brands) that can be easily repaired, or with smaller parts that can be replaced.

  2. Keep it neutral and use materials that are easy to clean.

  3. If your property is geared toward corporate tenants, make sure your property manager markets accordingly to international clients.

If your property fits the fully furnished bill and the potential upside is higher than the downside of additional vacancies and maintenance costs, then this could be a great option.

The Little Real Estate team has the necessary expertise and local market knowledge to help property investors identify the possible benefits and pitfalls of furnishing your property investment, and the know-how to keep your cash flow consistently rolling in.

If you are considering purchasing a fully furnished investment property or adding furnishings to a rental property you already own, we’d be only too happy to provide you with some advice for your consideration. Get in touch today.