4 questions to consider before furnishing your investment property
14 June 2019
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 strong, thought out strategy for wealth creation will tell you that maximising rental returns is essential to success. After all, you rely on the cash flow from your portfolio as an income stream to help pay your mortgage, maintain your investment or save money for a potential holiday.
One thing that proactive property investors will look at it is anything they can do to improve performance. Although manufacturing higher 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 property.
Before you race off on a shopping spree though, you should consider a few essential questions.
1. Is your property suited to the furnished rental market?
Location is key when it comes to determining if prospective tenants will pay more for furnished rental accommodation.
Fully furnished properties are best suited to certain demographics, namely short-term renters like tertiary students (especially from overseas), young adults flying the family coup and corporate tenants seeking alternatives for extended ‘out of town’ work commitments.
Of course, while your furnished property could attract a premium, depending on market, tenancies can potentially 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 may 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.
If your property is in the right location and your investor profile lends itself to shorter term tenancies, then a fully furnished property may work for you.
This may potentially mean restricting your tenant demographic to attract potential greater short-term returns.
3. How will it impact your bottom line?
Initial costs for furnishing your investment could run quite high when you consider the price of appliances alone. High-end tenants expect modern, easy to maintain furnishings. Therefore, if you plan on asking top-tier prices, you may potentially have to provide quality finishes.
If something breaks down or is damaged beyond repair, you’ll most likely be liable for replacement costs.
As a property investor, it can be best for you to account for these costs when calculating cashflow.
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 or providing freestanding robes. Is there enough storage space 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 can be willing to pay more if they perceive a higher degree of comfort. Therefore, additional appliances like dishwashers, air conditioners and even built in microwaves and refrigerators can mean a little cream on top of your 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 that could minimise any associated risks and maximise returns:
Be sensible with your budget and selections. Choose goods (and brands) that can be easily repaired.
Keep it neutral and use materials that are easy to clean.
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.