Xenia's property management quick tip - Furnished Properties

A question I often get asked in property management is "can I get more rent if I add furniture"
The answer is not a simple yes or no and the wrong property furnished can mean that you minimise your market instead of attracting more rent.

Tenants will ask you to remove the furniture and an increased rent due to the furniture can be detrimental and will price the property out of the market.

However, there are cases where furniture can work very well and can certainly achieve a higher rental value.

Inner city apartments, beach locations, executive style homes in prestige suburbs, ie Adelaide Eastern suburbs, can work well furnished.

The increased rental amount does not come from the furniture, it comes from attracting a corporate high end market that will pay that premium price and that does not always come from just putting a property on realestate.com.au and hoping for the best. This part of property management borders on commercial leasing and requires some active work - approaching people, private databases etc to get it working.

The type of furniture and overall presentation of the house is absolutely important. Our biggest successes have been properties that have been styled correctly with suitable furniture - they have to look amazing or it will not work.

Furniture does not need to be expensive but it needs to be styled and suit the property and definitely no older than 5 years old - corporate tenants will not go for tired, worn out furniture.

Budget:
A case study may help here.
we took Norwood executive style townhouse - beautiful property in the right location and took the rent from $700 per week to $995 per week by targeting a corporate market and adding correct furniture.

Consider the increase of $300 - very roughly, the first years increase should be spent on furnishing the house. Furniture should cost roughly $15,000 to have this home furnished and the increase in the next 4 years can be profits. Budget to replace some or all the furniture after 5 years or the profits will be lost in vacancies if it looks bad. This is only a rough guideline as every situation is different.

Hope that is valuable and if you are going to add furniture to increase rent, get some specific advise on the property by someone who has had experience in dealing with furnished properties.

Looking forward to sharing your experiences if anyone else has done this.

 

Good tip Xenia.

When I moved to Adelaide I had three requirements - close to city, pet friendly and at least partially furnished. I got all three and the furnishing did not add $300pw like in your example but it certainly made my move easy and much less painful. Win for landlord as they got more than market rent, and win for for me.

Ended up with an 1880 built stone fronted cottage on the city fringe and loving it!

 

Great - are you still living there?

 

Yes I am, great location close to North Adelaide restaurants, dog park for the huskies and the CBD for clients. Took a 12 month lease and dont plan on moving out.

 

Great tip. This is true, furnished properties do not necessarily generate more income. In fact, you may need to spend more on maintenance. We once needed to replace a fridge that has stopped working. Even a cheap one costs a fortune. I'd like to unfurnish our furnished IP, but that alone costs money and takes a lot of efforts.

 

If you do this, remember to :
- do a furniture inventory as part of your condition report so you can be sure its all there at the end (and in same condition)

- add a clause to the lease about putting everything back where they found it. Heard a story from a colleague where their tenant on the last day put the table in the bathroom, fridge in the bedroom, etc and couldn't bill them for rearranging otherwise.

 

We had a case recently where they took the kitchen chairs and tables outside and they got damaged in the rain.

Original condition report photos showed them to be in good condition and inside.

Tenant paid for all damages, no tribunal case for this one. They just paid.

Also our end lease cleaners just put things back and add it to the invoice - no arguing.

 

Great tips guys! One of my IPs is furnished and at the five year mark I decided to get rid of the furnishings and rent unfurnished - worked well initially for all depreciations, now rents have increased over time to offset the need to keep the IP furnished...its a fine line when it works and when it does not make financial sense to continue

 

Hi Xenia\All,

I have a furnished apartment in inner city sydney. It's now achieving super rental as I have leased to a tenant who is then sub-letting it as an airbnb.

Are you able to provide any advice on the legal and insurance complications of it being sublet? One of the neighbours has had a minor complaint and asked me to look into whether strata insurance covers the sublet scenario as well as strata\building insurance?

Don't expect strata\insurance specific answers, but any general advice would be helpful.

My agent says the apartment is zoned for mixed resi\commercial and is being let to a tenant who is then subletting to run a business so should be all above board???

Many thanks!!!

 

Landlord Insurance is void for subletting.

 

I think there have been some implications on insurance claims. You still have a lease with the original tenant and if that tenant defaults a normal course of action should take place.

I have not handled any insurance claims where a property has been used for air BnB, I will find out. The few cases I have seen have not been clear cut and I can't really speak from experience on this one either.

 

Is this with all insurers? In this case I am with NRMA...

This is a good kicker for me to check the policy actually so thank you!

 

Thanks Xenia, my property manager has advised that my tenant has her own insurance (not sure what sort, what it covers etc). It's definitely an interesting scenario. Appreciate any info you may come up with!