Property rentals – to furnish or not furnish?
The investment market is changing constantly and property investors are forever looking for a way to have an edge over others on the market.
We understand that constant search for improving on your investment, and often hear these kinds of questions from property investors;
- How do we attract the right type of tenant?
- What amount of rent can we expect?
- How do we avoid those long lengthy vacancy periods?
- Do we need to spend any money on the property?
The savvy investor is always looking for a way to increase their rent, and traditionally this has been through renovating and upgrading their property.
However, we would like to put forward an idea for you to consider…
Is a renting a Furnished Property an alternative?
Over 95% of the properties for which we prepare a Tax Depreciation Schedule are leased vacant (unfurnished) – but is there an advantage in renting a property furnished?
If you are thinking that including furniture could possibly be an option for you, here are some pros and cons for you to consider first;
- Furnished properties attract a higher rent income than unfurnished
- Furnished properties generally have a shorter lease term, usually between 3 – 12 months. There is a possibility that you will have a higher turnover of tenants and more time in between where the property is left vacant
- If you are going to furnish your property, you need to do it well. Dated décor could be a deterrent more than an advantage
- You might need to factor furniture upgrades into your budget every 3 – 5 years
- Monitoring your furnishings can be time consuming. Will your Property Manager charge higher management fees to produce a detailed inventory and manage a furnished investment?
It could also help by providing a way of targeting your market. A furnished property, close to the CBD or Universities could be a great way of tapping into the student market, or a more formal outfitting in the CBD may be a way of attracting corporate tenants.
What does your furniture package look like financially and in your Tax Depreciation Schedule?
Here we look at some of the common items included in furnished properties;
The above is just a small example of items included in a furnished property. If you look at the sample of furniture above we have estimated the total value to be $11,685.
Here are some observations from Real Estate Experts on how the addition of furniture may affect the return on a rental property…
Merridy Moir says….
A furnished investment property can assist the landlord to achieve a higher rental price. We find the most successful areas for furnished properties are the CBD & City Fringe as well as beachside suburbs.
Although a higher rental price is likely, the time to find a suitable tenant is often increased as we are targeting a small portion of the tenant pool.
It is important that a landlord considers the ongoing expense to maintain or update appliances as they breakdown. This is something that your property manager will be able to coordinate for you.
When furnishing a property, it is important to provide the tenants with all the necessities, without overcrowding the property.
If you are thinking about furnishing a rental property make sure you seek professional advice.
Ouwens Casserly Real Estate
Kylie Caruso says…
Furnished properties can work well, but will depend on the home, surrounding area, and the market environment.
Yes, they will achieve a higher return, however you need to consider maintaining full contents insurance, higher agency fees and possibly a higher turnover in tenancies. If not done right, the additional income received could be lost with the additional running costs.
Furnished properties tend to work well on apartment type properties rather than family homes.
It is important when leasing a furnished property to “keep it simple”, include the basics. This will help keep your costs down enabling tenants to add their own touch to make the property their ‘home’
The Real Estate Co
“To gain the most back in depreciation from your furniture package, the items need to be separated and individually listed in your Schedule.”
Michael Ramsey says…
Furniture can be an option and a possible rental strategy. In some situations, it can be more convenient for the exiting Owner to leave the property furnished if it is only a short-term lease.
Getting furniture in and out of high rise building and storage can become an additional expense.
If you do furniture, you need to do it well!
If the furnishings are dated and do not suit the décor, they can be a hindrance more than an advantage.
Any item with a purchase value of $300 or less, can be claimed as an immediate deduction in the relevant financial year it was purchased. Items with a value between $301 and $1,000 will depreciate at 18.75% over the first year and increase to 37.5% in subsequent years.
For depreciation purposes, your traditional $25,000 furniture package could give you a depreciation return of around $6,675 in the first year, $4,100 in the second year and $3,450 in the third year. A total of $14,225 (57% of the initial purchase price) could be claimed back in tax depreciation over the first 3 years after furnishing the property.
What happens when an item of furniture is damaged and requires replacement?
As an example, let’s consider how you can leverage the washing machine listed in the inventory above if it breaks down after the first year.
Washing Machine value $1,650
1st Years Depreciation Claim $330
Value when damaged $1320
For the purposes of the schedule, the remaining value of the washing machine $1320) is scrapped (written off) and can be claimed as an immediate deduction.
This article can’t advise you on whether or not furnishing your investment property will work for you, but it does provide an indication of what it may look like in a Tax Depreciation Schedule.
For more information on how a Tax Depreciation Schedule could work for you and help you claim the most from your investment property, get in touch with the friendly experts at Real Property Matters.