There are so many options for types of rental properties. One of them is furnished rentals. Do you think you might be interested in this option? Would you like to learn more about it? Then just keep reading.
Related: Are furnished apartments for rent a good real estate investment idea?
Furnished rentals: Definition
Furnished rentals are exactly what they sound like: real estate properties – usually apartments – which are provided with the necessary furniture items and are rented out to tenants that way. There is a standard minimum of the furniture that you need to provide in each room in order to be able to market your investment properties as furnished rentals. Basically, you need to have all the furniture that is required for a tenant to live comfortably in your furnished apartment for rent during his/her stay. Following is a list of the basic furniture items which you need in each room:
- Living room: Furnished rentals should at the very minimum have a couch and a table that goes with it, lamps, and a TV set.
- Dining room: The minimal amount of required furniture is a dining table and chairs.
- Kitchen: You should offer kitchen cabinets, a fridge, a cooker, and a microwave as well as some cookware and other utensils.
- Bedroom: All furnished rentals should provide a bed, a nightstand, a chest of drawers, a closet, hangers, and lamps.
- Bathroom: The minimum requirements include a shower curtain, a wastebasket, and a set of towels.
- Laundry room: You should include a laundry machine, a dryer, a laundry basket, an iron, and an ironing board.
When you furnish your apartment for rent, you should keep in mind that it is best to buy simple, neutral furniture pieces that are easy to maintain. It is always better to have a simply furnished rental kept in a good shape than a lavish apartment which looks dirty and falling apart.
Furnished rentals: Advantages
1. Higher rental income
Probably the most important advantage of furnished rentals is that you charge your tenants a higher rent, which makes your rental income higher too. This is in order to cover the initial investment on furniture and its maintenance. However, you should learn to be smart as a landlord of furnished rentals to spend little on furniture which looks rather expensive, so that you can charge more.
Related: The Top 6 Strategies to Boost Your Rental Income as a Real Estate Investor
2. Higher return on investment
Going back to the previous point, you should know how to furnish your apartment for rent smartly to minimize your expenses while maximizing your rental income. Because with furnished rentals you provide more, you can afford to include a higher margin of profit for yourself, which means that your return on investment will be more than with traditional rentals.
3. Higher security deposit
When drafting the landlord-tenant agreement for furnished rentals, you should keep in mind to include a higher security deposit. This is needed in order to be able to cover any potential damage that your tenants might cause to the furniture of your apartment for rent.
4. Predictable tenant pool
Another important advantage of furnished rentals is the fact that they usually attract certain groups of tenants. One tenant group is business travelers looking for a comfortable, homey experience to replace the expensive and cold hotel rooms. Another group of tenants includes families on vacation who are looking for spacious and more affordable accommodation. In college and university towns, students and even professors would be interested in renting a furnished apartment for the duration of the academic year and often even for the whole year. All these tenants are likely to be willing to pay more than what traditional tenants in non-furnished rentals would be able and willing to pay. Moreover, these tenants are among those who will always pay on time.
5. Opportunity to rent out traditional and Airbnb
As demonstrated by the variety of tenants for furnished rentals, a great thing about this type of rental property is that you can rent it out through both traditional and Airbnb rental strategy. College students and professors make ideal traditional tenants for furnished rentals, while business travelers and families on vacation are perfect for the Airbnb rental strategy.
Furnished apartments: Disadvantages
1. Higher initial investment
Because you have to furnish the apartment, unfortunately furnished rentals are associated with a higher initial investment. However, this should not discourage you as a real estate investor since the higher rent will quickly compensate you for these more sizeable initial expenses.
2. Higher maintenance cost
Similarly, if you go for furnished rentals as a landlord, you should be prepared to spend more on the maintenance of your investment property. Furniture, especially things such as the shower curtain and the towels, will be wearing off frequently and you will need to keep changing them in order to attract new tenants. Once again though, the maintenance costs will be made up for by the rent that you charge. Make sure to have reasonable estimates of all these costs to include in your calculations of how much rent you should charge for your furnished apartment. A good investment property or Airbnb calculator can help you figure this out.
3. Higher risk of damage
Having more things in your rental means running a higher risk of things – i.e., the furniture items – getting damaged by tenants. This means not only a higher maintenance cost but also more time required from you as a landlord to fix up your place. So, if you consider opting for furnished rentals, be ready to spend more time on property management. Or alternatively, you can hire professional property management services, at a cost, of course.
Related: 5 Tips to Prevent Damages from a Tenant
4. Higher turnover
As said before, Airbnb guests are a major tenant cohort for furnished rentals. However, one disadvantage that the Airbnb rental strategy brings with itself is the much higher turnover rate than with traditional rentals. If you go for Airbnb furnished rentals, you will have new tenants nearly every day, which means that you will have to be in constant search for new tenants (guests) and cleaning before and after them at all times.
In real estate investing there are numerous ways to make money, and one of them is by owning and renting out furnished rentals. They have their pros and cons compared to regular rentals, and it is up to you as a real estate investor to decide whether that’s the best option for you. Regardless of whether you opt for furnished rentals or non-furnished ones, make sure to use Mashvisor in your property search to always make the best real estate investment decisions.