Is Furnishing Your Investment Properties Going To Increase Your Cashflow?
Choosing whether to put furniture into your investment properties all comes down to one, big question: Is it going to increase your cashflow?
If it was as simple as throwing a few beds and a lamp in, and suddenly getting hundreds of dollars more rent coming in each month, we’d all furnish every investment property we have.
But we don’t. And there are some important reasons why.
YOU NEED THE RIGHT PROPERTY MANAGER
If you want to furnish an investment property, you need to make sure your property manager has the right experience.
The skill-set involved might not be on par with a brain surgeon’s, but it does take an experienced agent who knows how to let that kind of property, how to attract the right tenant and how to avoid long periods of vacancy.
When selecting a property agent ask about their track record in letting furnished properties.
YOU NEED THE RIGHT FURNITURE
If you’re going to the trouble of furnishing a property, you’re going to need to spend some money.
Fundamentals are things like washing machines, dryers, microwaves, fridges etc. If you buy cheap, you’ll end up having to replace or repair them, which is more costly than buying something decent in the first place.
Also, tenants who like to rent furnished properties like to be mobile and so won’t be hauling these big-ticket items around with them. If they’re already there, the property becomes even more attractive and worthy of a high rent rate.
Furniture packs are a great way to furnish whole properties at a slightly lower cost than buying individual items and you end up with a property that looks well put together and styled. Win-win!
YOU NEED THE RIGHT DEMOGRAPHIC
Furnished properties appeal to certain demographics so you need to make sure your property is in an area where these people like to live. Suitable tenants might include:
- Young, mobile, white-collar workers, who want to live with others.
- Students who want convenience and mobility without the burden and expense of buying furniture and appliances.
- High-earning city workers looking for a convenient, comfortable second home during the week.
- Professionals who spend six months or more on placement – think doctors and other medical specialists.
YOU NEED TO BE AWARE OF THE COSTS
As well as having to buy the furniture itself, which can be costly, there may come a time when you have to store it if a future tenant doesn’t want it. This can be a cash-draining expense if you have to hire a storage space.
Try and lock in a minimum of 6 or 12-month leases for furnished properties to lessen this risk of added expense.
There are however some financial upsides.
Furnished properties can rent for 15-30 per cent more than unfurnished ones.
And, if you buy a furniture pack you can get a tax deduction for the depreciation and write off the value within two years.
YOU NEED TO BE FLEXIBLE
If you don’t want to go to the trouble of furnishing a whole property – or more to the point you don’t think it will increase your rents significantly – why not offer tenants some specific items for $20 or $30 a week more?
Washing machines, dryers, fridges and freezers are costly to buy or hire for tenants, and a hassle to get in and out of a property. If these items come with the property, your tenant might see some real value in paying slightly more rent.
And the upside for you is that your rent yield increases and you get the 100 per cent deductible depreciation amount within two years.
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By Jason Whitton
Group CEO Positive Real Estate