Congratulations on becoming a landlord! You are now on your way to earning passive income for many years to come, so long as you made the right moves. Now, before renting out your property, there are many decisions you’ll have to make. Among these is whether or not to furnish your units.
To begin, no law compels landlords to furnish their units. That decision comes down solely to the landlord. And of course, each option has its own set of pros of cons.
In this article, we’re going to take a look at the pros and cons of each option in order to help you make the right decision.
What is a Furnished Apartment?
The term “furnished” is relative when it comes to the items that can be included. However, generally speaking, the following is what you can expect:
Besides items such as a refrigerator, microwave and dishwasher, a furnished apartment will also include other items as well. These items may be a toaster, blender, food processor, coffeemaker or other small appliances. Although less common, a kitchen in a furnished apartment may also come equipped with bakeware, utensils and cookware.
An unfurnished bathroom will have essentials such as a toilet, sink and tub.
A furnished bathroom will include additional items such as a tissue holder, soap dispenser, wastebasket and bathmat.
At the minimum, expect a furnished apartment to have items such as a coffee table, couch and lamps. Other items to expect include a bookshelf, TV and stereo system.
A furnished apartment will have items such as a chest of drawers, an armoire for clothing, pillows, a desk, and even an alarm clock.
As you might expect, furnished apartments rent for more than unfurnished ones.
A furnished apartment can also be semi-furnished. The term “semi-furnished” can describe anything from a nearly bare to an almost fully furnished rental property. Broadly speaking, a semi-furnished apartment is one that includes only basic furnishing, such as tables, sofa, bed, and dresser.
Pros of Renting Out a Furnished Apartment
So, what are some of the advantages of renting out a furnished apartment?
1. You can charge more rent.
This is perhaps one of the top reasons why a landlord would consider renting out a furnished apartment. The extra rent is to help cover the cost of furnishings, as well as cover any liabilities that may accrue.
Additionally, more rent will usually mean a greater security deposit, too. This is because security deposits are usually calculated as a multiple of the rent.
2. You may be able to reduce the tax due to the taxman.
Furniture is a capital asset, and therefore, a depreciable asset.
Consequently, you may be able to claim back some of the taxes you owe to the IRS.
3. Your property may enjoy low vacancy rates.
A furnished apartment is attractive, especially for tenants who don’t have furniture of their own. Because of this, you may have an easier time finding tenants.
Cons of Renting Out a Furnished Apartment
1. There is risk of more damage.
More furniture also means more risk of damage. Sure, you may have a foolproof tenant screening process. However, there is still that chance of landing a problem tenant. Although the deposit may take care of the damage, the constant cycle of replacement may prove stressful.
2. You may not be able to attract long-term tenants.
Generally, furnished apartments usually attract short-term renters. They are typically students, expatriates and first-time renters.
A high tenant turnover rate means that you’d need to spend more money, effort and time searching for new tenants.
3. Tenants have no room for customization.
With a furnished apartment, tenants don’t get a chance to personalize their space. This may end up locking out certain types of tenants who may not like the look of the apartment.
What is an Unfurnished Apartment?
When an apartment is labelled as unfurnished, it usually doesn’t include furniture such as couches and beds. They only include standard items such as a dishwasher, stove, fridge and washer/dryer combo.
Below are some pros and cons of renting one.
Pros of Renting Out an Unfurnished Rental Property
1. You won’t be responsible for the tenant’s personal property.
In an unfurnished apartment, the tenant will be the one responsible for their own belongings. So, in case of any damage resulting from their negligence, a tenant can’t expect you to foot any part of the bill.
2. Tenants get tons of room for personalization.
An unfurnished property is like an empty canvas. Tenants are free to customize the property to their own liking. That being said, ensure you state the limits of customization regarding the space.
For example, make sure to state in the lease whether or not a tenant can paint the property.
3. There is less maintenance on your part.
Renting out an unfurnished apartment means more flexibility for you. For instance, you can require tenants to clean the unit once they vacate it.
Con of Renting Out an Unfurnished Apartment
1. Rent will be relatively less.
When renting out an unfurnished rental, you won’t be able to charge as much as you would with a furnished one. Additionally, you won’t be able to guarantee that your tenants’ furniture will fit the property, as they may be too heavy or bulky.
So, to furnish or not? Generally, furnishing a property does have its fair share of benefits. However, the increase in rent may not be able to offset the cost of maintenance and risk of damage.
As a general rule of thumb, only furnish a property that can be profitable in the long-run. Consider things such as the replacement costs and risk of damage. Ask yourself the following questions:
- Will I get more rent as compared to renting out an unfurnished one?
- Will the extra hassle be validated by the extra money, less expenses and upkeep?
If you have any further inquiries regarding the content of this post or your property management needs, contact Haas Properties today!