One of the important decisions a property investor should make is whether to offer a furnished property or not. There’s solid demand for rental properties in Australia—for example, in New South Wales, around 30.8% of people rent rather than buy—and your choice will definitely affect how many enquiries and prospective tenants you’ll get.
However, if you’ve made the decision to rent out a furnished property, there are several things you should know that will help you prepare and manage your property and finances better.
Higher Yield, Higher Turnover
Furnished properties typically command a higher rental price because they offer the convenience of having the things a tenant will need. As such, they’re quite popular among short-term dwellers who are willing to pay more for a shorter stay such as business travellers. This means that you get more money per tenant.
However, that comes with a risk as well. Because the rent is higher, you’ll probably have less long-term tenants such as a young couple looking for a place to raise a family. This will result in the possibility of having more days or months that your property is vacant, costing you more money.
More Wear and Tear
While furnished properties offer convenience to tenants, they also lead to more headaches in the part of the owner. This is because there’s more wear and tear involved—the furnishings inside are all subject to degradation and damages, which will affect your expenses.
As a landlord, you’ll have to make sure to do regular inspections to account for each item and their condition. To protect yourself further, take photographs of the important items before the start of the lease and date them accordingly. This allows you to have proof if ever you need to ask for additional payment for damaged or lost items.
If you don’t have the capacity to take inventory and inspect each item, you could hire a property manager to do the heavy lifting for you. Aside from inspections, a property manager can do other thing such as ads and prepare lease and financial documents.
Ask for a Larger Deposit
As previously discussed, you’re taking a bigger risk if you offer a furnished property compared to one that’s bare. There’s more scope for damage and, as landlords, you’re responsible for making the necessary fixes and replacing items.
As such, it’s usual to ask for a bigger deposit when renting out a furnished property. This is because you’ll potentially need a larger amount to cover for more damages. In some cases, renting a luxury furnished property requires a deposit and eight months’ worth of rent in advance. However, make sure to study your pricing strategy to come up with a justified deposit amount that won’t drive off potential tenants.
If you rent out a furnished property, you’ll be able to take advantage of additional tax deductions which you can claim to increase your rental income. These can involve deductions for furniture purchased and other depreciable items such as light fittings, carpets, and curtains.
However, computing depreciation on different items can be challenging since different things depreciate at different rates, so there will be different figures involved. To help keep you on track, you can create a depreciation schedule or, if you have the funds, seek help from an accountant or a quantity surveyor.
Additional Steps Will be Involved
When renting out a furnished property, you may find that you’ll need to do a bit more before you come to an agreement with a tenant. For example, tenants may request that you attend the property with them to create an inventory. When you both agree that the items in the inventory list are present and in a certain state, you can finalise the financial aspect of the contract (e.g. deposit, advanced payment) and avoid any unfair claims when the lease is over. Again, this is something a property manager can do for you.
It’s always worth considering certain restrictions to protect your investment. For example, as a landlord, you may request a “no pets allowed” policy to avoid fur shedding or damage to the furniture. Similarly, not allowing smoking can help you maintain a good looking (and smelling) interior as well as avoid fires.
Whether you’re planning to rent out a bare or furnished property, being informed of what you have to know and need to do is important. The same goes for buying property, may it be for personal or investment purposes, and searching for the right loan or lender. At Clever Finance Solutions, we’ll guide you in your property journey and help you in your search for the best loan for your needs. Our goal is to help you make the right financial decisions for a more secure future. Schedule a no-obligation appointment with us today and let’s get started.