Landlords are often confronted with the difficult question of whether they should lease out their property furnished, semi-furnished or unfurnished. There are pros and cons to all three options, the main questions you have to ask your self as a landlord is:
1. What kind of renter are you looking for?
2. How involved do you want to be as a landlord?
The biggest difference between a furnished and unfurnished unit will be the initial and monthly cost. Semi-furnished units will fall in between these variables.
Furnished units will in general achieve a higher income rate (5-10% increase) compared to unfurnished units . However as a landlord one has to consider the extra income to the insurance of the furniture and the depreciation value of the furniture. Will this percentage value be enough to still make a bigger monthly profit.
Unfurnished units allow for easier finance in the sense that the landlord doesn’t have to insure the furniture or consider depreciation. The only insurance will be that for the construction of the unit that one will have to insure whether it it furnished or unfurnished.
Furnished units tends to attract short term renters, this means even with the 5-10% income increase one will have to consider the “furniture cost” and also the fact that your unit will have a higher “empty” value compared to an unfurnished unit. This often requires far more attention from the landlord to find new tenants on a regular basis.
Unfurnished units tends to attract renters that will stay for at least a year if not longer. This is simple because moving from space to space is time consuming, costly and requires a lot of effort.
Interior and Furniture
Furnished apartments are often furnished with sturdy functional furniture, this is to withstand the many tenants. However a landlord has to consider how far they will go to accommodate a new tenant that may want other furniture or may what you as landlord to remove some furniture. The question is will you buy new furniture on request of your tenant and also where do you go with your furniture if your tenant doesn’t want a certain furniture item.
Unfurnished unit doesn’t have any of these problems, other than the damage that will occur while tenants move in and out.
With a furnished unit the chances of liabilities increase drastically. You as landlord not only have the liabilities of the fittings, but also the furniture. Many landlords ask a much higher deposit for this very reason, in case your renter burns a hole in your couch. However in South Africa a higher deposit is sometimes a difficult matter for your potential renters market. The norm for South Africa is to ask 1 months rent for the security deposit, if you are intending to ask twice as much then your potential renter will have to pay 3 times the value of their monthly rent the first month, this can simply be too high for the average renter.
It is these many variables that makes our heads spin as landlords, which way is the best. Will a furnished or unfurnished unit bring in more income compared to the effort and time it will take from you as landlord.
Personally I feel that one has to consider your area and your property.
Your area will determine the average renter type, are they students, expats, singles, couples or families. If they fall into the students, expats and singles group a furnished unit might do well. If they are for couples and families an unfurnished unit will definitely do better.
In regard to your property type it is well known that smaller units are rented out by students, expats and singles. Where as a larger apartment or house tends to be rented by couples and families.
I hope this makes it a bit easier for you as a landlord in deciding what will make your property investment works best for you.
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