What Landlords Need to Know About Renting Furnished Homes
December 6, 2023
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A Guide To Furnishing A Rental
A common decision many landlords contemplate is whether to furnish their rentals or not.
Furnishing a unit isn’t cheap and shouldn’t be done without properly considering the pros and cons, amongst other things.
If you’re on the fence about if furnishing is the right move for you, you’ve come to the right place.
In this article, we’re going to cover the pros and cons, elements you need to consider before you decide, how much you can charge, and more.
The Pros of Furnishing a Rental
Let’s start with the positives:
The most obvious advantage of a furnished rental is that you can charge more for rent. People will pay a premium to move into a rental that’s already put together. It means they don’t have to move heavy objects, find furniture, and decorate a lot of their own place.
Typically, you can mark your rental up 10% to 20% annually if it’s furnished.
Larger security deposits
Going along with charging more for rent, you can also usually charge more for a security deposit. And that’s not just our opinion; in many states, it’s the law.
For instance, in California you can collect two months’ worth of rent as a deposit for an unfurnished rental.
However, you can charge three times the monthly rate if the same rental is fully furnished.
Less likelihood of unit damage
Another great reason to rent a fully furnished rental is potential damage. Scratches and dropped furniture can cause a lot of damage. If you take care of this once, you’re lowering the chances of tenants or movers damaging your property.
Easier to market
Marketing a fully furnished property is easier because your home will probably be attractive to specific groups of people. Fully furnished places are often more expensive, so your pool of potential renters will be narrower than other landlords. This makes it easier to zero in on specific markets.
Enhances your home’s appeal
There’s a reason some apartment complexes only show you model units. They want you to see what the place looks like furnished. This finished look increases the attractiveness of any place you visit. And that makes you more likely to sign the lease.
If you rent a fully furnished home, you have that as a built-in advantage.
Increases odds of filling vacancies faster
This is more of a general likelihood than a solidified advantage. That said, a fully furnished home can attract tenants quicker in a high-demand market.
Opens up more tax benefits
Lastly, furniture bought for furnishing a rental allows you to claim depreciation deductions on part of the value every year for five to seven years (the type of furniture determines the length of time).
If you want more information on these deductions, read about publication 527 on the IRS website.
The Cons of Furnishing a Rental
Now that we’ve covered the pros of a furnished rental, let’s look at the cons:
Higher initial investment
Furniture isn’t cheap and you won’t want to simply purchase the most affordable options. It can cost thousands of dollars to properly furnish a rental, so keep this in mind as you deliberate.
Higher chance tenants are looking for short-term rentals
Some prospective tenants who want furnished rental properties don’t plan on staying long, so they want a place that makes moving and leaving as frictionless as possible.
This, of course, means that your marketing efforts will require more effort.
Potential damage of your furniture
This one isn’t exactly a disadvantage when it comes to furnished properties. Because you can charge a higher security deposit, it’s unlikely to financially impact you if a tenant damages furniture. It’s not fun and could still be a bit time-consuming to replace the furniture, but it won’t tremendously hurt your business.
If you Decide to Furnish Your Rental
So, you’ve weighed the pros and cons and decided on a furnished rental?
Let’s look at what you should do next.
First, you need to raise rent. How much should you raise it by? Answer these questions and then you’ll have a much better idea:
- What was the total cost of furnishing the rental?
- What do you estimate for annual wear-and-tear expenses?
- How much can you claim in annual depreciation?
Raise your security deposit
Protect yourself. The best way to do this is by increasing your security deposit. You need a larger safety net, in case tenants damage your furniture. This also acts as an added incentive for your tenant to treat your entire property well.
Conduct consistent inspections
I live at an apartment complex, and they perform routine inspections. Nothing severely intrusive. Just a quarterly check-in to make sure everything is working properly, and the unit is in good condition. You would be wise to do the same.
Note: Always remember to provide at least 24 hours of notice that you’re going to be on the premises, though.
Thoroughly screen tenants
Finding responsible tenants is one of the best ways to protect your property. People who treat your place like they own it are the kind of renters you want.
A proper screening process will give you a good idea of whether a potential renter is that kind of tenant.
What to add to Your Lease for Furnished Units
When you decide on a furnished rental, be sure to add certain elements to your lease. These adjustments will protect furnishings and fixtures and are important safeguards for your unit.
Start by listing out the furniture and the condition of each fixture. Set a clear expectation that the furniture should be in good condition at the end of the lease term (normal wear-and-tear should be the only difference). Also, it may behoove you to specifically state a tenant’s responsibility to report any issues with furniture to you right away.
Another stipulation you may want to add is that all furniture must remain in the unit and not cover up vents or air pathways.
These are only some examples, obviously. Your considerations will vary depending on your furniture and expectations. Just be sure to be as clear as possible in your lease.
Furnishing a rental can be a good decision. It all depends on location, target market, and if the costs make sense for you. Take the pros and cons we’ve mentioned and make an informed decision.
If you decide to move forward with furnishing, following the steps we outlined to get started can be a great help.