The Pros & Cons Of Furnished Rental Properties

Even though furnished rentals aren’t common in Sydney, this doesn’t mean there aren’t tenants out there who want to find one. But is the added investment worth it for your investment properties?

Many investors choose to renovate to add value to their property portfolio, but another less costly strategy is to convert an existing unit or house into a fully furnished rental. There are financial benefits to this approach, along with a number of drawbacks. Here are some of the most important factors to consider when deciding whether to furnish your investment property.

What Type Of Furnished Property Attracts The Highest Returns?

It’s important to be strategic when deciding which property to convert into a furnished rental, taking location and likely tenants into account. Furnished properties near university campuses such as UNSW, UTS or Sydney University will primarily appeal to students, which could drive down your rental price and result in long vacancies during semester breaks. 

At the same time, properties within walking distance of the Sydney CBD, or train stations like Bondi Junction or Edgecliff, are often exactly what corporate or executive tenants are looking for. Executive tenants also seek premier locations - with views and lifestyle appeal. These tenants are often able to pay higher rental fees as in many cases their rental costs will be paid for by their company. Keep in mind that they will also tend to have higher expectations when it comes to furnishings and the level of service their property manager provides.

Will A Furnished Property Have Longer Vacancies?

A major concern for investors considering furnishing one of their properties is the fact that even corporate tenants tend to prefer shorter lease terms. With more tenants moving through the property, vacancies can become an ongoing issue unless your property manager is willing to be proactive. To avoid this becoming a problem, make sure your property manager is: 

• Communicating regularly with your tenants, responding to their needs and encouraging open discussion of any intention to move. 
• Ready to act quickly if a tenant does decide to vacate with a marketing campaign that appeals to a wide range of potential tenants.
• Aware of local market trends when it comes to furnished properties to ensure your rent remains in the right price range.  

Other Financial Factors

A Higher Price Bracket - While furnished properties appeal to a smaller segment of the tenant market and can be exposed to longer vacancies, a major financial benefit for investors is that tenants expect to pay more for the convenience of moving into a fully furnished home. 

Regular Updates - Ideally, furnished properties should be updated every three to five years to maintain a current look and replace furniture showing signs of wear. Remember that fully furnished includes everything from beds to kitchen utensils. 

Tax Benefits - Depending on the type of property you choose to convert, you may be able to claim a number of tax advantages including depreciation for appliances and furniture. Talk to your tax adviser about this to make sure you have access to your full benefits.

3 Points To Remember When Deciding Whether To Furnish

1. Discuss your local market with your property manager to find our whether furnished rentals are popular in your area.

2. Invest in furniture that won’t show signs of wear and tear with regular use. 

3. Investigate the tax benefits that apply to your situation with the assistance of an expert.