Fully furnished rental properties– or turnkey– houses are becoming more popular by the day.
But should you rent your property furnished? What is the true return on your investment, and what drawbacks are there?
Below, we’ll cover:
But let’s start with what’s likely really on your mind: how much more can you charge for a fully furnished rental property?
A furnished rental is one which comes with an assortment of furniture and/or appliances such as:
A fully furnished rental may also include items such as:
It’s not uncommon for a rental to be furnished with one or more appliances. However, fully furnishing a rental can be costly.
So, how much more can you charge with a fully furnished rental?
Typically, landlords charge anywhere from 10-20% more per month for a fully furnished rental on a long-term (generally annual) lease.
It’s worth noting short-term rentals as well, which can demand as much as 40-50% more.
However, with short-term rentals those renters typically expect the property to be fully furnished, so it’s not the same.
Let’s look at a quick example:
A 3-bedroom property that is minimally furnished you might rent for $1400, or $16,800 annually.
That same property fully furnished at a 20% increase would come in at $1,680, or $20,160 annually.
When we look at it that way, you could expect to net $3,360 more per year from the rental.
Because fully furnishing that property will likely cost you more than that (barring any bulk discounts if you’re furnishing multiple properties or units), renting fully furnished should be seen as more of a long-term investment that pays off in year two and beyond.
Now that you’ve seen it can be worth it to rent fully furnished, you may be wondering about the other benefits (and drawbacks).
Let’s go over those now so that you’re fully informed of everything that renting a furnished house entails, so you have all the information you need to decide whether it’s right for you.
Here are the major pros and cons of renting a fully furnished house:
These are the pros of renting a fully-furnished property:
While the rent rate for a fully furnished space is higher, the draw of a fully furnished rental is big, especially in a busy market with high demand.
With a fully furnished space, you’re able to attract more and potentially higher quality tenants as well given the price point and responsibility involved.
We touched on this earlier, so we don’t delve into it again, but you can charge considerably higher rates with a fully furnished property.
Typically, that’s anywhere from 10-20% higher on annual leases, though it will depend on where your property is located.
Another big benefit is that you can charge a higher security deposit with a full furnished rental.
That’s not a general statement, either, but actually written into most state laws.
For example, in California, you’re allowed to collect a security deposit worth two months of rent for an unfurnished space.
However, for a fully furnished space, you’re able to charge three times the tenant’s monthly rate.
A final benefit that we can’t forget is the potential for tax deductions.
Furniture purchased for the purpose of furnishing a rental property can, in most cases, be deducted on your taxes.
Because the furniture is being used for business purposes and has physical value, you can claim depreciation deductions on a portion of the value every year for between 5-7 years depending on the type of furniture.
For more information on how depreciation in rental furnishings work and what you can claim depreciation on, see IRS publication 527.
Next, let’s look at the cons:
This one is obvious, but it’s also necessary to mention.
Furniture and appliances aren’t cheap, and when you add up the cost to fully furnish a single property, it can easily reach into the thousands (or far more) depending on what you include.
This needs to be paid for upfront before you can begin charging the higher rental rate, so you’ll need the funds to invest in the furnishings in advance.
This is both a con and not really a con, but it’s important to mention.
It could be seen as a con because the furnishings you just spent thousands of dollars on becoming damaged means you’ll need to replace them.
However, remember one of the good things about having a fully furnished property: you can charge a larger security deposit.
You can deduct from that security deposit to pay for the damages, recouping your loss without it coming out of your pocket.
Let’s assume you’ve decided to furnish (whether fully or partially) one or more of your rental properties.
How do you protect your investment?
We’ve established that furnishing even a single property can reach well into the thousands, so it’s important to have the right structures in place to make sure that investment nets a return.
So, let’s pull everything we’ve talked about so far together into one succinct set of tips to make the most of furnishing your rentals:
First, increase your rent by 10-20%. How much exactly should be based on a combination of:
Having a better idea of each of these items will help you figure out how much more you should charge.
You can charge new tenants a higher security deposit for a fully furnished rental, so why not?
It covers you more in the event of damages, and if you don’t need it, it simply goes back to your tenant at the end of the lease.
In return, you get more assurance that your investment will be covered for anything.
Don’t just inspect your units at the end of a lease.
Instead, do an inspection at least mid-way through a one-year lease, if not quarterly, to ensure your property and furnishings are being taken care of.
Knowing that they will be inspected regularly also encourages your tenants to take care of the property and its furnishings.
Properly screening potential tenants is vital for a number of reasons.
For much the same reasons, when it comes to taking care of your furnished property, it’s about finding tenants who display responsibility and respect in their relationships and behaviors.
Make sure you’re checking a variety of things, such as:
Ultimately, it’s up to you to weigh the pros and cons of furnishing your rental property or not.
However, we hope this guide helped inform you of whether it’s a good fit for you and your property to furnish (and how much) or not.
So, weigh your expenses, consider the upfront investment, and chart out the projected gains while considering the other factors such as your area, target renter, and more to figure out what the right move is.
