Real estate investors are now considering fully furnished apartments as millennial renters prioritize convenience and are willing to pay for it.
Table of Contents
- What Are Fully Furnished Apartments?
- Why Should You Invest in Fully Furnished Apartments?
- What Are the Downsides of Investing in Fully Furnished Apartments?
- How to Invest In Fully Furnished Apartments
- How to Protect Your Fully Furnished Apartment
- Final Thoughts
As mentioned above, furnished apartments are a priority for tenants who prioritize their convenience. This group of renters mainly consists of travelers, students, first-time tenants, and relocating professionals. People who’ll be living in the property temporarily prefer to forgo the hassle of having to buy and move furniture.
In the recent past, there has been a countercultural shift in the home ideal. Millennials are increasingly preferring to rent their homes than own them. Besides, the rising mortgage interest rates are discouraging them from investing in properties. These are some of the reasons why we continue seeing strong demand for fully furnished apartments for rent.
In today’s post, we’re going to look at what fully furnished apartments are, the benefits of investing in one, and how to go about it while avoiding common pitfalls.
What Are Fully Furnished Apartments?
A furnished apartment is a property that comes with the furniture a tenant would require to live in the space. There are basically three types of furnished apartment rentals:
- Semi-furnished Apartments – This type of property comes with basic furniture and appliances, such as lights, fans, wardrobes, and kitchen cabinets. If lucky, a generous landlord could provide a sofa or a bed.
- Furnished Apartments – Furnished apartments come with sofas, beds, dining room setup, coffee tables, and basic kitchen appliances. Some landlords also include extras such as a microwave, table lamps, and a toaster.
- Fully Furnished Apartments – They are also known as turnkey properties since they come ready for occupation. You can literally “turn the key”, walk in, and start living comfortably. They provide more than what furnished apartments have, including cutlery, blankets, and towels. You may find a wash and dryer and artwork on the walls. The only thing tenants have to bring is their clothes, toiletries, and food.
The rental rate for fully furnished rentals usually depends on the amount of furniture provided. Ideally, the more furniture you provide for your tenants, the more you can collect in rental payments.
Related: To Furnish or Not to Furnish Your Rental Property
Why Should You Invest in Fully Furnished Apartments?
Generally, furnished apartments involve a higher investment and frequent changes of renters. However, there are some advantages to owning these rentals that make them stand out from other properties.
- Higher Profits – Compared to other bare rental properties of the same size and type, furnished rental homes offer higher returns. You can charge 5–30% higher than what you would charge for ordinary rentals. Remember, you can raise or lower the rent depending on the kind of furniture you offer.
- Higher security deposit – Fully furnished apartments landlords charge a higher security deposit. This is essential since you need to sort any potential damages that your tenant may leave on your furniture or the property itself. A security deposit worth two months of rent is ideal for furnished apartments.
- More opportunities – Furnishing your rent apartment allows you to explore both traditional and short-term rental strategies. You can also choose to rent it out during the high season and have it to yourself when the market is more dormant. This can make the property more profitable especially if you’re located in a tourist hotspot.
- Competitive advantage – As we have already seen, millennial renters are willing to pay for any convenience you offer. Many students, temporary workers, and travelers are looking for or already living in furnished apartments. You can target this specific group and carve a niche for yourself in the rental market.
- Tax advantages – Owning fully furnished apartments for rent can give you tax breaks. The expenses related to buying furniture for your rental property are considered tax-deductible. This can be a huge relief to landlords considering the amount of taxes they are required to pay.
Related: 10 Tips to Ensure a Profitable Short Term Rental Investment in 2022
What Are the Downsides of Investing in Fully Furnished Apartments?
Like many lucrative investments, apartments that are fully furnished have their own potential risks and downsides. Here are some that you should be aware of:
- High initial investment – A furnished studio apartment for rent requires a higher initial investment due to the furniture expenses. However, this should not be much of a worry since the potential returns can more than compensate for the initial investment.
- Maintenance costs – Once you furnish your rental properties, you should be prepared to spend more money on maintenance. Things such as shower curtains and towels wear off fast and will have to be changed every time a new tenant moves in. To avoid this morphing into a big issue, you need to account for this expense when setting your rental rates. You want your monthly rental income to more than make up for the maintenance costs.
- Higher tenant turnover – Most furnished rental owners choose to lease them as short-term rentals. Should you choose to follow this path, know that you will have a higher tenant turnover rate compared to traditional rentals. It also adds more responsibility to your shoulders since you have to market the property and clean it before a new guest arrives.
- Damage risks – Buying furniture for your rentals means running a higher risk of having them damaged by your tenants. This adds to the maintenance costs and increases the need for you to be available to fix up any issues. You can counter this by paying more attention to your property management. You can choose to do it yourself or hire a professional property manager or management agency.
How to Invest In Fully Furnished Apartments
Now that we’ve covered the basics, you might feel ready to invest in a furnished apartment. Before you go ahead and invest in apartments fully furnished, you need to be aware that it might not be as simple as it sounds.
Let’s walk you through a few pointers on what you should do to ensure your furnished apartment investment pays off in the housing market in 2022.
Choose the Right Location
Like any other real estate investment, you need to invest in the right location. The right location means your investment will be in high demand and thus be profitable. Such a location will exhibit a couple of positive economic indicators, such as affordability, population growth, and low unemployment rates. These factors also determine whether the location is best for long-term rentals or Airbnb rental properties.
If this is your first fully furnished apartment investment, pay special attention to the local expenses. As we’ve seen, the cost of furniture determines how much your initial investment will be. You want to invest in an area with affordable furniture supplies.
Remember, the local expenses will determine how soon you’ll break even and start earning profits. Ensure that the property expenses and insurance costs in the area are affordable as well.
Understand Your Neighborhood
Once you’ve selected your location, narrow your analysis down to the specific neighborhood. This is important because your tenants will also factor in the neighborhood when searching for a furnished rental.
For example, let’s say a relocating professional or temporary worker is looking for a furnished rental in a certain neighborhood. One of the main amenities that a tenant will consider is transportation for easier movement to and from work. Similarly, tourists will consider proximity to tourist attraction sites.
The essence of this step is to understand what your property can offer your tenants. It’ll also help you identify any shortcomings and how to overcome them.
Research Your Target Market
Most millennial renters are now transitioning from school to the workforce. They now comprise the majority of renters.
It’s important to understand your target market, whether they are new professionals looking for internship opportunities or relocating workers. This will help you customize your apartments fully furnished for rent to suit their needs.
For example, many workers now work remotely. You can target this specific market segment by having a home office setup in the living room or extra bedroom.
The idea here is to focus on the target market’s demands and deliver accordingly.
Determine Your Rental Strategy
Before you start receiving tenant applications and setting up leases, you need to figure out what business model you’ll be following. Are you looking to lease your property to long-term tenants? Or do you prefer a shorter arrangement where you host tenants on a daily, weekly, or monthly basis?
Each business model has its own unique pros and cons. Here are the differences to help you decide:
- Rental income – Short-term rentals tend to attract a higher rental income than traditional rentals. The rates can go even higher during peak seasons. You can take advantage of other events and conventions taking place in your area to boost your income.
- Maintenance – Short-term rentals generally require more maintenance than long-term rental properties. If you’re in a location with high demand, know that you’ll need a lot of time, money, and resources to prepare the rental, furnish it, and clean it up once a booking has ended. Traditional rentals require less maintenance since the tenants take over the cleaning during their stay.
- Laws and regulations – Some states have stringent laws when it comes to short-term rentals. Ensure you understand your local regulations to avoid running into trouble down the line.
- Marketing – Marketing a furnished room for rent as a short-term rental is much easier since there’s an established market as well as marketing platforms for it. The only potential downside could be the fact that it’s highly competitive. Marketing a fully furnished apartment as a long-term rental, on the other hand, is a bit harder. Although the market is growing, it’s still small.
Establishing your rental strategy is important since it helps you build everything else around it. For example, it’ll help you determine your target demographic and the kind of renovations to prioritize.
How to Protect Your Fully Furnished Apartment
Having in mind that fully furnished apartment rentals have some level of risk, how can you protect your investment? This should be an essential step since you’ve spent a lot of money and effort to furnish the property according to the market demands.
Fortunately, there are many ways to minimize the financial risk that comes with owning fully furnished rental apartments. Here are some tips:
Charge a Higher Security Deposit
We’ve already seen that one of the advantages of owning furnished apartments is that you can charge a higher security deposit. This is one way to protect your investment. A higher security deposit makes sense since you’re also likely to charge a higher rent. This will also compel the tenant to have more responsibility for the furniture, so that they may not lose a lot of money.
Screen Your Tenants Thoroughly
Thorough tenant screening is necessary whether your rental property is furnished or not. Have a standard set of requirements for any tenant to meet before you approve their application.
Typically, you’d want to check your tenants’ criminal background, creditworthiness, and rental history. You can go a step further and ask for references from previous landlords to uncover any red flags.
Avail Additional Insurance
It’s normal for landlords to require their tenants to obtain renter’s insurance. However, remember you also want to get insurance for the furniture. Ask your insurance provider whether you’ll have to get an extra cover or another policy for the furniture.
Inspect the Property Regularly
You can include a clause in the lease agreement that states that you have the right to inspect the property regularly once a tenant has moved in. But be careful not to overdo the inspection.
The tenant should be comfortable with the inspection frequency. Normally, inspections are performed in between tenancies, but you can routinely check your apartments for rent fully furnished as long as you comply with state laws.
Related: 12 Illegal Property Management Practices You Should Avoid
Maintain Proper Documentation
Renting a furnished apartment requires a list of all items and furniture in the lease agreement. Including photos and even videos of the furniture’s condition makes the documentation better.
Fully furnished apartments are a lucrative way to invest in real estate. If you don’t mind investing a huge amount to purchase furniture and other items, then you can dive in headfirst. The best thing about these rental properties is the flexibility they offer since you can lease them as long-term or Airbnb rentals. This increases your rental income potential.
However, you need to be aware of the high maintenance fees, high tenant turnover, and furniture damage risks. You can manage these risks by making sure you invest in the right location, understanding your target market, and determining your rental strategy. If you nail this, you’ll be on your way to earning handsome profits.
Mashvisor is your best friend when it comes to analyzing markets and properties for furnished rentals. We have a wide range of tools to help you throughout your investment journey.
Sign up today and start your 7-day free trial.