Advice and Opinion

The pros and cons of furnishing an investment property

Whether or not to furnish a rental property is a very common question asked by investors. Furnished properties typically command higher rentals, and are often assumed to offer greater returns as a result. As with most things in life, however, the truth of the matter is a little more complicated.

“Furnished and unfurnished rental properties each have their own set of pros and cons,” says Bill Rawson, Chairman of the Rawson Property Group. “Whether one is better than the other is often just a matter of opinion, but the landlord’s expectations and approach to the management of his investment also play a big role.”

Rawson explains that, while furnished properties can achieve 15 – 20% higher rentals than if they were unfurnished, they tend to attract a specific type of tenant which can bring some challenges into the picture.

“Furnished properties tend to be rented by one of three types of people,” says Rawson. “The first is someone with very little in the way of furnishings of their own, like a student, a young professional or a recent divorcee. The second is someone who is living in a new area and is either waiting for their own furniture to arrive, or doesn’t plan on being around long enough to need it, like a recent immigrant, a corporate expat or a contract worker. The third type of person is a holiday-maker, or long-stay tourist.”

As Rawson points out, the common thread between all these tenant types is the fact that they are often looking for a temporary place to stay, or to tide them over until a more permanent arrangement can be made.

“Very few people rent a furnished property over the long term,” he says. “Most of us are more comfortable having our own things when we settle into a more permanent home. As a result, furnished properties usually see a higher turnover of tenants, and have a higher risk of unoccupied periods, since demand can be seasonal and suitable tenants can’t always be found right away.”

Higher management costs can also be required with furnished rental properties and insurance is sometimes higher than normal.

“Tenants are renowned for being less fastidious with furniture and appliances that aren’t their own,” Rawson acknowledges. “Repair and maintenance costs must be factored into expenses as well, along with cleaning costs for carpets, upholstery and curtains between tenancies.”

Despite these challenges, Rawson points out that properly-run furnished rental properties can be exceptionally lucrative, particularly if you manage to tap into a high-end corporate or tourist market. If you don’t have the time or inclination to really invest in proper management or marketing, however, an unfurnished investment property might be a better choice for you.

“There is a much higher demand for unfurnished rentals in South Africa, and its usually easier to source long-term tenants for these properties,” says Rawson. “That means lower tenant turnover, less risk of unoccupied periods, and a more stable, reliable source of income – albeit a little lower than the furnished equivalent.”

There is, however, some middle ground to be found between furnished and unfurnished, and Rawson says that this can be the ideal solution for an easily lettable, profitable investment.

“Installing a few key items and large appliances can be a great way to tap into elements of both furnished and unfurnished rentals,” says Rawson. “Particularly if you have the option to place some furniture in storage if the tenant prefers to bring their own. This way, you can charge a small premium on your rental without excluding yourself from the larger pool of tenants looking for an unfurnished property who may still be very keen to have access to a built-in stove, fridge, washing machine and tumble dryer, for example.”

In these cases, Rawson stresses the importance of keeping furnishings minimal and neutral in style, providing all the basics without overly cluttering the space. That way, tenants can add their own items and personal touches without feeling overwhelmed, and it’s easy enough for you to remove and store any duplicates like beds and couches if necessary.

“However you choose to let your investment property, remember to always use a reputable rental agent to manage and market it appropriately,” Rawson concludes. “An experienced professional will be able to advise you on all the pros and cons as they apply to your situation, and ensure you receive the best return possible on your particular investment.”