One of the fastest-growing trends in real estate is returning a higher profit by turning a property into a furnished short-term rental, typically either as a corporate rental (30 days or more) or vacation rental (less than 30 days). We personally have turned two of our houses into furnished rentals aimed at the corporate rental client for off-season and vacation rentals for peak season. While for us, furnished rentals have been a blessing, there have been a lot of consequences to this decision. The key is deciding if this makes sense for you and your situation.
What to Consider When Determining Whether to Offer a Furnished Rental House?
What are the local laws regarding short-term furnished rental homes?
Amidst the growing popularity of sites such as Airbnb, VRBO, and FlipKey, many municipalities have issued ordinances setting minimum times for rentals, changing tax laws for short-term landlords, and even banning short-term rentals outright. The first thing to do before turning your property into a furnished rental home is to research the rules where you live. In many areas, these additional restrictions only apply if your rental is shorter than a certain amount of time. While the length can vary greatly, 30 days is a common restriction. Once you know your local laws you can decide whether it is still worth it to turn your house into a furnished rental house and what your rental length will be.
How do you ensure that your tenants take good care of your property?
Furnished rental homes are becoming an increasingly popular option for tenants around the world as it eliminates the need to bring furniture and allows them to move in quickly. To ensure that your tenants take good care of your property, create clear expectations from the beginning. Outline and enforce the rules you expect them to follow throughout their stay. Consider having a contract that includes restrictions on making major changes or damage, having visitors, or smoking in the rental home. Keep up regular maintenance, ensure all safety protocols are followed, and most important of all, have open lines of communication with your tenants to get feedback and address any questions or concerns right away. Doing so will set clear expectations and help protect your property while making sure you and your tenants live in comfort.
Do you have the time to manage frequent move-ins and move-outs?
Our furnished rentals are great, but they certainly are not as easy as our traditional rentals. Our traditional rentals use an 18-page lease with a one-year minimum term. Our tenants assume most of the responsibility of basic maintenance, such as changing filters, completing landscaping, and supplying their own washer and dryer. This means that other than collecting the rent (direct deposit, of course) and answering the phone when major items break, the houses are very much like an annuity. One tenant who recently called about a broken garage door sensor hadn’t contacted us for any issues over the preceding 18 months.
On the other hand, my furnished rentals are the opposite. In the case of daily rentals, I must manage a constant flow of inquiries in order to figure out availability and fill openings. The inconveniences can be minor or major, such as helping the tenant find the wifi password, even if that is at midnight on Thanksgiving night after you have spent a long day traveling! While you are always on call for all tenants, your furnished rental tenants will be insisting on creature comforts, like can openers or cutting boards, that your traditional tenants won’t. Even if your rental is for a month of longer, this problem can be more frequent than with your traditional renters.
To be honest, when your tenant is paying $200 a night or $3000-5,000 a month, this is to be expected. People simply expect a higher standard. The question is whether the net income is worth it to you for the amount of time you must put in?
How do you go about finding tenants for your furnished rental home?
Furnished rental homes are a great way to get your property into the hands of tenants quickly and easily. The first step in finding tenants is advertising your rental properties in places where potential renters will see them. This may include placing an ad on Craigslist, posting fliers around town, or making an announcement at local stores. You can also spread the word to friends and family so they know your property is available. After that, you can start hosting open houses or showing the property to interested parties. Taking time to review applications, talking with previous landlords, and conducting background checks on any prospective tenants will go a long way in helping you find the perfect people for your furnished rental home.
What are your expenses?
Another thing to keep in mind is that furnished rentals are all-inclusive. That means you supply cable, internet, trash, water, gas, electric, landscaping, and pool service (if applicable). For my vacation rentals, I provide linens (which need to be replaced often as they become worn out), toilet paper, paper towels, starter laundry detergent, dishwasher soap, shampoo, conditioner, and the like, which can add up quickly. For guests who are renting for at least three months, you don’t need to feel obligated to provide such personal care items. It is also easier to put limits on the utilities.
Be sure to anticipate all costs. The monthly electric bill for one of our vacation rentals varied from $450 to over $800. A similar phenomenon occurred with our water bill and paper goods costs. The reality is that when guests are not paying for utilities, their usage can go way up and vary wildly, depending upon the renters and the time of year.
Are you a great cleaner or do you have a great cleaner available?
If you are doing frequent turnovers – many of them same day – you will either always need to be available to do the cleaning, or you need to have a great cleaning crew that is reliable and fast. We went through four cleaning crews until we found our current cleaner, who does an amazing job.
Can you or a handyman be on call?
Corporate or vacation guests will treat your house like a hotel, so it is critical to fix problems right away. Negative reviews on social media can do great harm to your business. For example, if a smoke detector starts going off, the renter will not stop to charge the battery, they will call you right away and want you there ten minutes ago. This means that you are never off the clock, even when calls come in late at night or early in the morning. If you have a great handyman to help share the burden, remember that these costs will also add up.
How much will it cost to furnish the home?
When thinking about a furnished rental home, don’t forget the furniture! This includes kitchen appliances, pots and pans, dishes, linens, and everything else you might find in a home or hotel suite. Keep in mind that the physical furniture – tables, chairs, beds – may not be the most expensive party. I quickly realized it was not the furniture, but everything else that adds up. And all of these items, from the top to the bottom of your rental, will wear out and have to be replaced.
What is your seasonal availability and can it support the house?
While peak season should always be profitable for you, the key is knowing your downtime and being able to survive it. If the winter months will be slow in your area, you not only need to cover your costs during the summer, but you’ll need to make enough to cover the slow months, too. Be realistic when you think about your expected profits and the conditions in your region.
What is your true take-home profit and is it worth all the work?
This is the biggest and most important question: What are you truly bringing home after expenses? Is it worth it compared to all of the work? Do not let the big numbers that you could charge for a short-term, or even nightly, rental blind you to the actual costs and time that are required.
The Pros and Cons of Turning Your Property into a Furnished Rental House
Are you trying to increase the return on your real estate investment? Making your house a furnished rental home is one choice to think about. There are some possible drawbacks to take into account, but this may be a fantastic approach to get passive income. Consider the benefits and drawbacks of renting out a furnished portion of your home in addition to some advice on how to make it work for you.
Pros:
- Increased Rental Income: The possibility for a greater rental income is one of the main benefits of converting your home into a furnished rental home. Rental properties that are furnished frequently attract a higher price, particularly in markets with a shortage of availability or in high-demand locations. Because of this, it can be more profitable than customary long-term rentals.
- Increase the Number of Renters: Tenants seeking a complete living arrangement tend to find furnished rentals more appealing. Young professionals, international students, or even families searching for a temporary residence while they refurbish their own house might fall under this category. You might be able to draw in a larger pool of possible tenants by providing a pre-furnished apartment.
- Tax Benefits: As a landlord, you may be able to claim deductions for expenses such as mortgage interest, property taxes, insurance, repairs, and maintenance. Be sure to consult with a tax professional to fully understand your options.
Cons:
- Extra Expenses: Furnished rental properties may enable you to increase your rental revenue, but they also come with additional costs. To entice potential tenants, you’ll need to spend money on high-quality furnishings, appliances, linens, and other household amenities. If you want to utilise the rental property for personal use at any time, you might also need to consider the expense of storage.
- Higher Turnover: Furnished rentals often attract short-term tenants who are looking for a temporary living situation. This means that you may need to invest more time and money into finding new tenants and preparing the property between renters. Higher turnover can also lead to increased wear and tear on your property, which may require more frequent maintenance and repairs.
- Legal and Liability Issues: A furnished rental property also entails a certain amount of legal and liability risk. You must make sure that your rental agreement is explicit and enforceable on both parties, and that you are adhering to any applicable local laws governing landlord-tenant interactions. To safeguard yourself against any losses or mishaps that happen on the property, you might also need to make an investment in liability insurance.
Tips for Turning Property into a Furnished Rental Home:
- Do Your Research: Before making any purchases or committing to anything, make sure to properly investigate your area’s rental market to see whether a furnished rental is an affordable alternative.
- Invest in High-Quality Furnishings: To draw renters and require a higher rent, you must buy furniture, appliances, and other household goods of superior quality. Choose goods that can withstand repeated usage that are strong and fashionable.
- Consider Property Management: If you’re not able or willing to manage a rental property on a daily basis, you might want to think about working with a property management business or employing a property manager to handle the details for you.
Your own financial objectives, the state of the market, and your investment strategy will ultimately determine whether you decide to convert your home into a furnished rental property. A furnished rental property can be a wise and successful investment for many real estate owners, even though there are undoubtedly advantages and disadvantages to take into account. To ensure the success of your rental property, invest in high-quality furnishings, conduct thorough research, and consult experts as needed.
These are only a few of the questions to consider when deciding whether or not to furnish a rental. Making this determination is a personal process with many more variables. I personally love having both furnished and unfurnished houses. Our unfurnished houses allow me to have a relatively hands-off, passive income. While we don’t make that much on them, they are paying their mortgages, and are less work. While our furnished rentals are almost a full-time job, the payout makes the additional workload worth it. It helps us diversify our cash flow, our risk, and our work. With the unpredictable nature of furnished rentals, bear in mind that you can protect yourself by ensuring that any property you convert to a furnished rental also works well as a traditional rental, in case you ever need to switch gears. Surviving the real estate world requires multiple exit plans.
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