Below are ten aspects worth considering before making the choice whether to furnish your investment property or not. There are many variables involved and below offers a thought process to help you arrive at the right decision for your situation.
1. Location - An appreciation of the surrounding rental landscape is an important influence on your decision here. Ultimately the other properties for let around you are your competition and you need to measure up against them to improve chances of letting your property quickly. The distribution of furnished or unfurnished properties to let does tend to vary greatly, however one common determining factor is whether it's an urban area or not. Built up areas tend to be comprised more of apartment complexes with a younger demographic, in these cases the trend would be more likely to be toward furnished property. In these situations competition is high, with turnover of tenant fairly swift and emphasis placed on attracting new tenants fast and effectively. In suburban areas the trend is more mixed, the split being more driven by local trends, whilst exceptions may still show in the form of "desirable areas" to live in. Know what you're dealing with, as without that you may end up stuck with an empty property longer than necessary.
2. Target tenant range- Although a landlord's primary concern is to get their property let, most have an idea of the type of tenants they would prefer or expect. Sometimes this is dictated by the type of property and area from the offset or sometimes by the mind-set of the landlord. Either way this impacts the decision on whether to furnish or not. For example if a property is targeted at student letting then furnishing needs to be considered a necessity, as the majority of students have no furniture and being more temporary by nature in their tenancy are unlikely to go and buy it, especially when in individual groups. When furnishing for student letting some accommodation should be made for above average wear and tear. Often it does tend to be the younger demographic who is more interested in furnished lets, usually because they are starting out and not ready to make a commitment long term either to a career or fixed location and again they tend to gravitate to urban areas. To the younger tenant a furnished property is viewed as a benefit as it saves them incurring a cost outlay for furniture. For families and older tenants the probability is higher than they would prefer a property unfurnished as they already have furniture, although some discount in rental price may be expected for an unfurnished let. To compensate for that it's also statistically true that tenants who move in their own furniture live there longer, due to the commitment and effort taken to in moving everything in.
3. Tax Implications - A furnished property enjoys some level of tax relief on the rental income received, whereas unfurnished does not. This relief can be either applied as a percentage of income, currently 10% of your net rent or alternatively by claiming a value based on the net replacement cost of a specific furnishing. For clarity on these allowance guidelines and to ensure the currency of this information it's recommend to check the up to date HMRC letting guidelines. One other point of significance is that in the event of your property being unoccupied, your council tax costs will be different depending on whether the property is furnished or not, this can vary between districts so check this with your local authority.
4. On-going costs versus upfront costs - The most obvious cost is furnishing a property for the first time, this cannot be offset against income as a "loss" or cost, as only wear and tear allowances and replacement costs as detailed above apply. The amount you plan to spend on furnishing depends on the type of tenant you wish to attract, the level of rental price you wish to attain and to a certain extent a consideration of quality of furnishing versus life expectancy. It may be useful to understand the going rental rate in the area to understand the level of price "lift" a level of furnishing may enable. The on-going costs of furnishing are fairly self-explanatory; they are the maintenance, repair and upkeep costs of your furnishings. Remember that your tenant will have a reasonable expectation for the same initial standards of quality found when they moved in to be maintained. There may also be some level of cost managing these standards, whether in purely time terms of monetary by paying a letting agency to manage this, see role of agents section. An unfurnished property attracts none of these costs.
5. Insurance - When you are furnishing the property yourself it is highly recommended to take out contents insurance to protect your furnishings. Although the tenants can be expected within reason to look after furnishings you also need to cover for events which are not the fault of tenants and also for damage to furnishings incurred by tenants beyond the level of any deposit taken. Obviously in an unfurnished situation this is not a concern, the building itself should be already covered by your existing building insurance policy taken out for that property.
6. Other Compliance - All soft furnishings and furniture provided in a furnished let will need to meet legal safety requirements. Legal requirements for letting are subject to change, a letting agent is a good source of information to get up-to-date information.
7. Management - The level of time required if you plan to self-manage the letting of your property will be higher by default in a furnished situation. This is due to the quality expectations and duty of care you commit to the tenant by providing a given standard and quality of furnishings as part of the rental package. A tenant is much more likely to call you to account for any discrepancy in a furnished situation than in an unfurnished one, as in an unfurnished property they naturally take full responsibility for their own furnishings and equipment. Cost of management as expressed above in either time or money terms should be considered. If a property will be furnished there are certain procedures which need to take place to help safeguard your assets effectively such as inventory taking or regular monitoring.
8. Use of lettings agents -The circumstances, experience and desires of the landlord will dictate whether a letting agent is a viable option. Bearing in mind the increased level of management required with a furnished property a management agent can efficiently handle the procedures and requirements to protect your interests. Examples of this are activities such as inventory logging, periodic inspection, closing inspection on tenant exit and also evaluating on tenant entry. All these type of actions are needed to ensure a fair measurement of loss, wear and tear or unreasonable damage can be taken and appropriate actions executed. The attractions of a letting agent in this respect will amplify where there are multiple properties being let.
9. Price - After weighing up all those factors above, they need to be considered against any kind of increased rent that might be achievable with a furnished let versus unfurnished. There is no hard and fast rule although typically it's not unreasonable to aim for between five to ten percent extra on the rental asking price. Again, this will vary according to the area, property type and individual situation so check carefully.
10. Flexible furnishing - A property can actually be let part furnished, for example you could include everything apart from the beds should tenants wish to provide their own. However make the necessary due diligence to be compliant with the HMRC definition of "furnished" otherwise you may risk losing the benefit of any tax relief. Another option is to give potential tenants the choice of whether a property is furnished or not by initially showing it empty, this of course depends on your situation and ability to quickly furnish if necessary.
Overall there is no clear cut argument in favour of either choice; however it is statistically proven that for tenants without their own furnishings, a well-furnished property will be let quicker. Not every situation conforms to that rule so it boils down to a consideration of the above points and the landlord's preference both financially and also in terms of their own management style and attitudes to letting.
Kings & Co is your letting agents in Norwich. We are property management agency in focused on improving the standards of service in the industry. We believe in honesty, integrity and the highest quality of service. Together all these things constitute the value proposition needed for successful property management in Norwich.
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