While furnishing an investment property may bring in more rent each week, it can also lead to higher vacancies and greater expenses.
Below are some things to consider before deciding to furnish your investment property.
Furnishing a Rental:
Most furnished apartments only attract a certain type of tenant – one who needs short-term accommodation.
Since the majority of existing renters have their own furniture already, they wouldn’t choose to rent out a furnished property.
After all, why would you pay more to use someone else’s furniture if it meant you had to get rid of your own stuff or pay for storage?
Most tenants who look for furnished accommodation are either students or people who must travel to work. In both cases, the tenant will not need to live there for several years, but may only need to stay six months or a year at the most.
Pros and Cons of Short-Term Furnished Investments:
If you are interested in offering furnished accommodation, there are many cons that you should consider.
But first, let’s look at the pros.
- You can charge higher weekly rent.
Okay, now let’s look at the cons.
- Rental market is reduced to those who need short-term accommodation.
- Vacancies rates are higher because of the regular turnover of tenants.
- Extra costs of reletting the property.
- Extra costs of maintaining and repairing furniture and appliances.
- Extra replacement costs of keeping furniture and appliances modern and appealing.
Due to the cons outweighing the pros, it is questionable whether furnishing a rental apartment is really worth it. In any case, you should look at the numbers involved to see whether it will be a good investment.
Furnishing to Sell an Investment Property:
If it has come time to sell your investment property, hiring furniture can make the property more appealing to sellers – but it also comes at a cost.
Pros and Cons of Furnishing to Sell:
As always, there are many points to consider before hiring furniture for display purposes.
Choosing the wrong furniture for the space can actually create a negative impression on buyers. It can make rooms feel small or the house look old and shabby.
On the other hand, an ultra-stylish interior scheme can make the property stand out from the rest.
In other words, it can be a tricky balance to achieve.
- Helps the buyer imagine they are ‘home’.
- Shows the size of furniture that will fit in the space rather than leaving it up to the buyer’s imagination.
- May help property to sell more quickly.
- It’s very expensive.
- Some buyers prefer a blank canvas approach.
- Can make the property seem smaller if not furnished nicely.
- May not help it sell quickly; resulting in wasted money.
Is furnishing to sell worth it? This is trickier to decide. It can be helpful to consider the type of buyers in your demographic. If they are investors like Nathan, you wouldn’t want to spend money on furnishing.
If they are homeowners, on the other hand, furnishing may help the property to sell quicker and at the higher end of the price guide.
But even if you spend a whole heap of money to make the place look contemporary and cutting edge, you may not reap extra profits come sales time.
As with most things tax related, it is pretty hard to know whether you will benefit from furnishing a property until you discuss your situation with a good accountant.
The ATO has some information on their website, but not enough to give a clear picture of what you can claim.
Recent changes to the way depreciation can be claimed has shed even more obscurity on the matter, with plant and equipment only claimable in some circumstances.
If you have purchased the property before 7.30pm on the 9th of May 2017, you should be able to claim depreciation on furniture and appliances, including second hand ones.
If you bought after this date, whether or not you can claim will depend on several different factors such as whether the property is new.
You can find out more by following the link here.
To find out the full tax implications involved with furnishing an investment property, speak with one of our property savvy accountants from One Path Accountants.
Does It Fit In With Your Strategy?
The most important thing to consider is whether furnishing your investment property will take you closer to achieving your end goal.
If not, then it may not be worth the extra expense.
If so, then make sure you do your homework and scrutinize those numbers before you embark on your venture.
If you are uncertain whether or not this approach works for you, get in touch with our customer care team to discuss your options.
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