Rental properties make up a massive component of housing in Metro Vancouver. In a market that has a significant volume of investors, we often see owners making a strategic decision between renting their property as furnished or unfurnished. Is there a right answer for which is better? Let’s look into the differences between these options and weigh the pros and cons of each.
What is an unfurnished rental?
What is a furnished rental?
An unfurnished rental is very simple to understand. You own a condominium and opt to rent it out with absolutely nothing in it except the basic set of appliances that it comes with. You can rent out your condo as is, leaving the tenant to bring in their own furniture, items for home maintenance, and personal belongings.
A furnished rental can be rented out in a couple of ways. On the simpler side, you can include basic furniture, cleaning supplies, and other minor appliances. The tenant is required to bring in their own personal use items such as dishes and towels.
The other type of furnished rental is much more involved and relies on the owner to provide a hotel like set-up for their rental property. This means including everything…literally everything. Before renting out the property, the owner would furnish it completely: including dishes, cutlery, a TV, bedsheets, towels, and even set up an internet and cable plan to include in the monthly rental charge. Your tenant should be able to walk in with their suitcase full of clothes and be ready to live without anything except a shopping trip to get groceries for themselves.
Now that we have understood what each type of rental is, why rent your place furnished? Why rent it unfurnished?
Unfurnished Rental Property:
Pros:
Simplicity! At the top of the list of pros for renting a place unfurnished is the fact that you don’t have to do anything except sign a lease and hand over the keys.
Tenant longevity. A tenant who is willing to rent a property and bring in everything to make the suite their home is more likely to stay awhile. The work involved to set up a home is usually a good sign of a resident who can see themselves in a place for a number of years. A good relationship being formed between the tenant and the property owner goes a very long way. The consistency and comfort of having someone in the home that treats it like their own is a huge step in achieving a successful and hassle-free investment property experience.
Tenant turnover cleaning. When the day comes that your tenant leaves, they’ll be taking everything with them. Cleaning is a simplified process when the work involves just the basic surfaces, flooring, kitchen and bathrooms. There are no sheets to change, furniture to deep-clean, or dishes to scrub to ready the place for the next tenant.
Cons:
Higher chance of damage. Although turnover may be lower, a full tenant move out and a new tenant move in has a higher chance of causing damage to your property with furniture coming in and out of the space.
Lesser rental value. This isn’t to say you won’t get good rental value, but furnished rentals typically generate higher revenue. As well, with less turnover, if a tenant stays for a long time, you may be restricted on rental cost increases.
Furnished Rental Property:
Pros:
Higher rental revenue potential. Furnished rentals in major cities such as Vancouver, tend to generate anywhere from 15% - 40% higher rental rates. This is the primary reason for renting your suite out as a furnished property. Over time, the increased revenue potential can add up to thousands of dollars which means a greater return on your investment.
Less chance of damage. As you are taking charge of ensuring the property has all necessary furniture, appliances, and supplies, you can oversee how the property is being set up. Assuming owners have a higher standard of care for their property than their prospective tenant may, you can ensure everything being brought in is done so carefully with minimal wear and tear to the walls, flooring, and fixtures. With tenant turnover, the home stays in relatively the same shape which can help avoid nicks, dents, and scratches in the home.
Rent it out faster. Tenants who have just migrated to a new city or are moving within their region are often looking for a quick solution to their home needs. There is a great appeal for tenant to walk into a place where they have to do nothing other than just move in. This can result in a faster decision being made and having your investment property generating income sooner rather than later.
Cons:
Up front cost. While over the long run it is possible to generate higher revenue, there is an up-front cost to setting up your investment property as a furnished rental. Fully furnishing a condo can cost in the range of $10,000 if you purchase items that will last a few tenant cycles.
Wear and tear on belongings. Inevitably, you will need to replace sheets, towels, dishes, and the occasional piece of furniture as these items get worn out over time.
Higher tenant turnover. Furnished rentals tend to see shorter stays. This can mean more involved management to ensure the property is always rented. Some tenants looking for furnished rentals are only looking for 3 - 6 month stays to fulfill a work placement or contract.
The intensity of the pros and cons of a furnished or unfurnished rental can vary greatly on the type of investor you want to be. The more hands-on type can often manage a furnished rental property very successfully and add to their bottom line, whereas an investor looking for a long-term and uncomplicated investment may try to find a tenant who will be self-sufficient in a place for many years.
One other thing that must be considered when determining whether to rent a property furnished or not is the location. City centres that include nearby shopping, transit, and workplaces can generate notably higher rental revenue as a furnished property. Suburban rental properties on the other hand may not have the same level of demand for a quick move-in ready rental solution and can result in similar rental amounts despite the extra costs of furnishing.
Ultimately the right answer on whether renting your investment property furnished or unfurnished is dependent on the owner. For some, it might be a no-brainer to aim for the greatest possible return on investment. For others, a hands-off approach might the most manageable to balance their lives.
If you are looking to learn more about investment properties, you can email me anytime at adil@adilkhimani.com.
Thank you for reading,
Adil