Are Furnished Rental Properties a More Lucrative Strategy?

Feb 13, 2018 2:12:00 PM / by Brent Silberbauer

Furnished Rental PropertyThere are two types of renters in this world: those looking for fully furnished rental units, and those that are not.  The former are typically people like foreign exchange students, traveling nurses, traveling construction workers on a short term job, etc.  For these people it makes no sense for them to lug a couch, desk, table, and chairs all the way across the country, just to pack up and leave three to six months later.  The type of people looking for a fully furnished unit are probably only going to stay for a matter of months and then jump on a plane heading to their next destination.  They want to arrive with their suitcase and nothing else.  They don’t want to have to bother with putting PG&E in their name, waiting for the cable guy to show up, and they definitely don’t want to deal with unloading a moving van with a massive amount of furniture. 

So who rents to this type of person? Would it make sense for you to consider a fully furnished unit?  Could this be a way to maximize the ROI on your rental unit? 

In our town of Chico, California there is a lot of activity happening in the fully furnished rental market.  In the next six months real estate developers will be developing more than 700 bedrooms of new property geared towards student housing.  The amazing thing is that it is ALL fully furnished units.  The idea of parents dropping off their kids at college and not renting a U-haul full of their old furniture is pretty appealing.  Not only that, but these rental units boast a new flat screen TV, modern looking furniture, and have WI-FI and cable TV included.  Wow, quite the proposition for both students and their parents. 

In addition to this, they are asking premium rents… and getting them.  A 1,300 sqft 4 bedroom, 4 bathroom apartment is currently going for over $3,200, which correlates to close to $250/sqft. That’s about a 75% increase compared to other non-furnished units.  In addition to this, this particular example property was built right behind train tracks in what was previously a dicey neighborhood just a few short years ago.  When I took a tour of this brand new property they were 100% leased up, so obviously the model is working… and working well. 

But how does this correlate to you?  Would this work with single family homes? Duplexes and smaller units in non-college areas? Would you be able to furnish your rental and demand a 75% increase in rent?

A New Trend in Rental Culture

I believe that rental culture is changing, and cultural change tends to start in the younger generations and work its way up.  For right now (in 2018) fully furnished units are a massive movement in student housing.  It’s working, and investors are literally betting millions of dollars that the demand for this type of housing will continue to grow.  The demand for fully furnished housing could work it’s way up into our culture as a whole in the next five to ten years. 

Remember how Facebook started primarily on college campuses in the beginning?  As college students graduate, they may take the fully furnished demand with them into larger cities (after all they won’t own any furniture!).  This coupled with the fact that more and more jobs are online allowing professionals the freedom to work and travel to anywhere in the world.  Adventurous young professionals with online tech gigs travel the world renting furnished units in South America for a few months, then Europe a few months after that.  After all, as a young professional, why not? Being a traveling professional has never been so easy.    

Additionally, previous generations owned things, but the younger generations rent things.  People used to own DVD’s, cars, music, etc.  Now with the advent of Netflix, Uber, Spotify, etc, these things are rented or leased on a month to month basis.  The mindset to save up and own has been replaced with the mentality of “how much is this per month?” I believe in the coming years these trends will start to affect furniture as well. 

Research Demand and Competition in Your Market

Now, before you go online to Ikea.com, here are some things to consider. With the advent of Airbnb.com, VRBO, HomeAway, and the like, there has never been so many fully furnished spaces for rent.  Typically, these all started as short term rentals for travelers staying a week or so in a vacation destination. 

In the last 5 years there has been an explosion of people renting out their mother in law unit as well as bedrooms and other spaces they have available.  Traveling nurses, college students, and others looking for short term fully furnished rentals have caught on and often times will call owners and negotiate lower prices for a six month lease on what previously was a short term vacation rental.  As with any market the more supply, the more competition, the slimmer your margins will get. 

After interviewing a number of local fully furnished investors in my home town of Chico I came across some surprising stories.  I spoke with one investor who has been doing short term fully furnished rentals for almost a decade.  She said at first it was great because there were so few people doing it.  It was a great niche for traveling nurses and others.  She proceeded to scale up to over ten different fully furnished homes.  The premium rents more than paid for the initial $10,000 in furniture she had placed in each rental.  However, in the past few years as more and more people started doing Airbnb, she has seen the demand weaken as more supply has entered the market.  She has already turned back two homes from fully furnished, into regular rentals with no furniture or utilities included. 

What’s the Takeaway? 

Like any investment, do your homework for your local market.  Interview investors and others already in the market if possible.  You don’t want to get analysis paralysis by over thinking it, but you do want to do some homework. If you need help, consider getting a professional rental market analysis.

I spoke with an investor who had 24 brand new units that he just built.  He made one into a fully furnished unit to test the market.  So far so good, as of the first year that unit has brought in about twice the income as the standard units. 

It’s all going to come down to your rental properties location, the current market and the ever-changing renter’s mindset.  What are your thoughts?  Please leave a comment in the section below and let’s continue the conversation.

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Topics: Rental Property Tips