Renting: furnished vs. unfurnished

One of the big questions when renting properties is, do you rent furnished or unfurnished?

Both options have pros and cons.  Unfurnished rentals have a cheaper initial set-up cost.  This can be a big factor if you don’t have much cash.  People who rent with their own furniture tend to be longer-term rental prospects.  Moving every six months is less appealing if you have to move a bed, fridge, washing machine etc. as well.  Also, the accumulation of furniture can be seen as a sign that the person is relatively financially stable.  This is a desirable feature in any tenant.

The negative aspects of renting unfurnished include the decreased rent that can be charged.  Also, in Australia at least, any furnishings that are included in a rental can be depreciated over time and therefore used to minimise your tax.  Therefore, renting unfurnished reduces the ability to minimise your tax.  Tenants moving furniture in and out can result in more damage occurring to walls and fixtures (whoops, who knew that light fitting was there?!).  Finally, the appearance of current tenants’ furniture can detract from your property when you are showing prospective renters through.

The benefits of renting furnished includes the tax break you receive on all items supplied.  Depreciation schedules are best done by specialist organisations such as Australian Tax Depreciation Services.  The cost of a depreciation schedule is tax deductible.  In addition, you can charge a higher rent for furnished properties.  However, the section of the rental market that is attracted to such properties is limited to those who are only interested in shorter-term accommodation (such as those people who are only looking to remain for up to two years) or people who don’t have enough money to buy their own furniture.  This may be because they’re low (or no) income earners (so there’s a possibility that they may have an irregular source of income) or they’ve just left home (think uni students, or young adults in their first job).  As well as the tendency to not stay in one place as long, this section of the market also can seem to be less invested in basic maintenance of the property.  However, it is important to note that just because someone is unemployed, they are not necessarily an undesirable tenant.  In Australia, Centrelink can arrange to directly deposit money from the person’s social security payments (‘the dole’) into your account, which ensures the rent payments will be made.  Also, if someone is at home during the day, the chance of a robbery occurring is minimised.

We’ve chosen to rent one of our units furnished.  (The other unit had a fixed term tenancy when we bought, with the tenant supplying their own furniture, so we have not been able to decide what to do with it for the moment.)  We wanted the higher rental income, and liked the idea of being able to ‘do up’ the unit to look fresh and bright, and providing furniture which complemented the look of the unit.  We also managed to find furniture, which fitted the look we wanted to achieve, at a very economical price.  (I’m planning to write an article on how furnish a rental inexpensively in the near future, so stay tuned.)  As a result, we now have a tenant in the unit who is paying $40 a week more than similar furnished units in the same area.  This is also $40 more than we had allowed for in our budget for rental income.  We view this as a highly successful outcome.