Should I Furnish My Rental Property? A Financial Analysis

Deciding whether to furnish a rental property is an important decision for landlords. It involves balancing potential benefits with added responsibilities. Making an informed choice can influence a property’s appeal, profitability, and management.

Understanding Your Target Tenant

The decision to furnish a rental property depends on the target tenant. Different demographics have distinct preferences that impact occupancy and appeal.

Short-term renters, such as corporate transferees, temporary workers, or individuals on extended vacations, frequently seek furnished accommodations. This group values the convenience of a move-in-ready space, avoiding the logistical challenges and costs associated with purchasing or moving furniture for a limited duration. Students also often prefer furnished units, especially those moving from out of state or planning shorter stays, as it simplifies their transition into a new living environment.

Conversely, long-term tenants, including families or individuals planning to reside in a property for several years, typically prefer unfurnished units. These renters often own their own furniture and desire the ability to personalize their living space. Providing an unfurnished unit allows these tenants to create a home tailored to their preferences, potentially leading to longer lease terms and reduced turnover.

Financial Impact of Furnishing

Furnishing a rental property involves an initial investment, but it also presents opportunities for increased rental income and tax considerations. The cost of furnishing can vary widely depending on the unit’s size and the furniture’s quality. For example, furnishing a one-bedroom apartment might cost between $5,000 and $17,000, while a two-bedroom unit could range from $9,000 to $22,000. These figures can escalate to $30,000 or more for larger properties or if high-end furnishings are chosen.

Landlords can often command higher monthly rents for furnished units, ranging from 15% to 20% more for long-term leases, and potentially 40% to 50% more for short-term rentals due to the added convenience. This premium helps offset the initial furnishing costs over time.

Additionally, the cost of furniture and appliances purchased for a rental property can generally be depreciated for tax purposes. Under IRS guidelines, furniture used in a residential rental property is typically classified as 5-year property for depreciation, allowing landlords to recover a portion of the cost each year as a tax deduction. It is important to consider that while depreciation reduces taxable income, the IRS may “recapture” a portion of these deductions as ordinary income upon the sale of the property.

Also, furnishing a property can lead to increased insurance costs. Landlord insurance policies are generally more expensive than standard homeowner’s insurance, typically 15% to 25% higher, reflecting the increased risks associated with rental properties. While general landlord insurance covers the structure, additional coverage or riders may be necessary to protect the value of the provided furnishings against damage or theft, potentially leading to slightly higher premiums.

Operational and Maintenance Aspects

Furnishing a rental property introduces several ongoing operational and maintenance responsibilities that differ from those of an unfurnished unit. One key aspect is the increased wear and tear on furniture and appliances. With frequent tenant turnover, especially in short-term rentals, furniture is subject to more intensive use, necessitating regular cleaning, repairs, and eventual replacement. This impacts the long-term budget and time commitment for the landlord.

Maintaining an accurate inventory of all furnished items is also important. A detailed inventory list, often accompanied by photographs or videos, should be completed before a tenant moves in and again upon their departure. This documentation helps prevent disputes regarding damaged or missing items and provides clear evidence for deductions from the security deposit. While security deposit limits vary by state, some jurisdictions allow for a higher security deposit for furnished units to cover potential damage to contents.

The process of preparing a furnished unit between tenants can also be more time-consuming. Beyond standard cleaning, it may involve deep cleaning upholstery, repairing minor damages to furniture, or replacing worn-out items like mattresses or linens. This additional turnaround time can lead to longer vacancy periods between tenants, impacting potential rental income. The ongoing management of these aspects can be substantial, requiring either direct landlord involvement or the expense of professional property management services.