Over Christmas a family near me moved out of their home and put some of their unwanted furniture on the footpath. Decent stuff, a leather lounge and a dining suite. And almost 2 weeks passed before it disappeared, either from someone putting it to good use, or the property managers having it dumped and charging the tenants’ bond.
But it reminded me how household furnishings have really become disposable items. Much of it’s cheap, has a short life and many residents weigh moving costs and storage against the price of the new flat-pack in the latest design. (And the chance to eat those Ikea meatballs…)
So as a property investor, do you buy that furniture pack the developer’s got a great deal on? Do you spruce up your old apartment and buy the latest range of executive décor and entice that sought-after corporate rental market?
As inner-Brisbane property managers our firm opinion is no.
To be clear, it can earn you more rent. In a typical near city 2 bed, 2 bath apartment it might be $50 to $100 more per week. So you might get another $5000 each year for buying that $15,000 package. And if you’re wanting to be part of a short-stay/hotel market you’ll have no choice. But for permanent tenants in inner-Brisbane, the vast majority of the market demand, the supply of furnished properties seems to us to be tipping well past demand levels.
What do we see in the field? Landlords buy fresh new packages but, just a short time into the tenancy, stuff happens. You need to replace one glass in that 6 glass set – and can’t find one that matches. A timber table is scratched. A lamp falls and just won’t sit straight again. A teaspoon gets lost. And where there is a demand from tenants for furnished homes their expectations are high. They want good stuff and they expect it to be maintained.
As investors we can tend to focus on the income, the tax deductions, and forget to price the furnishings replacement and maintenance into our expectation of net returns. Not just the cost, but the time needed to attend to it. We last month had to clear a 2 bedroom rental apartment of its furnishings because it just wasn’t drawing tenant enquiry. In a popular Spring Hill building this is good quality near-CBD real estate and just 8 years old. But already the furnishings, although well-maintained, were not the décor of the day. The landlord now gets less rent. But we have a much larger pool of tenants to fish in and the vacancy rate will be considerably lower.
We’d encourage investors to think more about their market and competition – or talk to a property management firm that does (yes, that’s us). If you’re buying into a new building, with 80 apartments about to come online at the same time, you can be confident a large percentage will be furnished. So there’s a simple way to stand out of that crowd.
Another observation from the coalface: we see tenants in furnished properties move far more regularly. They’re a more transient group. So you have more regular letting costs, greater chance of vacancy and each time you start again with an unknown tenant.
Like any investment decision, it’s one best made with all the information at hand.
We’d love to hear your comments – are you a landlord who’s earning great returns? A tenant who disagrees?