Rental properties are among the most popular investment options for growing wealth.  One of the key requirements for a successful rental property is making strategic decisions about you’re your rental units offer to prospective tenants.

To maximize your potential rental income and return on investment (ROI), property managers and landlords need to consider factors like the property’s location, the rental unit(s) size, comparable rental prices in the area and more. An important decision to make in the planning process is whether to lease your rental units furnished or unfurnished.

You’ll need to consider several key factors in your decision-making process. Below are some guidelines about factors like price difference, lease agreement considerations, essential furniture, and offering the option of furnished or unfurnished to help assess your options.

Price Distinctions Between Furnished and Unfurnished Rentals

Property managers and landlords who provide tenants with the convenience and cost savings of a furnished apartment can set higher prices than they would for unfurnished units. The price difference is determined by a number of factors including demand for furnished apartments in your market, the property’s location, and the duration of the lease term.

Not only can you get more income from furnished rentals, demand is growing in the furnished rental market, even with the popularity of Airbnb, according to Realtor.com. Over the past decade, there have been more renters overall, and a percentage of those renters prefer to rent a furnished home for a variety of reasons.

If you are open to short-term rentals, offering a furnished option can be very lucrative in the long run. Renters looking for short-term rentals are willing to pay more for a furnished apartment because the demand for furnished rentals among short-term tenants is greater than for renters looking for a long-term lease. But even for longer-term rentals, the price increase for a furnished apartment averages at least 15 to 20 percent. According to the Wall Street Journal, furnished rentals can charge as much as 25 percent more on the monthly rental price.

Associated Costs to Consider

One thing you’ll need to take into account when considering the advantages of furnishing a rental property is the cost of maintaining the furnishings and replacing damaged pieces including lamps, mirrors or broken electronics. Rental properties can experience a lot of daily wear and tear, especially with short-term rentals when you have multiple tenants coming and going. Fortunately, there are safeguards you can put in place to these costs.

Many landlords file a depreciable asset deduction to account for routine wear and tear. To account for routine wear and tear, many landlords file a depreciable asset deduction, which offers an opportunity to recoup some of the costs of replacing or updating furnishings. Landlords may also withhold a portion of the tenant’s security deposit to cover broken or damaged furnishings. When repair or replacement costs exceed the security deposit, the difference can sometimes be recouped through a renter’s insurance policy. Increasing the security deposit or requiring a renter’s insurance policy as a lease term are two options available to make sure your costs are covered if furnishings are damaged during a tenancy and need repair or replacement.

Key Furnishings to Install

Renters looking to lease a furnished apartment expect each room to have the fundamental essentials, and they’ll appreciate the nonessential accouterments as well.

Essential and nonessential furnishings include:

Living room:

  • Couch
  • Coffee table
  • End table (one or two)
  • Two armchairs
  • Television
  • One or two lamps

Nonessential living room items that tenants appreciate include:

  • Loveseat
  • Ottoman,
  • Bookcase or desk
  • Artwork on the walls

Dining room:

  • Dining table
  • Dining room chairs (at least four)

Nonessential dining room items that tenants appreciate include:

  • Chandelier (over the dining table)
  • Buffet or sideboard
  • Card table or fold-away chairs (at least four)
  • Artwork on the walls

Kitchen:

(Kitchen items can be purchased inexpensively at IKEA, Target, Amazon, Wal Mart, etc.)

  • Pots and pans (including a muffin pan and cookie sheets)
  • Dinnerware, glassware, and flatware for at least four
  • Serving plates
  • Steak knives (at least four)
  • Mixing bowls
  • Salad bowl and salad tongs
  • Kitchen linens (pot holders, hand towels)
  • Microwave
  • Kitchen trash bin
  • Toaster or toaster oven
  • Cutting board
  • Culinary/food prep knives
  • Measuring cup
  • Colander
  • Basic utensils (spatula, whisk, cooking spoons, slotted spoon, corkscrew, ice pick, ice cube trays, bottle opener, can opener)
  • Trivet
  • Coffee maker

Nonessential kitchen items that tenants appreciate include:

  • Wine and cocktail glasses
  • Plastic tumblers
  • Blender
  • Rolling pin

Bedroom(s):

  • Bed
  • Bedsheets (2 sets for each bed)
  • Pillows
  • Dresser with mirror
  • Nightstand
  • Lamp
  • Small wastebasket

Nonessential bedroom items that tenants appreciate include:

  • Iron and ironing board
  • Mirror (full-length)
  • Television
  • Hangers
  • Artwork on the walls

Bathroom(s):

  • Towels (at least four)
  • Washcloths and hand towels (at least four of each)
  • Bath mat
  • Shower curtain (if needed)
  • Toothbrush holder
  • Soapdish for sink
  • Small wastebasket

Property managers and landlords accommodating tenants in a luxury rental market should consider providing the following amenities to attract luxury market tenants:

  • Washer/dryer,
  • Exercise equipment
  • Decorative accents
  • Stylish area rugs
  • Curtains, drapes, or high-end shutters
  • Keurig coffee machine
  • Wine and cocktail glasses
  • Serveware for hosting.
  • Wine refrigerator

Lease Agreement Considerations

There are several conditions that property managers and landlords of furnished rental units should consider adding to the lease agreement to ensure that your decision to offer furnished apartments remains a lucrative one:

  1. Pet policy:Some say that a “no pets” policy is best for furnished apartments to avoid stains and furniture damage. However, there are luxury home renters with beloved pets who are well-trained, hypo-allergenic, and non-destructive. You’re losing a large segment of the potential tenant pool by refusing pets. Instead, request a two-month deposit (in addition too the primary security deposit) for a pet. You can also consider pet deposit protection and pet damage insurance coverage. It’s new, affordable, and could be the perfect solution for offering pet-friendly furnished rentals to tenants who can’t live without their furry best friend.
  2. Furniture placement.Another possible stipulation concerns the placement of furniture in the rental unit. Landlords may request that furniture remain indoors at all times and that furniture be positioned a certain distance from the HVAC systems.
  3. Inventory and Condition of furnishings. Additionally, in the lease agreement, property managers and landlords should include an inventory of all furnishings in the unit with a description of their condition at the time the tenant moves in, backed up by photos and initialed by the tenant. The portion of the lease agreement pertaining to the furnishings should also include your expectations for the tenant’s responsibility for costs associated with repairs or replacement of furnishings damaged during their tenancy. Take photos during the pre-occupancy walk-through with the tenant, review the inventory list item by item with the tenant, and have them initial each page of the list confirming that they acknowledge the items named on the list and their condition.

You may also want to include language defining the expected timeline for the tenant to report any items damaged during the course of the lease. This can help prevent a pileup of repairs or replacements at the end of their lease term.

Consider Giving the Tenant the Choice of Renting an Apartment of Furnished or Unfurnished

To expand the pool of prospective tenant inquiries for available rental properties, some landlords decide to offer apartments either unfurnished or furnished (the latter at a higher rental rate). This strategy requires the property management team or landlord to keep furnishings in storage while a unit is occupied by a tenant who leased it unfurnished, which means additional storage fees to consider. Although not as desirable in the short term, property owners can recover those storage fees through increased rental prices that are generated from tenants who opt to rent it furnished down the road. If you are on the fence about whether to rent units furnished or unfurnished, this could be a good way to try both options and decide which makes the most sense for you.

The market of potential renters is wide-ranging and diverse, and likewise, the options available for property managers and landlords to attract a wider audience of target tenants are more varied than ever.  Bear in mind that close evaluation of the key factors mentioned above will help you reach an informed decision regarding whether to offer your apartments furnished, unfurnished or either way. Whatever conclusion you reach, having done the appropriate due diligence to get there should give you confidence knowing that you’ve equipped with the insight needed to make the best decision.