Furnished vs Unfurnished Rentals — Which Is More Profitable?

When considering the options for letting out your property, the very first choice that you will have to consider is whether the property should be let out as furnished or unfurnished. It may not seem like such an important decision at first, but it will have a huge impact on your earnings, taxation, vacant period costs and even your overall profitability. In this article, we will explain what you should consider.

Before we get into the figures, let us first make sure we understand what the terms mean since there is some grey area here and many landlords tend to overlook it.

Unfurnished means the unit is rented out without any furniture, although most landlords provide the so-called white goods (fridge, washing machine, oven).

Part-furnished is somewhere in between, usually offering the basics such as a sofa, bed frame and white goods, without furnishing the entire unit.

Furnished units mean that the property is fully furnished for immediate occupation by the tenant, usually offering everything, from the beds to sofa and wardrobes to the dining table and kitchen appliances.

It is important to know to which category your property belongs for both marketing and taxation purposes.

Financial Benefits of Furnished Properties

A furnished apartment will always fetch a higher rent than an unfurnished one. If your location is close to the heart of a city, or an area filled with university students or corporate renters, you should be able to charge 10%-20% more per month for a furnished apartment compared to an unfurnished one.

For a property that rents out at £1,500 unfurnished per month, it means earning between £150 to £300 more per month, representing £1,800 to £3,600 annually in extra income. It may not seem like much, but it all helps.

Moreover, people who will be renting the property are most likely either corporate individuals moving for work, international renters, or short-term tenants. In London and the surrounding area, there is consistent demand for furnished apartments among corporate clients.

Unfortunately, the higher rent comes with higher expenses. Among those are:

• Investing in initial furnishings which can cost £3,000 to £10,000 or more
• Repair and replacement costs for the furniture and appliances you bought
• Wear and tear due to increased usage

The Financial Benefits of Letting Unfurnished Properties

Unfurnished properties appeal to a specific kind of tenant usually families, longer-term tenants and those that already have furnishings. This leads to longer tenancies, something that often goes unrecognized as an important aspect in rental return on investment.

Void periods are some of the most costly and overlooked aspects of being a landlord. One void month in a £1,500 monthly rent property will cost you £1,500 in lost revenue, not to mention on going costs for mortgage, insurance and council tax. Long-term tenants from unfurnished properties cut down on these expenses.

Unfurnished properties also provide:

• Less initial capital expenditure
• Less maintenance issues – you don’t have to replace the furniture
• Tenants will take better care of the property since it feels like home
• Easier inventory and checkout process

When it comes to comparing returns after five to ten years, a good long-term tenant in an unfurnished property may beat out a more profitable furnished one.

The Tax Issue – The Key Facts Landlords Need To Know

That’s when things get especially relevant, and that’s why you should always talk to an accountant.

Until April 2016, landlords with furnished rental properties were able to claim Wear and Tear Allowance at 10% of net rental income every year. This was replaced by the Replacement of Domestic Items Relief, which is available to all residential landlords whether or not their properties are furnished, but this relief is only available to you when you replace items.

If you’re a landlord through a limited company, your position may be somehow different.

What’s Best For Your Property?

Here is a checklist depending on property type and location:

Opt for Furnished Accommodation When:

• You have an inner-city flat or studio
• You’re marketing towards young professional, student, or corporate occupants
• Your property is located in close proximity to hospitals, universities, or large employers
• You’re considering offering short-stay or serviced accommodation

Choose Unfurnished Accommodation When:

• You have a family-sized property with three or more bedrooms
• You’re located in the suburbs
• You want reduced upkeep and longer rental agreements
• You’re planning a long-term buy-to-let investment portfolio

There isn’t a universal answer as to which one makes more money. Everything depends on the specifics. The benefit of furnished rentals lies in their ability to bring in more rent each month and fit some areas perfectly well, however, they entail higher expenses and have more maintenance issues. Unfurnished units guarantee security, lower operating costs, and greater profitability thanks to fewer vacancies and tenants’ loyalty.

The most savvy property investors don’t only consider “which brings in more rent?”, but also “which provides more net profit after paying off everything?”