Is furnishing your rental property a good strategy?
At MORC Interiors, we help people create a better home for a brighter future whether they be investors, tenants, or developers.
In this interview, MORC Interiors’ Managing Director, Keith Chen had the pleasure of speaking with Stephen Fitzsimon, Head of Growth of one of Melbourne’s leading property management agencies, Melbourne Real Estate who we’ve been working with for the past five years. Stephen work extensively with investors that have properties to rent out and developers that have buildings to lease out. He works with them to maximise their outcomes in terms of their investment needs.
Let’s dive in for loads of practical and helpful tips on:
- The current rental property trends in a post Covid market
- Whether furnishing a rental property is a good strategy
- How a furnished rental property add value to tenants
Q: What are the current property trends in the rental market post Covid?
If you go back historically prior to Covid, we were seeing a lot of busy times looking at the inner-city apartments that were under construction that then has slowed during Covid. We saw a fall in the rents due to Covid with a lot of internationals leaving the city and now we’ve seen the recovery begin and it’s really come back with great gusto from pretty much the 15th of January, the market reignited and we’ve started to see the student market return in great numbers and they’ve come back with money to spend and they’ve been picking up the apartments that have been in the most difficult market for an extended period and reinvigorated the whole inner Melbourne area significantly. So, the tendency for those in terms of the stock has changed during that same period.
Historically, we saw furnished departments being high performing assets. When Covid came, that really fell away because the occupants for those were generally transient. People down from Sydney, Internationals and so forth they weren’t coming anymore with the lack of movement. Then what happened with the owners of those properties is a lot of them emptied the furniture out and then they sold those properties or they leased them out on the long-term unfurnished market and now what’s happened is we’ve got this influx of demand for that type of product and the supply isn’t there. So, the rents for those type of products is jumped above where they were historically and they’re performing at an all-time high.
Q: Are tenants still looking for furnished rental properties at the moment?
It’s still strong. It’s always strongest January through March but even now we’re in the middle of May now and the market is still consistently strong but just not at the peak of January to March levels.
Check out this video of one of the apartments we furnished and styled at Montague Square:
Q: What do tenants look for in a rental property? What are the key things they look for?
If they’re looking for a furnished rental property, the quality of the furniture is a big one. Then, when we look at trying to talk to an owner about whether or not they want to do a furnished property. I always cringe if they say, “Oh we’ve furnished it ourselves!”, because quite often that means getting their second-hand furniture from their home and putting that in the property and then buying new stuff for home this type of thing rather than taking the approach of buying furniture that is in keeping with the property and also furniture that is not just in style but in size So it’s really important that people are making full use of the size of the property that they’re working with. So, that they’re things that we look at we want to make sure that they’re doing right. And if we can get that right for them, then they’ll see the return in yield.
Q: Could you share some of the values that some investors may not know about? How does furnishing a rental property help an investor grow their investment property?
The first thing I look at is size. Not every property is perfect for furnishing. The properties that generally work best for furnishing are the smaller properties, the reason for that is that if you’ve got a smaller property and it’s got only a small living space, tenants will come into that if it’s unfurnished and go “I like the apartment but my couch wouldn’t fit there.” The same thing in the bedroom, they might have a large king size bed and if the king size bed’s not going to fit in that bedroom, then again, we come into a problem. So, if you’ve got a smaller property then that can really work in terms of getting furniture that suits it and then them being able to market it to tenants and that they don’t need to worry about their furniture fitting. It’s all supplied. And what we’re saying is that, if the furniture is in keeping with the property and it does well, then people are willing to pay for it.
If we go back to that last example where they put their second hand furniture in it, the tenants that are looking for a furnished product they may well go to five furnished apartments and they will see two that have got nice stylish furniture, two that have got Ikea style furniture and then one that’s got second-hand furniture from you Aunt Betty’s house and the reality is that they instantly classify those three that aren’t suitable, as just they’re not going to move forward on those and they focus on those two with the stylish furniture. So, you’ve changed the market from five properties to two by just having stylish furniture put in the property that’s in keeping with that property. So, I think that that’s a really wise thing to listen to. Sure, it might cost a little bit more than Aunt Betty’s, but you’re going to get the best tenants and they’re going to pay a premium for it and they’re happy to do that.
Q: How much of a premium are tenants are happy to pay for?
If we go back to pre-Covid, it was generally – we quote figures around $50 where it was for a one-bedroom apartment so $50 a week more, and $100 a week more for a two-bedroom apartment for a fully furnished solution now that’s stepped up. So, now we’re looking at between $100 to $150 for a one bedroom and $150 to $250 for a two bedroom. So, it’s a significant jump in the estimated rental that you’re going to be able to get for the property over a period of time. As long as it’s in one of those peak demand areas.
Q: How does a furnished rental property add value to tenants?
One, they don’t want to buy furniture if they are transient. If you’re thinking about setting up an apartment for living when you’ve just arrived into Australia you’re going to have to go out and find the stock, that’s one of the big hurdles. Finding display stock like, I bought a couch a couple of years ago. I had to wait 12 weeks for it. So, that doesn’t work at all. You’ve got a cash flow issue. You’re going to have to find that cash to be able to come up with that that $10,000 or whatever the figure is to fit out that property. And these are things that they’re not really wanting to do. Wait and pay. However, a lot of these people that are transient have either got businesses funding their rental. The alternative to that is that they’ve got parents funding the rental and the parents don’t want to hassle their child with, “Don’t study that week and go shopping for furniture.” That’s not the idea of coming to Australia. They want their children to be able to come in and set themselves up and get started. So, there’s some major wins for tenants as well.
Q: Isn’t furnishing a rental property a risky strategy?
I’ve been in this game quite a while when I started off in real estate, we would agree with that point, right? When I started off that’s the important bit. Over time we have seen the demand for furnished property increase. Now there’s a couple of misconceptions, the first misconception is that tenants in furnished properties stay for only three or four or six months. That’s incorrect. We don’t lease our furnished properties for less than 12 months. That’s the same length lease as an unfurnished property. Most people are more than willing to pay for a 12-month lease for a furnished property. Most people are looking for a longer-term solution but opting for furnished as whether previously, I don’t think the student market was coming into the country with the budget to pay for furnished which they are now. And I don’t think the corporates were sort of aware of the fact that they could find furnished properties. It was a rarity to be able to secure that type of outcome. So, if we look at it from those two points, I think you’ll start to understand that the misconceptions around furnishing are no longer there and we can secure long term good quality tenants that that will look after properties not generally difficult tenants, these are the high-income tenants. They’ll look after the properties and they’ll last a long time. So, those misconceptions are sort of out the window.
Q: In your experience, who are these good quality tenants who are needing these furnished rental apartments and are happy to pay a premium? What are their occupations?
The way that we see it is that it is quite a mix. They’re generally white-collar workers that are on contract coming to Melbourne for one of the industries that we’ve got based here. A lot of medical research people, we find a lot of people doing their PHDs will come into Melbourne – it’s a vast number of those. They actually have a house in Sydney or another house somewhere else and they might be coming down here to finalise a PhD or some post graduate studies where they are required in Melbourne for a year or two for studies and they come here to do that. These are mature age people, these aren’t 18- or 19-year-old students, they’re more mature than that. Other than that, they’re the high-level corporates. You’ve got to understand that that’s a significant budget if you’re going to be paying accommodation for a staff member of $35,000 per annum on top of their wages. We’re not talking about middle management; we’re talking about senior management. And that type of demand is encouraging to see. It also means that the type of client that you’re dealing with, you’re not going to have problems with rental arrears with these people. You’re not going to have problems with parties and problems in the apartments. This is not a bunch of backpackers living in your property. These are these are corporate tenants and wealthy tenants that are going to come in and respect the property as they would respect their own property and so the longevity of furnishings is something that benefits from that. We’re seen properties that we’ve managed for 10-12 years that have still got the same furniture in them not because the furniture hasn’t been used but it still presents really well because it’s been well looked after by the occupants in the property because they’re that calibre of tenant.
Check out this virtual tour of one of the apartments we’ve furnished and styled:
2BR Apartment in Montague Square
$675/week rent unfurnished to a 27% increase to $860/week rent furnished
Q: What are some of the areas that you would recommend to investors to really consider furnishing their rental property as a good investment strategy?
The first thing is, that’s going to vary wherever you are in Australia, so I’ll put the caveat in it – I can’t help you in terms of those ideas in Brisbane for example. Here in Melbourne though what we look for are areas that are high furnished demand. We don’t want to have a product that is in an area that the product is not in demand. So, I’ll give you the example of a one-bedroom apartment in the outer suburbs – there’s not a high demand for one-bedroom apartments in the outer suburbs. Let alone one bedroom fully furnished properties but as you go closer into Melbourne within three, four, five kilometers of the CBD, close to train stations, close to shopping hubs, close to universities, those areas are the key sectors where we find that the furnished market receives the uplift in pricing. Because whilst you might be able to still find tenants for the property, you want to be able to maximise the yield that you’re getting for that investment in furniture and so you want to be able to target areas where you’re going to get that significant uplift. So, if you move around those key metrics and within a short distance to the city, I think you’re going to find yourself best suited.
Key Takeaways
- Not every property is suitable for furnishing, generally smaller rental properties work best when furnished.
- High income tenants will pay a premium for a professionally furnished rental property.
- Furnished rental property within 5km of Melbourne CBD are a high demand.
Conclusion
Managing an investment property in a post covid market can be difficult, especially when you want to maximise the rental returns and yield. This is why it’s important to learn from the best experts in the industry like Stephen from Melbourne Real Estate and find out how to best rent out your rental property. If you’d like to learn more or speak to Stephen you can find his contact details and social media links below.
How to get in contact with Melbourne Real Estate
Website: https://www.melbournerealestate.com.au/
YouTube: https://www.youtube.com/channel/UCYFvMNgmuF3SFFuzDASWDfg
Facebook: https://www.facebook.com/melbournere/
LinkedIn: https://www.linkedin.com/company/melbourne-real-estate/
Instagram: https://www.instagram.com/mre_southyarra/
Twitter: https://twitter.com/MRESouthYarra
To view more case studies of our work with Melbourne Real Estate, click here.
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