Are You Ready To Try a Furnished Rental?

General Real Estate Investing
1

There has been some interest. Has anyone yet tried to furnish their rentals? Here are a few tips for those who want to know…

What is a furnished rental? It is a unit of any size–we have studios to 3-bedrooms–that is completely furnished with table, chairs, TV’s, dishes, ironing board, everything. We tell prospective tenants, “Just bring your toothbrush.”

The tenant can walk into his rental, throw the key on the table, get his beer from the frig, plop into the recliner, and click on the remote. It is home. Instantly home. We try to test-drive the units for comfort and function. The tenants love it; we have many repeaters and loyalty too, i.e, “We will only stay with you.” We must be doing something right and it is profitable,

Why bother with furnished rentals? Really, it’s the money. That first studio unit, almost 5 years ago, would have rented for $300/month. I was able to get $900 after it was furnished. Of course expenses are much higher as utilities are all included, even high-speed internet. Now we also do long-distance telephone and put in DVR’s.

I work on a bottom line of at least $300/month profit per unit after everything is paid. Some units are way more cash-producing as they have low mortgage costs. Right now we typically rent units from $1050-$2100 per month. Our biggest money-makers are the 1-bedroom units. They are our bread-and-butter at $1800/month. The demand is greatest for 1-bedrooms, as they can house a single or a couple. There HAS to be a lot of profit because it is a lot of work.

How do you determine rents on furnished? You research all the hotels in your area. You want to be priced below the best hotels, and higher than the worst hotels. Larger houses also get more rent of course. Demand will set your rates once you get known.

Furnishedowner

2

This is interesting to me.

  • Do you guys keep your places in meticulous condition (very clean)?

  • Do you worry about theft — e.g. someone walking out with your DVR device & TV?

  • And is the furniture rather modern? Or dated?

The only furnished apartments I’ve ever seen, here in Dallas, had ugly 1970’s style furniture and reeked of smoke. Ugh. I imagine only truckers or migrant workers wanting to live in those places. Hopefully your units are nicer

3

I have used private furnished rentals as I’ve traveled around. I am a freelance tech professional so I tend to get better than average rentals when I stay somewhere.

I always need high-speed internet, and cable TV is great too. Having a furnished kitchen with a few condiments and whatnot is a bonus.

One of the best ones I ever stayed in (in Montreal Canada, might not want to do this in the US) had a CD binder next to the TV absolutely filled with pirated movies. :slight_smile:

The ones I’ve stayed in tend to be a low-floor unit in a high-rise condo building without a stunning view – I’m assuming these are cheaper for the landlord to buy.

Parking and Location is important – these tend to be in major cities and I want a place to leave my car and walk to public transport, restaurants, etc.

I tend to choose these over weekly hotels because weekly hotels tend to have less space, are more depressing, are noisier, and their internet tends to be slower or has irritating “sign in” systems that are totally unnecessary.

(unrelated, but I’ve stopped staying at higher end chains like Hampton Inns SOLEY because they use irritating, third-party sign-in systems for their internet access. Cheap Indian-run motels just have a linksys wifi hidden in the hallway somewhere, and they almost always work better than the expensive third-party systems… plus you can haggle with the Patels on the room rate, just make sure you see the room first!)

4

We keep our places meticulously clean. They are older places mostly, and cleanliness is tops. I have 2 full-time cleaning ladies/office staff/ shoppers/ rehabbers/ gardeners. They clean if there is a vacant unit, otherwise they help rehabbing or in the office.

These seems to be an underclass of furnished rentals that have old funky furniture and they rent out to low-income senior citizens or entry-level workers. That is not us. Two of the units I bought were in that category. Then we spent months rehabbing.

We have many guests like Stripey. We aim for the traveling professional or the company employing him. I am surprised myself, but we have had almost zero theft. We did lose a vintage picture of Wiley Post from one unit, that is all I remember. And we did have a drug-addicted nurse or her boyfriend who pawned the bedroom TV. Her company was most apologetic and sent the check immediately.

But we have also had tenants who planted permanent shrubs, flowers and bushes. One tenant framed every picture in the house calendar (cute cowboy calendar) and hung them all up in her unit. We are constantly pleasantly surprised. Guests have sent us hand-knitted slippers and brought us gourmet coffee from California. Traveling workers like to “nest” in their units. They are home.

We mostly like our tenants, too. If we mess up, like forgetting a repair, we sometimes give them a $10.00 Starbucks coupon as an apology. We also invite tenants to foster pets if they like.

I was thinking about one of those role-reversal TV shows and wondering how I would do with Propertymanager’s tenants, and he with mine?! The thought made me laugh. I would be planting flowers in front of his units, and smoozing tenants. And Mike would be threatening evictions with mine. But we just send gentle reminders! Sometimes several! But they do pay.

Furnishedowner

5

Motivated CEO, We once bought a house that was full of 1970’s furniture. I couldn’t afford to change it all out , so we just went with the theme.

Everything was Harvest Gold, Avocado, and Flaming Orange. The carpet in the unit itself was very nice (seller was 90-year-old man) and unworn but screaming orange shag. One guy said, “Wow, this place reminds me of a forest fire!”

The kitchen had been painted brilliant apple green, everything–wall, cupboards, ceiling. I toned it down by painting one wall black with chalkboard paint. Then we had fun writing “Welcome Jones Family!” or such on the wall. People used it for grocery lists, homework, and telephone messages. I was able to find large ferns, macrame plant hangers, 70’s large fork and spoon wall decor and other goodies. People liked it: “You gotta see my house!”

I’m guessing that a furnished rental is a break for most people. They don’t mind vintage furniture, odd-sized rooms, unusual decor. They WOULD mind lumpy mattresses or bad TV’s or slow internet. So that is where we put in new first-class stuff.

It has been fun putting some of these houses together. Life is too short to not have fun at work.

Furnishedowner

6

This sounds like a great idea. It seems like another advantage of these furnished rentals is that you could get around the rent control issue in some areas. Since tenants are most likely staying there short term. Is there any other ‘rules’ that you need to follow for short term rentals? This seems like it might work out well in areas that wouldn’t otherwise cashflow…but I guess it is almost like running a hotel (considering the staff members) vs the average unfurnished rental.

7

Furnishedowner,
I’m curious. How long do tentants usually stay? Do you have a lease with them? What kind of area would this work in?

JP

8

How do you market the units? Since most of your customers I would think make arrangements before they come into town.

9

Due to the nature of my business, I travel a lot and we always stay in a fully furnished place as we are there for a few weeks to a month at a time. My wife and I typically find condos and have yet to be disappointed.

I think it’s a great concept, much homier than a hotel, much less than the cost of a nice hotel and generally has amenities like pools and exercise rooms. The other nice thing is that I can use the community rooms if I want to hold a seminar for a nominal fee.

10

Investorman,
We need to have tenants stay for one month at least, or we stray into the short-term or hotel category. We are actually being audited by the state right now as they are looking for violation of the 30-days or more rule.

Probably 1% of our gross this past year dropped into short-term and I imagine they will ding us for 7% gross receipts tax, maybe interest and penalties. Once the audit is done we will figure out how to have that second type of rental and make it a different business perhaps, maybe our “hotel”.

It has been hard to say “no” to repeat customers who weren’t staying a full month, especially if we had vacancies. We also have out-of-state hunters who now rely on us for their Fall hunting fix. Where else can you take 4 large hunting dogs and cut up ducks on the front porch? Motel 6? We are going to have to figure out how to charge lodging and gross receipts tax and can we do this in a residentially zoned home.

This has all been a huge learning experience! THERE IS NO HANDBOOK!
There are dozens of books on investing and on renting out properties. There are NONE on furnishing rentals like this. So one reason I had for writing in these forums was to hook up with other furnished owners. It hasn’t happened at all. So now I am writing to you all, and I may put it into a little book myself.

Your last question: Is it like running a hotel? Yes. Furnished rentals are half-way between a hotel and unfurnished. I am now reading from our “Repairs Needed” clipboard from this past week (a slow repair week actually):
8/25 Garden Cottage–refrigerator leaking water
“A” Cottage–Wants to Borrow Bicycle
Garden Cottage–smoke alarm continuously going off. Lamp quit working.
Big Stone House–Swamp cooler tubing leaking
8/26 5th St.–Vinegaroons and centipedes, needs spraying
8/27 “B” Cottage–Carpet needs cleaning
Highland-- garage door remote missing
The Casita–Needs filters, salt
Lea House–Needs front sprinkler, stolen?
8/29 Washington A–Blind needs replacing
8/30 Adobe Cottage–wash machine hose leaking.
We deal with repairs daily. There is at least 1 full-time handyman and sometimes helpers if we are renovating. Tenants love it that we show up almost immediately and deal with whatever is wrong.

I read in “Fortune” Magazine that 30% of a CEO’s time is taken up with solving problems. That made me feel better. That must mean that I am now a CEO, 30% of each day is spent on fix-it and tenant problems: “We need to book a nurse, but she has to have a bathtub, she is traveling with her cat, and she needs storage for her Harley.” Yes, this was a true phone call.

Furnishedowner

11

jfpen,
Our tenants typically stay around 3 months. Many stay just one month. Several have stayed more than one year.

All of our tenants sign leases. We often write, “May extend as needed” as many people don’t know how long their job, house search, training, etc. will last.

We have government tenants who pay the government per diem. They sign our leases because we write in: “Tenant may leave with minimal notice for any reason whatsoever.” Then they are happy. These tenants pay more for that privilege and because they pay no deposit. These government employees do not mess up or their whole career is affected. We lost 5 of them once to Hurricane Rita, so they are a mobile but well-paying bunch.

My feeling is that furnished rentals would work in almost any area. This business flourishes is a small town of 50,000, with a median income of $28,000/family per last census.

I would answer the following questions before setting up these rentals:
What is the occupancy and room rates (short and long-term) in your local hotels?
Do you have a hospital with traveling medical staffers? Where do they now stay?
Do you have a college or training facility? Where do students stay, and what do they pay?
Traveling government employees, both federal and state?
Traveling ministers for revivals? Hunters? Vacationers? Golfers? Snowbirds? Manager trainees? People selling, buying or building homes? People flooded or burned-out? People re-modeling? People undergoing medical treatment? Divorcing? Visiting family?

If you have those potential customers in your town, then they can check in to your furnished rental cottage, apartment, condo, house, garage unit, whatever is better and more economical than a hotel.

Furnishedowner

12

kj9876,
We have tried lots of marketing strategies!
We started out by putting flyers on the windshields of out-of-state licensed pick-up trucks. We wanted contractors and construction guys. That didn’t work too well.

We run long-term newspaper want ads.

Then we discovered the internet and had a website set up. We are now struggling to upgrade it as it is way out of date. I am wanting to advertise to European vacationers for our July slump and to Canadian snowbirds for our holiday slump.

We run ads in “TravelHost” magazine, which is in many hotel rooms. We joined the local Chamber of Commerce, which exposed us to local business owners and brought in a lot of manager trainees, consultants, morticians, ministers, etc.

We print thousands of postcards and hand them out at trade shows, festivals, the City Visitors’ Tourist Office, and especially Realtor offices.

Most of our tenants are corporations or agencies and they make arrangements for their travelers. Others book from the internet. Others call from their hotel room. So most do make arrangements before they come to town. We spend a fair amount of time trying to “fit” them into the most suitable unit, so we don’t have to move them later.

Furnishedowner

13

Thank you for your response. Since there is no book on the subject of furnished rentals I think you should write one!

14

investorman,
I am printing out these forum answers as that could be the start of a “how to do it” book. I sure would have bought one.

Furnishedowner

15

If this is any help to those of you that are operating the furnished units, we look in the “pennysaver” type publications and on craigslist for the places we stay in and always find something.

16

TheSignBandits,
We have not tried the “Pennysaver” or “Weekly Dollar” type of magazine before, maybe we’ll give it a try. Why not? I do like long-term construction crews as tenants when we can get them. They probably read the Pennysaver.

Craigs’ List hasn’t been successful for us. Instead Craig’s List caused a plague with every scammeister from the continent of Africa wanting to rent from us; they will send us a certified check and want “overpayment” money back ASAP. Other generous Africans want our assistance in selling gold dust or storing their uncle’s stolen wealth. This is always because we are good Christians, which we are not and they are certainly not.

Furnishedowner

17

We have two new leased units this week. I drove by a nice stucco duplex with a “For Rent” sign in the window. I pulled over and got the number because the building looked so good–new metal roof (this is hail country), new stucco, windows, and best of all, big AC units on top of the roof.
It was on a nice quiet street WITHIN WALKING DISTANCE TO A BAR/restaurant. Guys love this feature–and we always mention the walking distance.

I called the owner who was happy to talk to me. I told him how I lease fully-furnished homes with the contractual right to sub-lease them to other tenants. Not property management, but a lease arrangement. I asked the owner to put in cable TV, high-speed internet, long-distance phone service. I asked the owner to pay for all the utilities.

I gave the owner a detailed list of expected furnishings: fire extinguisher, towels, dishes, TV’s, rugs, sheets, BBQ.

I explained that our company will put sub-tenants in the unit and clean the unit. We will share the rent on a percentage basis. Our lease payment to him will be made by the 10th of the month for the previous month’s rents received.

The owner will net about double the rent of an unfurnished rental. This is after utilities are paid. This is good, as he now has a substantial investment in there in bed, couch, pictures, toaster, etc.–perhaps $3,000.

We add another nice unit to our availability list, which did not cost us anything to set up. Therefore our percentage is smaller than the owner’s. This unit helps spread our overhead over more units. We add the unit to our blanket liability insurance list.

The advantages to the owner are that he can now travel or spend his time elsewhere than advertising and showing vacant units. We are the tenant, and will be taking good care of the unit.

One-bedroom furnished units typically rent to agencies, and they sometimes do not like to deal with individual owners but prefer doing business with a business only. We are open 8-5, Mon-Fri., just like them.

One-bedrooms rented to locals can bring a plague of friends, parties, other people’s cars and lots of visitors. Traveling workers, on the other hand, only work and sleep and watch TV or use the internet. They rarely cook a lot or do anything else. They are there for the job.

They will be quality tenants and not trash the place. They will be adults, usually there are no children. Maybe there will be a pet or two.

I told the owner that our occupancy rate this year January-June was 91%. We work hard to keep the units full. The owner was glad to have us lease the duplex and take the worry of rent off his shoulders. I like the guy and his wife and I think we will make a good team. We are showing it to a prospective nurse from Missouri on Friday.

Furnishedowner

18

So, furnishedowner, do you garantee a minimum payment to the owner, or he gets money only if the property is leased? What is your motivation to put people in his unit as oppose to yours? It seems that he might have tied his property with no garantee that you will put tenants there… Am I missing something?

PS: I hope you don’t feel ofended by my questions. I am not trying to put down the approach, I am only trying to understand it better. Who knows - one day I may go this route… Have a nice evening! :O)

19

j1dias,
No, I don’t guarantee the owner anything. In fact, I would prefer to lease at just a fixed $500 or so per month and pay the utilities. But if I don’t rent the unit out I get nothing, so the owner understands that I am very motivated to put a tenant in there.

Every unit is different, they are not big apartment houses. Tenants have specific needs, and our goal is to make the tenant happy. So if there are vacant units it is about the tenant. Pet yards, garages, central AC, bathtubs, no rugs, extra storage–these are things people ask for that steers them into a certain unit. We don’t discriminate with owned versus leased.

Furnishedowner

20

Furnishedowner - how do you think your strategy would work in college towns? The reason I ask is because I’m originally from Knoxville, TN (which is much more than a college town per se, but the campus area is large), and this is where I plan to relocate back to when I feel I’m ready to start investing, as I know the area like the back of my hand.

It may seem like a stupid question, as college students who leave campus for the summer would be ideal for furnished units - but I think it is a legitimate one solely because of the amount of larger property management companies that have invested in these areas in the form of larger complexes that also offer furnished units, and most charge monthly rent amounts per bedroom, with separate leases. And of course these places offer many amenities which smaller properties could not. I’m just wondering if the small guy could compete with furnished units in these areas.

I know it all depends on the deal, and what rents you can afford to charge to have the appropriate cash flow, but I was wondering if anyone has any kind of experience with this strategy.