Are You Ready To Try a Furnished Rental?

General Real Estate Investing
21

College units in college towns should be a great market.

My experience with this was just last month trying to get housing for our college-aged son around our state university. Students were lined up 3 and 4 deep trying to rent houses.

We finally got incredibly lucky and rented a nice 3-bedroom 4 blocks from campus for $1500/month. 3 students will share.

Then we had to drive a U-Haul truck full of old furniture several hundred miles just to furnish that house from our storage. Then we had to search local thrift stores to get 3 desks, a couch, and other missing stuff. The thrift stores were full of parents and students snapping the stuff up.

It cost a lot to get that house adequately furnished just so they could live! The roommates were from Ecuador and Chicago, and didn’t have parents in-state to help. Nor did they have cars. It was a big job.

Would this parent have paid more to rent a house furnished with beds, desks, dressers, couch, table, chairs? YES. The students can get their own dishes, linens, TV’s, vacuums, rugs. But that big, heavy, sturdy student stuff could be a money-maker for a smart landlord.

We also had to sign a year’s lease instead of the 9 student months that we wanted. That was a smart landlord move.

I believe students would rather be in their own cute, quaint, funky abode than in a large apartment house. My son and his friends immediately went out and got dogs, which wouldn’t be allowed in most apartments. Being an adult=living in a house=having the right to have a dog.

Another thing I noticed, many houses had their garages converted to student bedrooms. More bedrooms equals higher rent.

Furnishedowner

22

We have been working on the Riley Street duplex fixing and furnishing it. It always takes a long time, since the handymen are also doing daily repairs on other units.

I have a rule: When you think it is 100% done, it will take another week. Sure enough, I did a walk-through of unit B. Kitchen counter needs caulk, there is a knob missing on the desk-we took it off to clean it and now it is gone. We need to paint a yellow safety stripe in the garage where I am tripping on the step. A closet door is really ugly and we need to hang a mirror there and make it disappear. The bedroom curtains have no tie-backs. Where is the TV channel guide card? We forgot to make window screens! A house feels safer with screens, even if the windows are never opened. We need a surge protector cord for the new TV as we live in the land of lightning. We are short a spatula and salad bowl in the kitchen. Yes, we are out of calendars and it’s October so you can’t even buy a calendar. There’s no battery in this bedside alarm clock. We need to reverse the door on the storage shed as it opens inwards (idiots!) so it won’t even hold a barbeque…

One more week gone. Now there is a new pet yard installed by my fence guy. The unit is rented for 2 months at $2100/month. I had to promise to put in an alarm system–“I’m afraid to leave my wife home alone as she is pregnant.”
“No problem, we will order the kind of alarm where you can talk to the wall panel and ask for assistance.”

If there is a perception of “bad neighborhood” I am now starting to put in alarm systems. An alarm system–monitored–costs $35-$40/month. Installation and activation is free to $100. Just losing half a month’s rent is $1,000, that’s 25 months of alarm payments. I don’t quibble with a tenant’s needs, if I can rent the unit I try to upgrade to whatever they need/want.

Soon the unit is so polished and mint and covering every need that it will stay full. Here are the most asked for things: a garage, a fenced yard for pets, high-speed wireless internet, 2 TV’s, one a big-screen (32-37 inch), King-size bed, bathtub, dishwasher, full-size range/oven, and that very important RECLINER. You never see a Lazy-Boy on the TV decorating shows, but here in real life men rent recliners, not apartments.

We all test the TV/recliner viewing ratio and the laying-down-on-the-couch-watching-TV-head-on-a-pillow viewing ratio for optimum comfort. My staff and I bounce on the beds (separately, I might add) and if the mattress is too hard I buy Memory Foam mattress pads at $90-$150 each. Comfort is everything. Comfort brings in the big bucks, the rental extensions, the repeat business, the referrals.

Furnishedowner

23

Very nice. Sounds like you got a good business going. And $2100 / month. Again, nice. Though, it sounds like your operating costs are higher. At least for initial setup. Can I ask how much you owe on these properties that you are furninshing? How much did you pay for them initially? Did you pay any downpayments?

24

dr_white,
Yes, the operating costs are significantly higher. Rents are higher. Profits are higher. Quality of tenants is higher. Work level is higher. I look for at least $300/month profit per unit. Most units reach that and some quite a bit more as they have low mortgage payments.

Setup costs for an owner unit are $3,000-$5,000 for furnishings. We furnish everything literally down to the toothpicks.

We purchased the Riley duplex for $127,500 through a Realtor. We didn’t have any downpayment on this as we re-financed another renovated property with a blanket loan that covered 100% of the duplex purchase. This was through our small local bank that we have cultivated a relationship with.

Our first property (5 units) we had to come up with 25% down.for a loan with that same bank. We got a 2nd mortgage on our residence for that–15 years, fully amortized. The next properties were all purchased with less down. Countrywide had a good thing going for a while with 10% down payment non-owner occupied loans. Others were around 15% down. We have bought several properties from owners who carried the loan. They have also taken 10-15% downpayments. We sold 2 single family homes in order to buy units. We borrowed 2nd mortgages also for downpayments. We have tried to keep some cash always in reserve for emergencies and deposit refunds. It has been an interesting ride.

Furnishedowner

Inital purchase prices all varied–from $48,000 to $185,000.

25

Furnishedowner,

This is GREAT info and I thank you for your insights.

I’ve had an interesting experience with a furnished high-rise unit that I had temporarily from my job. It was in a VERY populated area right by New York. The unfurnished units were renting for about $2100/month. This furnished unit was for corporate workers and went for $4,000/mo. (P.S. - ONE bedroom).

Anyhow, I had it for only 3 months and instead of living there… I rented it out to people from craigslist at $900/WEEK. It worked beautifully, never a shortage on a tenant either.

However, after the 3 months was over, I wanted to furnish the $2100/mo unit and rent it for $4000/mo… but the numbers didn’t add up. I couldn’t afford a vacancy at that rate and so I didn’t pursue it.

After reading your posts though, I think I should do a better job exploring the area and looking for other opportunities.

26

NJBird_dog,
Where did you sleep while you sublet your apartment-in your car?! That was a very clever idea that you had using Craig’s List and I think you should pursue subletting more.

I see huge opportunity in furnished rentals because no one is doing it. At least I haven’t been able to locate anyone other than the big corporate Oakwood-type suites and apartments.

To research if this would work in your area, just put yourself in your future tenant’s shoes. Pretend your job at XYZ Engineering is transferring you to your city for 3-4 months training. The company will reimburse you for housing, but you have to find your own accommodations. Now go to the internet and start calling hotels for long-term rates. Try “furnished rentals” and see what pops up. Soon you will learn what it costs to live in your area. Imagine how expensive it will be to eat your meals in restaurants. What a drag to go to a laundromat to wash your clothes. And what are you going to do with your dog? Happiness is locating a furnished rental home.

This week we rented a studio cottage to a sales advertising manager who does close-out sales for big furniture companies when they sell off all inventory. She is a nation-wide traveling expert on getting rid of furniture stock and here for a minimum of 2 months. I never knew such a job existed. We discounted the rent to a Winter rate of $1200/month.

Yesterday we rented a 1-bedroom cottage at a Winter discount of $1450/month for 4 months to an engineering administrator for an oil company, here on temporary work assignment.

If vacancy starts creeping up I start discounting for self-pay individuals as you can never make up for long vacant months. There will be a definite slump in December, so we plan for it now.

You can lease fully-furnished homes from out-of-area owners and then sublease them for higher rents. This works really well for grandma’s house when she goes to live with the children, as you take the care and responsibility of that home off the backs of the children. They will be very happy with this service. The home is probably paid off and they don’t need a lot of rent.

I have located furnished homes by simple newspaper ads: “We would like to lease your fully-furnished home. We will take very good care of your home. Please call…for information”.

Actually this could be a minimal start-up cost entry into the real estate rental field for beginning entrepreneurs. Find a furnished home and lease it. Find a need and fill it. Find a niche and work it.

Furnishedowner

27

Good stuff all around, furnishedowner. I’m sure you’ve mentioned this, but which city do you live? What industries are nearby that gets corporate executives coming into town short-term? How did you come across properties under $100,000? I’m guessing perhaps you live somewhere in the mid-west States. How do you advertise? I wouldn’t think that corporate executives would browse craigslist. How long have you been doing this? Do you have a network of contacts built up that refer corporate executives to you? If so, how did you create that network?
I’ve actually tried this with one major company in my area. I had rented one of my houses to one of their new hires from out of state. That got me thinking about setting up my property for a repeat rental with them. However, they mentioned that they didn’t do that on a private/individual basis.

28

dr_white,
I live in a small city of 50,000 in the Southwest.

The businesses and industries that bring people in are whatever is in the local economy. Here it is temporary medical staffers: nurses, physicians, radiology techs, surgical people, hospital administrators, patients and patient families. Oil field executives. Cheese factory construction engineers for the plant expansion. Dairy industry executives and owners. Restaurant manager trainees for the chain BBQ restaurants. Temporary department store managers. Airport flight controller trainees. Border Control temporary training staff. Traveling sales manager trainees for car lots. Ambulance company rotating managers. Snowbirds from up North. Retirees and relocation people buying homes. Sightseers and hunters. Divorcing spouses. Burn-outs (people housed by their insurance company), remodelers.

Similar travelers fill the hotels in your town too. I am sitting here in the office looking at the rental white boards and I am amazed at the diversity of the tenants. We have rented to revival ministers, morticians, hairdressers, symphony conductors, Army recruiters, pathologists, trade show exhibitors, artists, lecturers, veterinarians, fish biologists. The entire alphabet soup of occupations.

I just rented a place today to a Budweiser Beer warehouse distributor foreman who was brought in from headquarters to up local distribution. I’m all for that.

We advertise in the local newspapers, Hotel Travel magazines, and most importantly on our internet website. We use our city’s website, the Chamber of Commerce, Hispanic Chamber of Commerce, and all Realtors’ offices to distribute advertising flyers and postcards in. Great synergy with Realtors as we can help them make deals: we house their out-of-town buyers and their sellers who haven’t found a new home yet. We print postcards and now we get many referrals.

I started out at ground zero on November 1, 2003. Moved to town and bought a budget $55,000 house with a boarded-up cottage in the backyard. Pried the boards off with a crowbar the minute I drove home from the closing. Learned many hard necessary financial lessons from the first rehab–like the $5,000 plumbers’ overcharge! Rented out the cottage at $900 furnished instead of the $300 market rent unfurnished. Built a business from that initial success.

If you build a small business and begin functioning like a business it becomes much easier to attract corporate clients.

Furnishedowner