I have an accepted offer on a duplex–2 bedroom units with garages for $127,500.
I am trying to find a working formula for furnished rentals similar to what I have been reading on unfurnished. Please you guys read and kick the tires on this one?
$ 3,500 Electrical/plumbing repairs (I have bids)
$ 1,000 Paint (“Oops” paint from Home Depot @ $5.00/gallon)
$10,000 Furnishings,including appliances (estimate, done this before)
$ 1,000 Window replacement (maybe just splines)
$ 2,000 Fence, landscaping (few desert plants)
$ 2,500 Misc. unknown yet repairs
$20,000 Total repair and furnishings
$ 4,200 Gross monthly rent
$630 15% Vacancy
$528 Utilities (averaged from 6 2-bedrooms)
$ 60 Taxes
$ 42 Insurance
$660 Maintenance, cleaning, yard, office,supplies
$100 Inventory replacement
$2020 Monthly Total Expenses
$4200 Rent
$2180 Left for mortgage payment and profit
$2180
- 981 $147,500 @ 7% for 30 years(purchase price +rehab)
$1199 . Profit/month
Seems like too much. What am I missing?
Is the formula correct? Thanks for your help.
FurnishedOwner
I am definitely curious about your niche there. I think it may work where I am, but the price of real estate is through the roof here so leasing is expensive. But it is all relative.
How much do you increase rent from unfurnished to furnished?
I have one standard 2-bedroom 1-bath house left unfurnished since I bought it with the tenant in place. He pays $750/month. I pay only water.
You need to go out and visit your local hotels to determine if it will work in your area. Imagine that you are a restaurant manager trainee, a traveling nurse, an insurance adjustor on assignment for 1-3 months. Where ya’ gonna stay?
How full are the hotels? What do they charge for extended stays? What do they offer? They are the competition, probably not other furnished owners as no one seems to be doing this.
FurnishedOwner
What am I missing?
Is the formula correct?
Only you can answer that for your particular market and tenants. I don’t see a LOT of the typical rental expenses listed in your example. These are the things I see missing: management (even if you are doing it yourself), legal fees, evictions, damage done by tenants in excess of the security deposit, entity maintenance, advertising, capital expenses (not technically an operating expense), etc. In addition, the insurance seems low for landlord insurance for a duplex. Do you have liability protection? On the other hand, your maintenance/cleaning/yard/office supplies seems very high at $330 per unit per month.
Mike
Mike,
No I don’t have management written in but it is there under office. That is why it is so high. Office also includes legal fees, wages, blanket liability insurance, advertising, workman’s comp, all the other fees required now that we have staff. I couldn’t just keep putting them under contract labor. Actually I think office might be a little low, it depends on the month. I don’t pay myself from office, it is categorized by the accountant as “owner draw”.
We haven’t yet had an eviction. Damage done by tenants in excess of the security deposit is invoiced to their company or agency since only a few tenants are private pay. This is not a big factor. In fact, sometimes the places look better after a tenant has “nested” a while. I have seen them add framed pictures and tablecloths, plant flowers and shrubs, and some hunters built their own dog fence. The tenants are guests and mostly enjoyable.
Would there be interest in a forum called “Furnished Rentals”? I would still like to write my “How To…” book. The 1-Minute Guide to Real Estate Riches being a good model. It’s not that I want to get rich from writing, it is that I enjoy it.
Also I think that my hard-won information, like propertymanager’s, could be of great value to someone who just needs that extra money from doing furnished.
Furnishedowner
your 2 bedroom unit rents for $2100 each ??
what types of hotels are in your area ??
no value place 189/ week or any other extended stay type hotels ??
they opened a value place in my neck of the woods just recently and was surprised when i seen their ad on the billboard @ 189/week.
When I was in Jax, FL, I had to stay somewhere for a few weeks while I was looking for a place to live. There was an extended stay hotel there that advertised for $189/wk. It was pretty much a dive and I was scared to go out into the parking lot at night…especially with my kids. If other places in Furnishedowners area are like that, I can see how he could get a premium price for his units. There generally aren’t a lot of places that offer that type of unit anyway, unless you’re in a resort type area. I’m still not convinced this would work well everywhere, but it seems to work for him.
Here there is a Marriott, Hampton Inn, Holiday Inn Suites, Red Roof Inn, and other Mom & Pop places. Four extended stay hotels(suites) are scheduled to be built in the next couple of years. So, yes, people have been smelling the wind.
Even after the hotels get built I hope to be okay by specializing in dog yards, quaintness, coziness, private green yards, etc. I will farm the European tourist market due to the dollar shift. We are already getting Canadians in the winter; now I want Europeans in the summer. It seems that staying in business means just having to re-invent yourself and grow. I also see a potential big market of Japanese and Korean English-language students.
FurnishedOwner
By me in NJ, an unfurnished 2 bedroom, is $2500 or more a month. And we have some major corporate headquarters here and lots of large office buildings. 3 hotels, Marriott, Hilton, and a courtyard Marriott.
I think that may work here, but prices are really outrageous so I would have to find a super deal.
Furnished owner do you include a computer or telephone with each unit. if so i got some advice for you : magicjack it costs $40 and it is totally free telephone service with free long distance for usa and canada. $40 gets you a full year then u can get additional years for $20. a full year of telephone service.
the magicjack connects to a usb port on any desktop or laptop. so you would need a computer to run it.
you can even take them with you on trips and use them. its like a mobile landline with free long distance.
Brian A06,
Where the heck are you? Dubai?! But if rent on an unfurnished 2-bedroom is $2500/month maybe you can get $250/day for a furnished. We mostly quote prices here @ a daily rate as that makes it sound cheaper compared to the hotels. It doesn’t sound so high if you say, “Our rates are $35-$80/day” which is what we charge right now.
You could buy the lowest price thing on the market (2 units might make the most sense). If it’s in good enough condition to buy for a flip it’ll work for a keeper.
Tenants care about price, cleanliness, safety and function. They don’t mind that they are basically living in a resurrected shack, especially if it has some charm and a yard for Bloodfang. If they are too snobbish they will be in a high-roller suite at the Marriott. You want the executive transferee, the traveling doc, the vacationers who would otherwise have to pay much more at the hotels.
Furnishedowner
Liquidity,
Thank you for your great tip! That is what makes these forums so valuable. I feel real lucky that I found you all.
I don’t provide computers (what if someone set up a child porn ring–would there be liability?) but I do provide wireless high speed internet and telephones with a land line.
It took a while, but we finally got the cable company to bundle our phone-internet-tv service so now it is more affordable. We are now offering free long distance due to our new bundling package.
I still need land lines for medical workers because often their cell phones don’t work in this area. They need land lines to take call. Also some people don’t use or travel with their computers.
Thanks again,
Furnishedowner