Please help me analyze my furnished rentals:
2007 revenue of Adobe South Cottage Unfurnished 2 bedroom 1 bath=8,300. Expenses=4,049. Net=4,251 Bought this house with tenant in there.
Furnished Adobe Norte Cottage Revenue=22,690, expenses=7,261 net=15,429. Also must add in office expense of $300/mo/unit although unfurnished used less.
I have 2 units still unfurnished. The above units are identical. Unfurnished tenant pays own utilities except I pay water.
The expenses do not include principal or depreciables. How do you analyze these? Thank you for your help. FurnishedOwner
A furnished unit multiplies your net rental income fourfold. The only thing to analyze is whether there is sufficient demand for a furnished unit to furnish your other rentals.
Are you Saying that a furnished unit makes 2.73 times more rent? If I were a tenant, I wouldn’t be willing to pay that. Is this an arrangement for professionals who take travel assignments? If I were you, I would milk that cow. Are you sure you’re not a furniture saleman?
I guess I wasn’t very clear. I noticed that readers help potential buyers analyze income versus expenses with formulas and I thought that was a neat tool. I saw the 50/50 rule and tried to apply it to these 2 houses that I own.
I have about 45 rentals, only 2 still unfurnished, some under renovation. I rent out only fully-furnished homes because the rent is so much higher.
I haven’t yet found anyone else who does this; I just started searching 2 investor sites yesterday.
My tenants are traveling medical staff, construction workers, snowbirds, home buyers and sellers. Anyone who would otherwise be staying in a hotel. I have been doing this now for 4 years.
I wonder if other people would be interested in learning how to increase their cash flow by furnishing their rentals. It would be fun to give a seminar. I am surprised that I can’t find anyone to talk to who is doing the same thing!
Yes, the rents are double or triple unfurnished.
If those are the typical numbers for furnished vs. unfurnished units in your area, then I think you’ve found a GREAT niche market. However, data from one year on two units certainly does not give a complete analysis. For example, here in Ohio, the difference you’ve listed in the operating expenses could easily be accounted for just in the utilities. I’m still wondering what the longer term expenses would be considering frequent replacement of the furnishings. In addition, when you have a tenant stop paying, your expense could be much higher than the expense experienced by a rental that does not include utilities. In addition, intentional damage could be much greater when you have a disgruntled tenant.
However, even considering all of that, the numbers you posted are compelling and I think you’re onto something great.
Nick Sidoti has a seminar on this subject. I heard him speak at a state REIA convention and found his idea fascinating. He specializes in renting fully furnished units with utilities as you do, but targets special needs tenants (those with some sort of disability). After hearing him speak, I looked into that facet in my area, and again found that the numbers do not work here.
Your post got me interested in this issue and I did some research today on the difference between furnished and unfurnished in my area. Unfortunately, the numbers in my little corner of Ohio are quite different than yours. A low income unfurnished efficiency apartment here brings in about $300 per month with the tenant paying the utilities. A fully furnished efficiency apartment in the same low income part of town brings in $425, with the owner paying the utilities. That is a losing proposition here as the utilties would easily be $125 (or more).
Mike,
Thanks for your input. I do have data from all my furnished units. I was just trying to compare with the only 2 unfurnished that I still have as everyone seemed to have unfurnished.
I try to avoid real low income areas. I need rentals where your basic single nurse could happily reside.
I just haven’t had any willful destruction or refusal to pay rent. Maybe because we are a small family office and there is personal contact with most tenants. I have been doing this for 4 years and growing just as fast as I could manage. The competition is hotels. Now if you had to come to my town for 2 months to give a seminar or receive training, wouldn’t you want a cute little cottage with kitchen, washer, dryer, internet? You can even bring your dog. We love dogs. You can rent from me for less than the hotel down the street. I don’t compare myself really to other rentals.
I have the same opportunity in my area. There is a pool of contract nurses that come to work in the home health care industry. Their contracts are six months long and their housing cost is employer paid up to $1000 per month. I get the sense that if I marketed to this tenant group, I could have continuous occupancy on six month leases.
For my market, I am already getting $800 to $950 for unfurnished rentals so it is not cost effective for me to furnish a unit just to put it on a six month lease for at most $200 more per month.
The cost of the furniture, the wear and tear, and the personal property taxes that apply in my locale are just not worth it in my opinion.
If I just look at the $200 increase in cash flow I could get for a furnished rental, then offset that with the cost of equipping a fully furnished unit, some allowance for wear and tear, more allowance for breakage and replacements, and then factor in my personal property tax liability, I just don’t see that this really increases my bottom line over the unfurnished rentals.
Your market may be different with such a wide spread between your net cash flow for a furnished rental and an unfurnished rental.
I am learning that what I’m doing might be area-specific. However, I still see furnished as a huge untapped market. At first, we had trouble getting medical contract workers because the hospital wasn’t interested in talking to us. But once we got that first worker, the word-of-mouth spread. We don’t do white walls and beige carpet. Although we decorate inexpensively, our places are unique, clean, charming. So the nurses are happy and extend their contracts. The agency is then willing to pay more. There is demand and we raise the rent.
Now I am learning to tap into travel websites to cover the Dec./Jan. slump.
Our software doesn’t track vacancy % but it is not much. We try to clean in 1-2 days. Each local market would have needs, you just have to find it.
For example, did you know that there are traveling morticians?!
Pathologists?! Wal-Mart manager trainees?! Army recruiting officers?!
I want to ask you investors–would you pay for a book or seminar on “How to Furnish Your Rentals and Double Cash Flow” or something similar? The interest has me excited, and I would love to talk about my business.
I want to ask you investors--would you pay for a book or seminar on "How to Furnish Your Rentals and Double Cash Flow" or something similar? The interest has me excited, and I would love to talk about my business.
I don’t go to expensive seminars, so that would be out for me. I would buy a book on that topic if I thought it would work in my area, but unfortunately I don’t. I talked with one of my fellow investers this morning who does furnished apartments in my area, and although he is getting higher rent than I do, he is definitely getting a lower cash flow per month than I can get with unfurnished apartments.
As I said, I also looked into this issue in the past with the idea of renting fully furnished apartments to special needs (handicapped) tenants that were being paid by the government and the numbers didn’t work there either.
However, it sounds like you’ve got a good thing going in your area!
Mike,
What do hotels go for in your area? Are there extended stay suites? That is the comparison, I think, rather than other owners’ furnished apartments. You need to charge just under the suites of nice hotels. I charge $1800/mo. for a 1-bedroom, $1500 for a studio. Suites here run $105/night. So we are at $50 or $60/night and not subject to lodging or gross receipts tax like the hotels, so you can undercut their rates.
There are people here too with furnished apartments, but they seem to rent to elderly men on social security, sort of more the old boarding house clientele.
I visited a nurse once in her furnished apartment supplied by her agency. It was so depressing I would have had to either kill myself or go on drugs in order to live there. The agency had just gone to k-Mart and bought the most inexpensive fibreboard furniture there was and of course it was falling apart soon after.
Having fun with this but gotta get back to renovating.
Sounds like you are more concerned about making money writing material than anything else. I know if I could get 3 or 4 times rent by furnishing apartments, the last thing I would waste my time with is writing a book to sell to newbies. Am I the only skeptic here??
I have been living and working long hours in a small town for 4 years. The nearest city with an investment club (I just checked) is 3 and 1/2 hours away by car).
I have just started using this computer for talking to people about business. It can be very isolating when there is no one who is even a little bit interested or to whom it wouldn’t seem like bragging if I wanted to talk about business. In fact I am just learning the computer for something other than Google.
So this has been fun and exciting and I have played a little hooky in being on the computer. But now I have good office staff and hey, I am the boss. So everything is functioning without much input from me today.
I don’t really want to get rich from newbie’s (real estate novices?) but I am just excited to find people who speak my language! I thought it would be fun to be in a room full of smart, motivated people who were interested in my little niche. I am so surprised that no one is doing what I do?!
You have now taught me that maybe I should be a little scared that this is a “bubble rental market”. I better have a plan for leaner times.
So just the fact that people are sceptical says a lot about other economies.
When I started this business I didn’t know it couldn’t be done so I did it. I had an initial goal of $1,000/rent per day and it seemed impossible.
But now I have good office staff and hey, I am the boss.
Do you have an office staff for only 45 rentals or do you have another business? I can’t imagine what an office staff would have to do unless you had a LOT more rentals or maybe another business.
Yes, there is office staff of a full-time bookkeeper and a 30 hr/week front office person. Please cleaning and maintenance.
Think 45-unit hotel. They would have lots more staff. The service level on furnished is huge, compared to unfurnished where you maybe see a tenant once a month to collect their rent.
We just had 5 people come in because they pay every 2 weeks by credit card.
One tenant checked in, and two tenants checked out.
Two studios were cleaned. We all weeded a little yard for 5 minutes.
1 kitchen sink reported leaking. 1 knob broke on dryer. 1 shelf broke on refrigerator.
1 A/C unit reported not turning on.
1 Curtain rod falling down.
1 Vacuum cleaner not working.
2 agencies calling and e-mailing about future vacancies.
2 runs to the bank. 1 run to post office. Normal end-of-month day. This is why there is office overhead and staff.
Holy Moses! I have a significantly larger portfolio than that and don’t have a single employee. I do all the maintenance; all the management; all the paperwork, all the rehabbing; and it only takes me 12-16 hours each week! I can’t imagine how a staff could possibly stretch this into 30 hours a week for one employee, let alone a staff plus you!
Instead of thinking about furnished vs. unfurnished, maybe you should think about efficiency!
However, I do have office overhead, but mine’s has an extended cab.
Yep, we have studied our efficiency and that is why I would so like to talk to anyone who is doing what I do. I feel maxed out at present house load and staff. We can’t grow right now.
Comparing your large number of unfurnished to this little stable of furnished is apples to oranges.
The phones begin ringing @ 8, sometimes sooner. There is a lot of communication with agencies placing their employees–sometimes the employees change several times before move-in. Today there is a 3-bedroom house to be cleaned. Cleaning a furnished house is way different than running a vacuum over a bunch of carpet in a vacant house. Think of cleaning your own home so that every room is immaculate for guests.
Plus I am renovating 5 units. Today I get to watch a foundation being jacked up, a first.
But we are totally full, with a waiting list and making good profits. I have thought of adding some unfurnished units to the business but the thought of evictions and bad tenant problems turns me off.
Mike,
I have a feeling you’re going to scream," What! Are you nuts?!"
Just got our March figures. Payroll wages and contract labor is 15% of expenses. Mortgages cost is about 8%. Credit card fees 4% of expenses, utilities 13%, leases 30%. Those are the big ones.
Paid off a lot of construction rehab from revenue (rents). But profit came out @ 19.5% of actual rent anyway. So I evaluated it as a good month. Renovation proceeded, debt got paid down, we paid some extra on principal, paid off Home Depot card, we’re 100% full and I ate.
Doesn’t this need a hotel yardstick rather than unfurnished rentals? I have no real way to evaluate it other than my gut.
Yes, it might be more like an extended stay hotel than a typical rental property business. In my opinion, that is not because the units are furnished, but rather because of the clients your are targeting. Unfortunately, I don’t know anything
I was more interested in what the employees actually do, what their tasks are.