Furnished Rentals Business Model for those Interested

General Real Estate Investing
21

Justin,
You have hit upon the burning question! Now there are 2 extended stay hotels in town, but they are pricey @ $100+ a night. Three more suite hotels are being built, so others are recognizing the need for more hotel and extended housing here. Competition is here already, and more is coming. Prices will get more competitive.

Surely it will impact business. The plan is to continue to advertise where we have an advantage: kids and dogs. Dogs ARE kids. This model is really apparent at PetCo, the nation-wide pet supply store. People are invited to go shopping WITH their dogs (kids). If doggie wags his tail at a bin of biscuits, those biscuits get purchased. Whatever doggie wants, doggie gets.

We have added more and more pet yards. It is possible to have a great small dog yard in the few feet of set-back between a building and the property line. If a potential long-term tenant requests a pet-door, we install one in the back or kitchen door, usually at our expense.

A typical tenant call might be: “I’m extending my work contract. The job is okay, and Gypsy really loves the yard here.” Dogs are money. Dogs are children. Take care of the dogs and their owners will be happy. They will pay.

Hotels now in this town charge $5.00/day, per dog, I have heard. And they don’t have private fenced yards.

We also cater to kids. A re-locating or temporary executive is not going to be happy in a hotel studio. A 2-bedroom house will work great, though, with a yard, kids’ room with TV, washer and dryer. We can compete there. We also supply cribs, changing tables, and high chairs.

It is our experience that if we can beat the prices of the BEST HOTELS we have a market. We are higher than the most budget, fleabag hotels. They are at the $169/week rate. Professionals, single women, and middle-class folk won’t stay at the fleabag motels for more than a night. An angry, poorly-sleeping manager or executive will ask his company to be moved.

So if a street full of budget, new, studio suite hotels get built we will also focus on our uniqueness and quaintness. No white walls and beige carpets here. Every cottage and unit has a different theme or decor. This is because most furniture, rugs, pictures were not purchased in bulk. Just collected and then used. Charm sells. We decorate according to furniture on hand, but also in tune with the architecture of the building.

I just checked a nurse into our “Enchanted Cottage”. Yes, a cutesy name, but it is covered in trumpet vines and flowers (it grows here like weeds) and we couldn’t think of another name for it. The nurse: “This is incredible, it is so cute and it has everything! I’m going to send my boyfriend the cell phone pictures! He’s got to come out here!”

She especially liked the retro toaster-radio. You can make breakfast toast while you listen to the news on the same appliance. It is wacky, but works. I saw them at $19.95 at BigLots, a discount store. I bought out their entire inventory. Give tenants something to call home about.

We do get agencies calling us–“We have a nurse who wants to stay with you, what do you have available?” So word-of-mouth is something that can fill units. Also maintaining a high standard of service and cleanliness locally.

We have enough slack in most units to drop our prices even more. Currently we are renting out a usually $2100/month home at $900 for a couple of months. July is a LOW OCCUPANCY month, so if someone can only afford $900, just get it rented. So another recourse is flexibility in pricing. We have cut staff from about 6 to 3, plus temps. Coping by staffing cuts.

We have cut our number of leased homes, that we sub-lease, in half.

The bottom-line coping mechanism will be pulling furniture out of under-rented units and renting them out unfurnished. Every house was purchased with that “worst-possible scenario” in mind. They will all work great as regular, unfurnished rentals. They will make money, just way less. But also there would be less work…hmm.

Furnishedowner

22

Furnished,

You are absolutely right about kids and dogs. I have three children and three dogs. What type of restaurants do you think we frequent? That’s right we go to the places that my kids like, and that treat them well. Not stick us in some back corner and ignore us.

When we travel we have to weigh our options for dog care as well. For example, this week we are sending my oldest son to an elite QB camp. Because of the distance from our home my wife is taking him there and staying overnight in a hotel for the nights that he is at camp because it is not cost effective or time effective for her to drop him off drive home and then go back and get him a few days later. We checked all over the area looking for a hotel that was dog friendly but we had no luck. Because of this I ended up staying at home this week because of the cost of dog care. It would have cost us $364 for the week of dog care (we use an in-home dog sitter) in addition to the cost of the travel plus hotel plus food and all the other things that she is going to do with the other children while our oldest is at camp.

So it sounds like you are staying ahead of the game in your business which is what you need to do to stay competitive in this market.

23

Realtors and Property Managers can be a great source of referrals for your furnished units.

I recommend getting acquainted with the Property Management Companies around you that cater to the same level of tenant that you want to attract. Get business cards from them. Give them your cards.

Those Property Managers don’t WANT to bother with furnished. They will send you their prospective tenants who need shorter-term furnished rentals. You can send them the people who need a regular rental home.

Realtors may be resistant to being approached at first–they are busy, and they’ll be wondering, “What’s in it for me?” You will need to give them nice, colored flyers of available homes to pass on to their home buyers and sellers who suddenly might need housing. You will need to explain that you can HELP them make sales.

It happens that a home is put on the market, and SURPRISE!, a buyer wants it, and wants it now. What’s the seller to do? They haven’t found their new home yet! They don’t want to lose this rare buyer!

Now the real estate agent can recommend that they just put their furniture in a storage unit for a month or two, and go stay in your furnished rental. This takes the pressure off the seller, and he is then in the driver’s seat as far as getting a good deal.

This plan works especially well if the seller is planning to build a new home, but needs the money from the sale in order to do that. We especially like home builders here; construction takes a long time and though the tenant will say,“I need it for THREE MONTHS”, we just smile, nod, and reply, “You can extend for as long as you need.”

Our experience has shown that three months=seven months in the building or renovating timeline.

Realtors also refer home buyers to us. Let’s say that a manager is transferred here. Frequently the previous home in his old state must be sold. A furnished rental home is a great interim move, until the old home sells, and the furniture is shipped to the new home. The Realtor can coordinate a home purchase in this fashion. The home buyer is also not pushed to make a wrong decision because he is staying in a hotel. Usually the company will pay for the interim furnished housing.

Here, in the Sunbelt, we also get retirees who who are shopping for their retirement home. We have housed a number of couples who want to sample the local weather, golf courses, restaurants and local attractions for some weeks prior to committing to a permanent move.

Once we got a phone call from San Francisco: “I’m a retiring pharmacist and I’ve researched the whole U.S. I’ve decided that I’m moving to YOUR town to retire. I can’t afford to retire in San Francisco. Please pick me up at the bus station at 10 PM next Wednesday. Oh, I’ll need a place to stay! Until I can buy a house.”

What a gutsy single retiree! To move without visiting first! To take the bus cross-country for 2 days with all his stuff! To do it all alone!

We did pick him up at the bus station, and transported him to our lowest-cost unit. Then he needed to buy groceries. Fortunately, there was a convenience store within walking distance. The next day, we worried about our lil 'ol eccentric pharmacist not driving. He hadn’t needed to drive in San Francisco, but this wasn’t San Francisco. We couldn’t be chauffering him to the supermarket. He was going to need to drive.

We called the local Toyota dealer and explained the problem. A new-car salesman was real happy to come by and pick up the retiree for a free test-drive. The helpful new-car salesman gave driving lessons in a big parking lot. The retired pharmacist regained his former driving skills and bought a new car. We were off the hook for his shopping trips.

Within a month our old guy then bought a brand new house and moved out of our unit. I see him every now and then driving slowly by downtown. That was a retiree who knew how to make a decision.

If there are Property Management firms and Realtors’ offices in your town, you have those as great sources of referrals for furnished rental units. Retirees also need a place to stay while they make their relocation decisions.

Furnishedowner

24

christopher w,
I just got off the phone with a gentleman in Wyoming. He has been hired here as a new county official.

Nice guy, starting work here in a week. With THREE DOGS, small, medium, and large. I described the house we have coming up: the grassy back yard, the shade trees, the dog house. I said it was fine for the dogs to all be inside, too, as the carpet was old, and we have regular carpet cleaning. No problem.

Do we have a tenant? You bet. He couldn’t wait to send the holding deposit. “It’s a little out of my price range,” he mused, “but I’ll take it. I have no choice.”

I agree with you that if a market is competitive, like it is now, DO EVERYTHING for the customer. Never turn someone away because they have a dog. Or dogs.

This brings to mind a new business idea…a string of “Doggy Hotels”. Every unit has a patio/dog yard, with a separate large communal doggy play yard. So the dogs can make friends! Pooper-scoopers and bags are provided. As are the complimentary check-in Dog Biscuits. Of course, other guests can stay there too. But the marketing focus is on “The Happy Dog Traveler”. Don’t you think this is a winner? Especially with the demographics of umpteen million baby-boomers retiring and traveling with their Bowsers? Now I just need some funding…

Furnishedowner

25

Here in Dallas we have doggie day care centers. Can you believe that? People that don’t want to cage their dogs are now paying for day care. I love my dogs, but two of them (chihuahuas) stay in a cage and our golden runs around the house while my wife and I are at work. Our kids let them out when they get home from school.

Let me give you another example. Last year we went on a vacation and we took the small dogs with us. We left the Golden at a doggy spa for five days. The spa had a large sitting room with LEATHER FURNITURE and a big 60" flat screen TV that was on animal planet all day. The dogs could lay all over the furniture. No cages at night just big cement rooms with a doggy bed in each one. The sitting room had several large doggy doors that led out to a huge yard with a pond that the dogs could swim in at their leisure. It was hilarious, but the thing that I noticed when I dropped her off and picked her up was that the place was FULL. It took me forever to get my dog to stop wanting to get on the furniture after I picked her up. before yopu copuld board there you had to bring your dog in for an appt. to meet the owners and their animals. They walked my dog in and let her hang out with the dogs that were currently visiting while I filled out the paperwork and submitted her vaccination forms.

Trust me on this. If you cater to pet owners you will have no shortage of tenants. People LOVE their animals. Look at how the american public has turned on Michael Vick. You can mess with a lot of things, but don’t get caught messing with animals or you will never live it down.

26

Would the Furnished Rentals business model work for you?

In my opinion, the most important attribute to having successful furnished rentals is the owner’s mindset. Most areas will have people who need furnished homes for at least a month or more. There will be a market; it just has to be found.

The ideal owner should be an optimist: “Build it and they will come.”

It takes a leap of faith to spend money on appliances, furniture and furnishings for that first unit. Not to mention having all utilities including high-speed internet up and running.

I would start with doing some basic research on the area. That is what I did five years ago before I committed to my plan. I visited with the Chamber of Commerce, the Visitors’ Bureau, and the Hispano Chamber of Commerce. I read the local newspaper diligently, especially noting building plans and new companies coming. The County Development director was positive: “We are getting inquiries from businesses who want to relocate here weekly. They often ask if there is some kind of furnished temporary housing available.”

I visited a couple of banks about opening a checking account. The bankers there were happy to welcome a newcomer and answer a few questions: “How is business? What’s going on in town? What do you see in the way of growth here?” Bankers DO have special knowledge. They will know about local growth, stagnation, or crashes before anyone else. It’ll be the status of THEIR loans that cue them. Talk to bankers (not the tellers) anytime you get the chance.

I spent a lot of time on-line at the US Census Bureau website getting demographic and income information. There is an amazing amount of information available there. Read and compare from the previous census and you get a feeling as to where the area is going.

That is what big corporations do before they commit their money to an area. Here in my town, I saw that Wal-Mart had just upgraded from a smallish building to a 24-hour Big Box Store with an automotive service center, shops, a McDonald’s, and grocery store included. I knew that Wal-Mart would not make that kind of money commitment if the town were dying.

I saw a Home Depot had just gone in. I noted some restaurant chains, like Chili’s, opening. I knew that those companies had also done marketing studies. I had a lot of trust that they had positive numbers on their marketing studies. They were investing way more than I was.

I stopped by the police station and picked up their crime statistics, which are broken down into sectors of the city. Now I knew which areas had the most crime reports. Now I could avoid those streets when buying houses. Furnished rentals don’t work well in iffy areas. Newcomers are already nervous about new places; don’t invest where it looks unsafe.

I called a number of Realtors asking about homes for sale, market rents, where to buy or not buy. A word of warning about Realtor information–many Realtors work in small, specific areas, their “Farm”. That’s the wrong kind of agent to listen to. Except that they WILL be experts on that particular area. It’s better to have an active, FULL-TIME Realtor who dabbles in everything, single family homes to commercial, all over town. You’ll get the most comprehensive info from them.

If you already have some rental property, you’ll already know some of your area’s information. Another reason why it’s important to KNOW YOUR AREA is that most furnished rental tenants will be from out of town. You will need to sell them on staying with you, rather than the safety of the Marriott or Holiday Inn.

These are questions I’ve been asked by prospective executive tenants: “Why does this street look so poor?”

“The median family income here was $28,000 in the last census. Wages are much lower here. Therefore, there is more opportunity for profit if you DO move your business here. This IS a middle-class area, but I am seeing a lot of improvement and growth.”

“Is this a safe area?”

“The crime statistics for this area is good, compared to the Southern and Eastern parts of the city. Most crime here is petty burglary, not violent crime. If we are concerned about an area, we will put in a burglar alarm. You’ll note this unit has no alarm. But always lock your doors and your car, that’s just a good practice.”

Learn all you can about your area. Some information will surprise you. This information will help you make good decisions, whether it’s about furnished rentals or unfurnished. You will need to know what is happening in your town.

Furnishedowner

27

What are the first steps in having a furnished rental unit?

  1. Recognize a market need.

  2. Take steps to fill it.

How do you know if there is a need? You need to do research on your local hotels. Get out your phone book and a big pad of paper. Pretend that Aunt Sally is coming for a month. She has her little poodle dog with her too.

Start calling. Ask for the daily rate, weekly, monthly. What are the lodging and gross receipts and other local taxes charged? Make a chart with all these numbers. Now compare.

More to follow–customer in the office.
Furnishedowner

28

If you are in an area that has an over-supply of Hotel Suites, Extended Stay Hotels, or other long term housing, maybe the furnished rental plan won’t work there.

Or maybe it will. Don’t forget those kids and dogs. Always ask your tenants–why are you in town? Why are you needing housing? Learn about company expansions, new plants, or expanding government agencies directly from your prospective tenants.

Remember, if construction is taking place, HOUSING IS NEEDED. Where is that out-of-town construction supervisor sleeping tonight? And the temporary pipe-fitting crew? Your future tenants are all around you.

Maybe now you have decided to try to make a furnished rental unit. The location is important. When people come in from out of town, they don’t have any knowledge of the local area. They will rely on what they see, and their gut feeling.

They won’t want to take chances on an iffy area. In my opinion, the ideal furnished rental unit is on a nice, long-established downtown street that has sidewalks and big trees. The houses may be older, but they are well-kept. Dogs are being walked. Kids are riding tricycles. People are driving to the market. It is homey.

These ideal units are maybe a duplex, guest cottage or triplex. I haven’t tried an entire apartment building yet. That could work, but it would need to be in an upper-middle income area, or a resort area.

Another great way to start is to furnish a guest unit or duplex unit next door to your own home. Now you have great control and convenience in renovating and renting.

Furnishing and outfitting a furnished rental unit is way different than flipping a house, renovating for profit and resale or even renting unfurnished.

  1. Most important–nice, middle-class area. Convenient to stores and Main Street.
  2. Good basic little house. Here is a list of things that people like (and will pay for):

a bedroom with a door that shuts (working couples may have different sleep schedules)
a King-size bed if it can be squeezed in, otherwise Queen
good mattresses, pillows and linens
a TV in the bedroom AND the living room, preferably one flat-screen
lots of HD TV channels, including HBO, a DVR
full bathroom with tub and shower
a recliner
a desk with wireless high-speed internet set up and ready to go
a fenced yard for the dog
all utilities included in the monthly rent
washer and dryer (private in-unit preferred, but shared may be okay)
a fully-furnished kitchen (dishwasher nice, but not necessary)
Privacy and yard furniture
central air-conditioning and heating
cleanliness, charm, and good functionability
sleeper sofa for guests
a garage or carport is great, but not mandatory
can pay with all credit cards, including AM EXPRESS.

I have just described the ideal, money-making, $1800/month (or $1200, or $1500 depending on season and demand) furnished 1-bedroom rental unit.

It has taken five years and hundreds of check-ins to come up with this list. It is what people want and need. You can eliminate 1 or 2 items, but this is the list to strive for.

Now notice that I have NOT said anything about size! This unit can be small, even tiny. It just needs most of the above. I have NOT said anything about granite counters or stainless steel appliances! The old speckled white formica is okay, if clean. Ancient appliances, even gold, almond, or avocado are okay, if they work well and aren’t rusted.

I have had tenants say, “Shag carpeting! And a gold dryer! Harry, will you just look at this, it’s just like when I was a kid!”

That is why I love this business. The cost of renovating doesn’t need to be huge. Your tenants won’t mind spending weeks or months in a vintage, renovated unit. It is not their permanent home.

Sort of the same mindset when you check into a motel when traveling–it’s maybe not your taste. But if it’s clean and comfortable, you will stay.

And you will pay.

Furnishedowner

29

You need to determine your own prices for YOUR area. If you are in Washington, DC, the metro New York area or any other big city prices may be a lot higher. You can come up with an estimated furnished rental value by evaluating the following:

  1. The government per diem rate for the current season in your county
  2. Local hotel and hotel extended suites rates
  3. Local unfurnished rates (you will probably be 2-3 times unfurnished)
  4. Crunching all the numbers on your unit, just like any other rental.

Start with a high vacancy rate of 25%
What is your mortgage, taxes, insurance?
What is the cost of utilities–gas, water, electric, trash, cable/dish TV, wireless high-speed internet, telephone?
Estimate cleaning costs. Minimal cleaning time on a 1-bedroom unit for 1 cleaner is 4 hours. Use 8 hours.
Figure maintenance costs and replacement costs. Maintenance will be higher than an unfurnished unit, since you are maintaining furniture, curtains, carpets and linens and dishes.
Replacement costs–Use $100/month. This should cover replacing the mattress in 5-8 years, linens, furniture, towels, carpets.
Yard care cost and cost of office charges must also be figured. Office charges will be computer, web site, telephone, advertising, fax, office site or your home office and the cost of your time or office staff.

This is all pretty daunting. But the big rent checks are nice when they come. You CAN get the maximum amount of rent with furnished… but the expenses are also high. Do your numbers and see if it can work for you.

Someday I will]try to come up with a rule, similar to the 50% rule, to try to evaluate the financial benefit of furnishing. I have looked at my business profit and loss numbers per unit, but they are all over the map. Lots of repairs are figured in and this skews the numbers in different months. This is not a task to be done quickly.

Furnishedowner

Furnishedowner

30

I was just speaking to an acquaintance who might get a job transfer to Washington DC. He started doing research on Washington housing for a temporary job assignment.

So he can rent a furnished studio apartment for $2,250/month, $2,330 if you pay by credit card. The rates are based on a minimum 12-month lease. I am assuming you could pay more per month if the stay is shorter.

There are a couple of units available, 460 and 500 square feet. Included with the rent are furnishings, housewares, utilities, local telephone and expanded cable with one 25" TV.

High speed internet is an additional charge of $45-$65/month. Parking is an additional $150-$190/month. Cats are allowed, but require a one-time $250 pet fee. $100 final cleaning fee is withheld from the $400 deposit.

This is a lot of money for a furnished studio! Ours here typically rent for $1200/month. We do not charge extra for parking, high-speed internet or cleaning. Our pet deposits are fully refundable. Our TV’s are getting larger all the time, we just replaced an old 25" with a new flat-screen 32". I like flat-screens because they make a samll unit look a lot bigger.

So for you metropolitan dwellers, that is what a furnished studio apartment could pull in. How about refinishing that unused attic or basement space? How about converting that garage? Upgrading that under-used guest space?

Or put in a privacy door in the hallway and rent out your unused bedroom. Change out a bedroom window for a new French door so there is a private entrance. If there is a housing shortage in your area, with high prices, see how you can bring some of that rent money home to you.

A furnished rental tenant is almost always a nice, hard-working person whom you wouldn’t mind living next door to. A guest.

We are noticing here that companies and individuals who work in town for short periods are still interested in monthly rentals.

I had a call this morning from an ER doc. He works on 2-week assignments at a local hospital, and then goes home for 2 weeks. But he is renting a monthly studio. His housing costs will be the same or less and he won’t have to check in and out of a hotel. He can hang his clothes in the closet and live like a normal human being.

A big part of success in the furnished rental business is to KNOW YOUR LOCAL MARKET. You can raise and lower your prices in tandem with local demand and hotel occupancy. You can be flexible. You can keep the rent money flowing.

Furnishedowner

31

What about local laws regulating hotels. How do you get around them?

32

We don’t get around local laws. We are not subject to them.

We are not a hotel. We rent for 30 DAYS OR MORE. This keeps us in the same category as any other unfurnished rental. It’s the magic 30-day or more rule–“Rentals of 30 days or more are not subject to gross receipts tax.” That is the state opinion and the city’s as well.

Our local municipality has told us we are not subject to hotel tax as well (currently about 6.75%) because we rent out long and not short-term. “Nightly rentals isn’t your normal business, is it?” The city official asked us. We are located in a small city (50,000) and everyone knows everyone else’s business. Of course we have to comply with local tax ordinances.

Better check with YOUR city and state: “Do we have to pay any special taxes if we rent out FURNISHED homes for 30 days or more?”

We have a business license, annually renewed, from the city. This is because we have an office where tenants can come, although there is little daily foot traffic. Many tenants we see only on check-in and check-out. Their rent checks come in the mail, or with FedEx or UPS.

Learning HOW to do business has been hard-won. There are no manuals on the business aspects of furnished rental homes.

In the beginning I rented to anyone, for as many or few days as they needed. I only had a few units, so it was no big deal. As the business grew I tried to figure out local, state and real estate laws. Laws that I had no idea about. And how to comply with labor and tax laws.

I just knew in the beginning that I wasn’t going to be happy with the paltry rents that I learned were the local norm. I wanted more after the hard work and cost of renovating that first scrappy, little stucco cottage.

Those early days of renting occasionally to vacationers, hunters, visitors later got us in trouble with the state taxing authorities. We ended up paying gross receipts (sales) tax for any stays of less than 30 days, even back to the very beginning! We agreed that we owed some short-term tax, and paid. That audit is still on-going, however, as we disputed some of their other rulings and hired an attorney to represent us.

As we got bigger, we visited again with the city official that collects hotel tax. “Are we subject to the hotel tax if a tenant checks in for 30 days and then leaves early?” we asked.

“Since your business isn’t a hotel, and that is not your usual method of doing business, you are not subject,” was the answer.

After I furnished the first unit, and then the first duplex I found that there WAS a market for those furnished units. The rents were triple market rents for unfurnished. “This is what I want to do”, I thought to myself, “Now HOW are we going to do it?” I didn’t really have a clue. I just wanted to continue getting more units as long as there was demand.

Business questions then got answered by the onward crush of doing business.

The first customer that HAD to pay with a business credit card forced me to visit local banks to figure out how to do it.

The downtown banker said, “Alright, here’s your credit card machine. Now you need to join the Chamber of Commerce. That’s where you can meet those good ol’ boys who might need to put up workers.”

So I went to the next chamber meeting, held on the patio of a downtown historic home. “Not bad,” I said to myself, looking around, as I strolled in, all spruced up in clean pants. “Margaritas! Little chile rellenos! Salsa! This beats scrubbing bathroom tile!”

At that Chamber of Commerce meeting I chatted, margarita in hand, with a young attorney. “I need to find out if there is any violation of real estate law by renting out furnished houses,” I told him.

We had a meeting in that attorney’s office a few days later. “I have researched this with the State Department of Real Estate,” my new young attorney said.

“You are doing business like any other mom-and-pop owner of rental houses. The real estate commissioner feels that furnished should be no different than unfurnished. Of course, you need to use the written lease and rental forms just like for regular rentals.”

Now five plus years after starting this business, we carry on with our 30 days or more rule. No longer do we house visiting dignataries, summer festival visitors, seasonal hunters. No week-enders, no out-of-town wedding guests, no family reunions. We only do 30-day or more tenancies.

And life is easier because of this. We know where we stand.

Furnishedowner

33

I imagine that a major cost of yours must be vacancy. How quickly do you turn around these units?

34

A major cost is vacancy. We started tracking vacancy/occupancy rates this year.

It has to be done semi-manually, as we couldn’t find a program for this. So someone has to physically open the manila property file, say on the “Riverside Ave.” house. Then computer-input that it was occupied last month from the 1st through the 13th, as a tenant’s 6-month stay ended. Then it was vacant (cleaning) on the 14th and 15th. The new tenant’s rental agreement and occupancy began the 16th. That would be a typical scenario. That would give 93% occupancy for Riverside for that month.

People rarely arrive on the 1st, or check out on the 31st. They are in and out every single day of the month, similar to a hotel.

Occupancy Rates this year have been:
Jan 91%
Feb 91%
Mar 74%
Apr 92%
May 89%
Jun 85%
July 90%

Overall we have been at 88%. We fell right off the chart in March 2009. Remember how suddenly bad the economy was then? People were afraid to move, start anything new, or expand jobs. It was static. It was scary. Then by April the nation appeared to get used to the bad news, and moved on. The National economy affected us locally here too.

The usual July slump didn’t hit this year. We prepared for it. We discounted and pre-booked units. We massaged tenants. We will now do this every year since it really mitigated July, the vacation month when normally people leave their furnished rentals and go home to vacation prior to starting new job schedules.

From talking to local hotel owners I believe our furnished occupancy rates are good. They are rates that would make the hotel owner smile and book his Hawaii vacation.

How quickly do we turn around units? A studio or 1-bedroom can be cleaned and re-rented in about half a day. A big house can take as much as 3 days, if everything, including carpet cleaning, needs doing.

Fast turn-around is critical if there is high demand. We will pull everyone out of the office and post a “Back Soon” sign if a unit needs cleaning and the new tenant is waiting in a hotel. Hotel check-out times are 11 AM to 1 PM. We try to get that next night’s rent, not the hotel.

If you throw in 3-4 fast-working people into a unit, it can get turned around in a couple of hours. We keep extra linens in stock for quick turn-arounds. We have a back-up list of available cleaners. We have people who will clean on Saturdays and Sundays. The motto is “GIT 'ER DONE!”

All of the cleaners and workers know that No Rent=No Paycheck. We all are aware in our guts of the vacant units.

There is a lot of variability in how clean units are left. “The place is totally clean,” will say one tenant. But by that they mean that they took out the trash, and wiped the counter and refrigerator out with a dirty rag. We ignore what the tenants tell us on cleanliness!

If a unit was rented out for months, it will usually take longer to clean than if it was occupied for only one month.

Considering that a single smaller unit can be rented out several times a year and have multiple times of vacancy, I think our rates are as good as is possible with furnished units.

Try for a vacancy rate of 10%, an occupancy rate of 90%. But plan for occupancy of only 75%. Then you will always be able to handle expenses. Prepare for the worst, but strive for the best.

Furnishedowner

35

Do you find that any particular kind of property is most popular?

In my city, there were a lot of condos built near the airport just before the real estate bust. Prices have fallen a lot on them. I wonder, however, if investors have not already bought up a lot of these and used them for exactly this.

What tools do you suggest for finding out if the market on furnished rentals in my city may be saturated?

36

I’m in a very large city – a google search reveals that there are a great multitude of furnished rental companies here, which own multiple units in the top luxury condo buildings downtown.

I guess an entrant would have to first focus on smaller companies or lone travelers.

37

Derek,

Pretend that you are being transferred to your exact city for 3 months training.

Now go to the newspaper and the computer and start looking for temporary housing. Start calling hotels. Call those temporary housing offices. Write down the numbers–rent, deposit, lease terms.

What about your dog, Bowzer? What is the cost to bring him? Or your cat, Mittens?

I would be very interested to learn the vacancy rates, prices, and amenities of your city. Once you have all that information, you will be able to make a decision regarding those condos.

Furnishedowner

38

Furnished, in what area are your rentals? Sounds like the Gulf Coast.

Is this type of business model something you could incorporate as a small part of your total business? (ie Is this something that could be profitable/worth it if you only had a few of these types of rentals?)

I am near Huntsville, TX which has a fairly large university (short term profs, etc), hospital, prison, and many of other potential tenant pools and these posts already have my mind racing!

39

ethomson,

I am in SE New Mexico.

You could definitely use this business model as part of a larger rental operation. In fact, I am thinking of maybe expanding to regular rentals as well. We have 3 furnished units, as we bought the properties with tenants in them. I have raised the rents, but they don’t move. They are low-maintenance tenants, almost no work at all.

A dual business plan would give a whole lot more flexibility–if tenants get unhappy about an area, pull the furniture out, go unfurnished. If the property is the other half of your home duplex, go furnished. If demand is there, furnish! If demand drops, you go unfurnished.

Here are some advantages of furnished that I have learned just from doing it:

  1. No local riff-raff! Your tenants usually have NO local friends, and thus no visitors.
  2. No junk. The tenants are temporary, so they don’t store big toys, boxes, junk, extra cars outside their rental unit.
  3. They are quiet. We have NEVER yet had a party or noise complaint on our worker-bee tenants.
  4. They are pretty nice folks. In professional, managerial, government positions. They are just like you or me. You can relate to your tenants.
  5. They pay the rent. Or their employers do. The UPS and FedEx trucks come by our office with rent checks all the time, we are on their speed runs. In five years we have had about 3 rent-skips. Three tenants who left without notice, and owing a couple of weeks of rent. That’s from a list of hundreds of tenants.
  6. They don’t cause a lot of wear-and-tear. They go to work. The single ones often leave saying, “The stove is clean. I never cooked!” If there is a family, the wife will be home taking good care of the house.

If you are near those short-term tenant pools–universities, hospitals, and yes, prisons–you should test the market.

Your higher furnished rents may cover some of your unfurnished costs and make your properties more profitable. And it is not difficult to do…here’s how:

  1. Turn on all the utilities
  2. Put in furniture, dishes, linens
  3. Advertise and rent.

Good Luck.
Furnishedowner

40

An error from the previous post–I was writing about 3 UNfurnished units. Presently there are about 40 furnished.

So how do you make a furnished unit?

First, start by just sitting and looking at your unit. I am going to presume that this is a studio or small 1-bedroom. It takes more thought and planning to do a small unit. You don’t have problems with furniture placement in a standard 2-bedroom apartment, you just carry it in the door and drop it. But the small units are your biggest money-makers! Don’t let a really small unit stop you from moving forward.

My first unit was the “Lea Bunkhouse”. I had just been to the closing of my 3-bedroom, newly purchased home 2 blocks from the school my kids were attending. The school location had decided this purchase.
The kids could walk home in 5 minutes!

I was not in love with the 1920’s-era bungalow, but the location, the seller-carry-back loan, and the free back-yard cottage clinched this real estate purchase for our family.

In the backyard was a boarded-up little wood-and-stucco cottage with 2 porches. This house was completely FREE, as the sellers and real estate people figured it to have no more value than a dog house. No one had even bothered to measure it. It had been used for storage for the previous 30 years.

But for me it was everything. My heart rate had gone up the moment I saw it. I couldn’t wait to get a crowbar and pry the plywood off the windows! To see the inside with light coming in!

There it was-- a 3-room, really small, cottage, maybe just 400 square feet, with plain wood floors, lath-and-plaster walls, and a nice coved ceiling in the kitchen. Bathroom with a old-fashioned sink and shower like in a 1930’s motel. Living/bedroom area with just enough room for a double-bed, a dresser, a desk and a chair. A built-in bookshelf. A tiny wooden closet in one corner. A kitchen with a defunct water heater and a huge cast iron ceramic sink.

The sun slanted through the cobwebs in the newly uncovered windows. It was bright, even through the decades of grime on the window glass. Dust was inches-thick, and it smelled like an old person’s attic. Charming! I thought. A ton of potential! I am going to fix this up and rent it out! I can’t wait to start!

I had learned from the Realtor that these little “guest cottages” behind many houses in the Historic District had been built to house World War II officers from the local airbase. The airbase closed under 1960’s cutbacks, and the cottages had languished ever since, many of them boarded up.

They were sometimes rented out to young singles, or seniors for $300-$400 a month. But many stood derelict, just junk repositories.

Inside the cottage were old cardboard suitcases, broken lamps, and a couple of vintage 1940’s cowboy framed prints of paintings.

There was the picture of the rider letting his horse drink in a lake, in roseate sepia tones. There was the cowboy roping the wayward calf, while the distraught cow mother bawled in the distance behind the fence. The pictured cowboys were in the high-waisted jeans and neck bandanas of the Gene Autry and Roy Rogers era. They were wonderful and collectible pictures.

And just like that, those paintings ended up as the “theme” for that cottage. That rustic cabin. With old faux-grain wavy wall-board, 5-panelled wood doors, front and back porches. The cabin became the “bunkhouse”. It evolved into what it should become.

So if you have an old cottage, let it tell you what to do. Don’t make a silk purse out of a sow’s ear! Don’t put modern furniture and decor into a vintage place. It doesn’t go. It will look wrong and be wrong, even if no one can tell you why. It won’t feel right.

Would you put a mini-skirt and lipstick on an 85-year-old lady? Heck, no! Would that same lady look good in a garden full of flowers, wearing a dark dress with a lace collar? Absolutely.

That bunkhouse cottage now has a Ranch Oak desk and rocker. The TV sits on top of the vintage wood dresser. The walls are covered with–of course–genuine old-time cowboy pictures. There is a pair of deer horns mounted over the door. A black cowboy hat hangs up there. There is an Indian blanket for a bedspread. Leather rugs on the floor.

The new water heater was moved outside in its own little wooden house. A new stacking washer/dryer unit was put in that corner. A new 24" gas stove. A new faucet on that monster porcelain sink. A new refrigerator squeezed in. A hand-painted Mexican table with 2 rustic chairs. A wall plate rack maximized storage and looks great filled with old and usable Western crockery. Amber-colored lampshades cast warm glows.

Curtains were sewn from striped vintage-reproduction Wal-Mart shower curtains. They were put on black iron rings so they open easily.

Most importantly, the fence around the yard was finished and dog-proofed. There are trees, bushes, yard furniture and a barbeque grill. There is charm and privacy.

The reaction is either, “It’s so small! But it’s so cute! I’ll take it!” or “It’s charming, I like it! But it’s too small for me.”

But I didn’t rebuild it. Didn’t add rooms. Just tried to maximize what there was. Spent the money on the “had to’s”. Like the new sewer piping, electrical upgrade, water heater closet, washer/dryer, frig., stove, TV.

It’s amazing how much you can save on rehab, if you DON’T tear it out. Clean it, wash it, wax it, caulk it, refinish it. Then spend time on care on decorating YOUR old lady of a unit. Try to put a picture in your mind of what you want. Decorate for your own taste and comfort. Rip out magazine pictures that appeal to you in your gut. Trust yourself.

If I can do it, anyone can. Before that cottage, I never knew that I had a single decorating gene. Now I have learned to go with what feels good to me.

That simple cottage is rented out today for $1200/ month. I have gotten as little as $900 and as much as $2100 a month for it. The $2100 was high, but it included dog-feeding for that particular tenant. That cottage has paid for itself many times over. It has financed the purchase of other units.

There can be a lot of rent in a small package. And it can be an amazingly fun journey getting to that first rent check.

Furnishedowner