Furnished Rentals Business Model for those Interested

General Real Estate Investing
41

Here is a preliminary financial analysis of a possible duplex purchase to use as two fully-furnished rentals. I am going to analyze this similar to the purchase of an unfurnished duplex, using the 50% rule. Let’s see if this would be a good idea. It is already furnished, and located next to 4 of my rental units, so the location is ideal.

Purchase Price=$70,000
Rents= $1350 ($45/day) for 1-bedroom
$1200 ($40/day) for studio
Total Rents=$2550/month

It will need an additional $5,000 to do landscaping, fence, patios and bring it up to our standards. So the total price financed is $75,000. I hope this will be @7% for 15 years, so $674/month principal and interest.

50% of gross rent for operating expenses=$1275/month.
This will cover utilities @ $486/month. This number: $243/month/unit is a very exact expense calculated from 6 months on the units next door. The largest part of that is TV/internet.
Taxes & Insurance=$76/month. Cleaning=$120/month (8 hours x $15/Hr.). Replacement of furnishings/supplies $100, repairs $100, yard $50. This now totals $932. This leaves $343 for vacancy which is running 10% or a possible $255/month, and also for office overhead.

$88/month is not really enough for office overhead. But the other overhead expenses of vacancy, cleaning, repair, replacement, yards is already expensed. So $1086/year for office expenses on these 2 units at the minimal rent is probably okay.

The remaining 50% of gross rent is $1275.
Mortgage payment= $674 Principal and interest for 15 years @ 7% fixed.
Profit=1/2 gross monthly rents minus mortgage payment.
Profit=$1275 - 674= $601/month.

Do I want to do all the work involved for $300/month/unit? Yes, that feels right. I sure wouldn’t want to do all those check-ins and check-outs for $100/month. Field all those phone calls, negotiate with all those agencies.

The market rent here for a nice enough unfurnished 1-bedroom is at least $500/month. I may be able to get $1500 later when that unit is improved with a better yard and some interior decorating upgrades.
$400 is market here for an unfurnished studio, and all our other furnished studios rent for $1200/month.

So a potential higher rental value makes this attractive. Also mortgage principal will be paid down at a pretty fast rate. It may even be doable if the bank will only go 10 years.

Would the numbers look good if it had to go unfurnished? No, repairs and maintenance would probably put these units into the negative. You do get the maximum amount of rent possible by furnishing your units.

Furnishedowner

42

It’s time for another post on a subject important to a rental owner, furnished or unfurnished.

You must consider the tenant’s PRIVACY when you want to get maximum rent dollars. This is true for ANY rental.

Always mentally put yourself in that unit. Are the windows bare? Put up miniblinds! They are inexpensive, only a few dollars each.

When I was a beginning renter, a prospective rental house with no curtains scared me. I didn’t know how to do curtains! I was not a shopper! Those early houses got sheets, newspapers or tinfoil for window privacy. It looked bad, but what was an ignorant young tenant to do? For heaven’s sake, don’t let your bare windows scare off a good tenant.

Privacy can be created by MAKING A YARD. Where you never thought there could be one. If you lived in your rental unit and wanted to drink your morning coffee outside in your bathrobe could you do it? A yard can be tiny. The main thing is privacy.

Six foot tall wooden fences are relatively cheap, and easy to get bids on. I just had a 20 foot section fenced last week; it cost $250. The prospective tenant had told me, “I like the house, and the yard is great for my dogs. But they are going to jump over that front picket fence.”

I had just had that white picket fence repaired the day before! Never mind, he was right, the cute picket fence was a deal-breaker. “No problem”, I said. “I’ll call the contractor in the morning and replace that piece of fence with 6 foot tall fenceposts. Your dogs will be secure, and you will have way more privacy.”

If your rental unit has a SIDE YARD or SIDE SETBACK don’t ignore it. Your ignored, weedy setback dead space can be money in your pocket. Instead, have French doors, sliding French doors, or a regular door put into that setback wall. Just remove an old window that is on the setback wall. Put in the door. Put in pavers or a concrete sidewalk. Pretend you are in Manhattan–such valuable real estate would not be ignored.

A 5-foot wide setback yard is enough for a small table and chairs–the morning coffee, remember? Put a cheap, homemade stick trellis on the property-line fence and plant some nice, green, invasive local vines. They thrive better. Provide a faucet and hose. Hang a bird feeder. That small, secluded sideyard is now your tenant’s private little oasis: “It’s so small! What a cute yard! I’ll take it!”

If you give your tenants privacy they will love their homes. They will stay. Tenant privacy also means: Landlord, stay away! Leave your tenants alone unless you MUST go on the property for maintenance. If you do, be sure to give them 24 hours telephone or written notice. How would YOU like it if the owner of your home was always snooping around?

I wouldn’t like it because I would be out in my private side setback yard, sipping latte in my bathrobe.

Furnishedowner