» Furnished versus unfurnished property

Should you furnish your rental property?

BMT team — Thu, 07 Mar 2024 22:12:14 +0000

Have you considered leasing out your investment property furnished? When you furnish a rental property, the furnishings become part of the Division 40 plant and equipment assets allowing you to claim depreciation deductions for the wear and tear of the furniture over their effective lives, reducing your taxable income. To help you weigh up the pros and cons of renting out your property furnished, BMT has answered some commonly asked questions when it comes to rental furnishings. Q: Is furniture tax deductible for rental property? A: In most cases, furniture purchased by an investor for an income-producing property will attract depreciation deductions. Depreciation refers to the natural wear and tear a property and its assets experience over time. The Australian Taxation Office allows investors to claim a deduction for this wear and tear. Furniture within an income-producing property is typically claimed as a plant and equipment deduction, which refers to the easily removable items within an investment property. To be eligible to claim depreciation for furniture within a rental property, you must: purchase the items when the property is income-producing or genuinely available for rent directly incur the cost of the furniture. Q: What’s the easiest way to claim deductions for furniture? A: A tax depreciation schedule is the best way to ensure you claim all the deductions you’re entitled to. A BMT Tax Depreciation Schedule covers all deductions available over the lifetime of a property (forty years) and is 100 per cent tax deductible. During the FY 2022-2023, BMT found residential property investors an average first year deduction of almost $9,000. Q: Can I claim deductions on second-hand furniture? A: The short answer is no. While second-hand furniture can be a cost-effective option, it’s ineligible for depreciation deductions. This is due to 2017 legislation changes that disallow depreciation deductions to be claimed on second-hand plant and equipment assets. This includes those that still have remaining depreciable value. Q: Can I charge higher rent if the property is furnished? A: A landlord can typically charge a higher rental rate for a furnished property. Depending on your location and property type, you may be able to charge between 15 to 70 per cent more. While this seems like a fantastic return on an investment, any landlord considering furnishing a rental property should first consider the reduced tenant demand. Most tenants are looking for unfurnished property, so be sure to assess your local property market carefully. Q: What type of tenants will a furnished property attract? A: Furnished properties typically attract travellers, young tenants who haven’t accrued their own furniture and business professionals who frequently move for work. With this in mind, furnished leases reflect the intermittent nature of such tenants and are usually between three and six months long. These types of leases are usually suited to major metropolitan areas or smaller regional centres that have a fly-in fly-out lifestyle. Q: What happens if my furniture is damaged? A: If the lease states that you are renting out a furnished house with appliances, then you’re not only responsible for keeping the building in good shape, but the furniture and appliances as well. However, if the tenant damages your belongings, you may be entitled to make an insurance claim so it’s important to have proper cover. Landlord insurance is a type of insurance policy designed to protect property investors from tenant-related risks including loss of rental income and malicious or accidental damage caused by the tenant. As landlord insurance is an investment expense, it can also be claimed in your annual tax return. It’s important to note that each landlord insurance policy will differ. For more information, contact BMT Insurance on 1300 268 467. Q: When is it a good idea to have an unfurnished property? A: An unfurnished property is more likely to appeal to tenants looking for a home over the long-term. Typically, this means that leases will be for six to twelve months. Some tenants prefer the opportunity to furnish the property and can be put off by a landlord’s furniture. This is especially the case if a tenant already has their own furniture that would need to be stored elsewhere. If you’re undecided on what to do, perhaps advertise your rental as unfurnished and include the option to have it furnished for additional rent in the listing description. There are a number of advantages and disadvantages to furnishing an investment property. It’s important for investors to consider their personal circumstances before making a decision.

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Tips and trends for a furnished investment property

BMT team — Tue, 21 Feb 2017 22:48:38 +0000

To furnish, or not to furnish your investment property? That is a common consideration for property investors. While there are both advantages and disadvantages to this approach, a furnished investment property can work well in the right market. But it’s important that you furnish it correctly to have maximum impact and make it worth your while. Here are nine tips to help you furnish your investment property. Contents: Decide on the style Colour considerations Level of furnishing Choose furnishings with your target market in mind Work with the space you have Choose the right materials Consider depreciation for your furnished property If it’s worth doing, do it well Make it homely with accessories 1. Decide on the style Rather than buying pieces ad hoc, it’s important to know what overall look or style you’re going for so everything you purchase will work in harmony. Will that couch match your carpet and go with the dining table you’ve already bought? The style you select should flow through the entire home – don’t try and assign different décor styles to different rooms. It’s also advisable to stick with a ‘middle ground’ look – don’t choose anything too polarising, like garish wall colours or quirky furnishings that will turn renters away. Also avoid following seasonal trends that will be out of fashion in a year’s time. Instead, opt for a timeless look with classic pieces that won’t date quickly. 2. Colour considerations When it comes to decorating a rental property, you can’t go wrong with neutrals. For core items like the lounge and dining table, stick with darker colours to disguise wear and tear a bit better, and then introduce pops of colour with some accessories. 3. Level of furnishing Are you going to partially furnish the property with core appliances and whitegoods or provide everything down to cutlery, clothes hangers and pegs? It’s important to decide this before you start making any purchases. A large consideration when deciding this will be your target market… 4. Choose furnishings with your target market in mind Is your investment property suited to student accommodation or an inner city apartment targeted at management-level professionals? Your target market will determine how you should furnish your investment property. If you’re hoping to attract students, you’ll generally only need basic pieces in the bedrooms like a single bed, a desk to work at and perhaps a TV. You also wouldn’t include anything too luxurious or high quality due to the higher turn around and increased wear and tear. If, on the other hand, you’re hoping to attract high-level professionals, you’ll want to appeal to this market with a few more luxuries, homely accessories and higher quality pieces. And if you’re furnishing a large family home in the suburbs, this would require different furnishings once again. Be realistic with your target market and furnish the property accordingly. 5. Work with the space you have It’s important to choose furniture specific to your property. This involves knowing measurements to buy appropriate pieces to fit and choosing furnishings that will suit the household size and type. If you’re furnishing a five bedroom family home, there’s no use supplying a small, two person dining table in the kitchen or one three person sofa. Providing insufficient or inadequate furnishings will be less appealing to tenants than no furniture at all. 6. Choose the right materials When choosing fabrics and materials, remember that you’re furnishing a rental property and will need something that will survive use over several tenancies. It might be better for instance to invest in a leather lounge that will stand more spillages and clean easier than a fabric lounge. With whitegoods, choose something that is easy to wash and take care of – if it can only be hand washed or washed using very specific instructions, it’s likely to get ruined or turn the renter off. 7. Consider depreciation for your furnished property While furniture may seem like a large outright expense, remember that you may be able to claim depreciation* on all of the furnishings in your investment property. You should also consider depreciation when choosing your furniture – certain items or materials may depreciate at a faster rate and give you bigger bang for your buck. 8. If it’s worth doing, do it well Don’t make your investment property a dumping ground for the old, unwanted furniture in your own home. An imposing, dated, free standing wardrobe that takes up half the bedroom floor space, for instance, will only turn renters away, as will tatty or dated furniture. Unless you’re going to furnish the property in a way that’s beneficial to tenants, it’s not even worth doing. Understand that furnishing your property correctly can boost your investment’s potential while a half-hearted or substandard job can damage it significantly. 9. Make it homely with accessories If you’ve decided to fully furnish the property, make it feel like a home and finish the look off with some lamps, artwork and area rugs to liven up the space. If they don’t love the artwork you’ve selected the tenant can always pack it away and place their own piece on the hook throughout their tenancy. *Under proposed changes to legislation, investors who exchange contracts on a second hand residential property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on plant and equipment assets. Investors who purchase a new property will be able to continue to claim these items as they were previously. We are currently speaking with government to further understand the intricacies relating to the proposed changes. To learn more visit www.bmtqs.com.au/budget-2017.

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Pros and cons of letting furnished versus unfurnished

BMT team — Mon, 30 May 2016 07:12:31 +0000

There is no right answer as to whether to let a property with or without furniture. Different properties will be better suited to each approach and there are a range of considerations. Furnished properties are ideal for short term tenants and can be a great option for overseas visitors. However, going this route means your property’s occupancy levels can fluctuate dependent on the strength of the currency, changing seasons, holidays, and major events. The long term appeal of unfurnished houses is impacted less by these external factors. The flipside is that during any vacant periods you can use your house as a holiday home and take advantage of the perks of having a second property without having to move furniture in and out regularly. In this article we will explore: The type of tenants you wish to attract Property size and location Time available and financial situation How much do you want to spend setting it up? Depreciation advantages of a furnished property Do your homework The type of tenants you wish to attract The long term appeal of unfurnished houses is impacted less by these external factors. The flipside is that during any vacant periods you can use your house as a holiday home and take advantage of the perks of having a second property without having to move furniture in and out regularly. An unfurnished property is more likely to appeal to tenants looking for a home over the long-term. Typically, this means that leases will be for twelve months and tenants will bring a house worth of furniture with them. Some tenants prefer the opportunity to furnish the property as they see fit and will be put off by a landlord’s furniture as this may mean they will feel required to store the items at a cost. As people who are looking to create a home rather than just having a place to stay, long term lessees are often thought to take better care of the property as a whole. Furnished properties are aimed at travellers and young tenants who haven’t accrued large amounts of furniture yet. The leases reflect the instability of such tenants and are usually between three and twelve months long. With this type of property, the renter is able to move in quickly and makes them the ideal option for people arriving from overseas and need a place in a hurry. Property size and location Larger properties with more than two rooms are more suitable for long term, unfurnished letting. They tend to be occupied by older people and those with families, who will generally have their own furniture. A big home will be expensive to furnish, which is why the smaller one and two bedroom houses offer the best value for landlords wishing to pursue the furnished route. When a property is furnished, there is a whole spectrum of options for the landlord. They may simply choose to include a washing machine and a refrigerator, or alternatively fully equip the property with everything from linen in the closest to cutlery in the drawers. Central and inner suburb properties are more suited to the letting of furnished properties. Their location makes them ideal for people arriving for a short term stay, or to use as a stop-gap while they settle and find a permanent place. The proximity to public transport and the city makes them perfect for international travellers, and as such, can be let at a premium rate. Time available and financial situation Due to the short term, high turnover nature of furnished properties, they tend to require the investment of more time than an unfurnished home. The length of the lease on the latter means that the landlord can essentially set it and forget it, leaving the property manager to take care of any issues that arise. When a property is let through a series of short term leases and an ever-changing set of tenants, the owner is required to sign off of each new occupier, ensure the furnishings are still in good condition and replace what isn’t. This is in addition to the host of other tasks that long term letters only need to do once a year at most. This can make furnished, short term letting a time consuming process for their owner. While not a rule, the short term nature of a furnished property means that it may go through periods of vacancy. A long term lease offers the security of a constant stream of revenue for at least twelve months, while a furnished property could only guarantee income for a matter of weeks, or even days. If an owner is unable to absorb the cost of a property sitting vacant for any period of time, it is advisable to make the property’s furnishing options flexible. Letting agents prefer being able to offer a prospective tenant the option of full, partial or no furnishings as it opens the house up to a wider market of renters. How much do you want to spend setting it up? Perhaps the main consideration for most people, is how much they want to spend in the initial set up of the house. Buying furniture for an entire house is an expensive process and once appliances like a microwave, kettle and fridge as well as other sundries such as cutlery, crockery, cookware, utensils are added to the cost of insuring these contents, it can start to seem prohibitive. All of these expenses need to be factored into the cost of rent and then compared to the market rates for the property size and location. An unfurnished property may command a significantly smaller weekly rent, but the maintenance and insurance is limited to the house itself, not the replacement of the tenant’s contents. Depreciation advantages of a furnished property Letting a furnished property has an added advantage of increased depreciation deductions. Plant and equipment assets each allow the owner to claim depreciation deductions based on an individual […]

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