Build to Rent (BTR) owners and developers must decide whether to furnish their units. Agents are telling owners to provide furniture in new BTR developments to speed up the lease process and collect more rent.
Furnishing homes will actually hurt your property value!
In this article, we’ll draw on US operating experience as well as studies and surveys on tenant demographics, and highlight how the feat of furnishing an asset constitutes a huge expense and ultimately decreases your NOI. Here are our thoughts at Fjeld Consulting regarding how to consider furniture.
Two reasons it’s too expensive to furnish homes
- Furnishing your asset creates extra costs
There are two ways to furnish BTR homes: buy all the furniture up front, or lease it over time. Buying upfront looks great! You own the furniture and can rent homes at a premium, in theory. However, furniture needs to be tracked, stored, maintained, inventoried, inspected, moved, and eventually replaced. How long will the furniture be trendy, in good shape, and desirable to all?
Renting or leasing furniture sounds better until you realise one year later that furniture is your largest operating expense and is killing your Net Operating Income (NOI). Every hour spent on managing the furniture inventory is an hour lost on marketing or improving the resident experience.
- Are you really getting the value suggested by the Agent?
The “Premium” for furnished units is tough to prove out.
Some prospects will not find your units because they will be artificially priced above their search criteria due to the addition of a furniture premium, reducing traffic to your property and ultimately reducing the rent collected.
Some tenants already have furniture and will not lease your units because they don’t want to pay the premium for furniture they don’t need. And some prospects simply will not share your taste in furniture.
Over time your property rent will drop to match other properties without furniture. Are you sure that furnished “Premium” still be there a few years down the line? The expense is bound to be.
The strongest argument against furnishing your asset is the subjectivity of style: it’s impossible to impress all prospective residents across all demographics.
Homelet’s 2017 Tenant Survey provides interesting insights into renting behaviour in the UK: of 20,388 respondents, 68% expected to be renting for a year or longer, 34% of the households were couples with no children, and 30% of the households had children. When tenants are looking to rent a property, many are searching for their home. If you furnish units with a blanket style, the result can be a cold, clinical hotel aesthetic which will not appeal to prospects in search of settling down. It’ll feel temporary rather than like a home and your renewals will suffer.
People have diverse ideas about how they want to design and use their furniture. A couple expecting a child will want room for a crib, and all of the baby-friendly paraphernalia that comes with a new-born. A young professional might see a spare bedroom as a home office, a music room or art studio! When they see a room full of furniture they haven’t chosen, this personalization is lost.
The way in which people choose to use their recreational space is also changing. Do you need to provide a TV in the Living Room? Many young people are doing away with TVs altogether, choosing laptops and iPads for alternative viewing.
What if tenants need furniture?
What is the solution for appealing to tenants, particularly those ‘Younger Independents’, who do not own furniture? According to LSL, 6 in 10 of these renters need furniture to be provided, and 27% need a fully furnished home, compared with 10% across the board.
By providing furniture, you add a premium cost, and most young renters will shy away from an expensive rental property. Equally, when choosing furniture for your assets, you’ll naturally lean towards the stylish yet virtually indestructible, to minimise the risk of having to replace it. This furniture is more expensive, increasing the premium added to the rent, and discouraging the same young professionals you are targeting.
In US and German rental sectors, properties are rented without furniture. This means that people either supply their own furniture or seek out furniture packages from specialist companies, enabling tenants to customise their home.
A huge benefit to BTR landlords lies in a strong relationship with a supplier of rented furniture packages. There is an income opportunity here: if landlords can negotiate a revenue share based on exclusive referral agreements, everybody wins. You also have the power to offer this service to your tenants at a reduced rate.
These companies offer furniture packages to suit all styles. Customers can choose from wide selections of styles with everything priced individually. These companies can cater furniture packages that fit customers budget, use, and taste. Also note that furniture rentals become cheaper with each year of tenancy, and at the end of the loan tenants can buy the furniture at a reduced price. Just another reason to renew and stay put!
It simply does not make financial sense to furnish your units. Be savvy and get negotiating with a furniture rental company!
Should you need a helping hand with furniture management, or on acquiring these income-producing deals, don’t hesitate to get in touch with Fjeld Consulting. Let us help you minimise operating expenses and keep your residents happy.