You scan the list and see that, yes, these are items you would need if you personally were going to rent it.
However, you need to look at any outlay of money and ask yourself – am I really going to get this back? Is it really worth my money to furnish the property? And if you do decide to furnish, what are some things you can do to reduce your risk? These questions are answered before in the three C´s of Considerations, Calculations and Cautions.
Please note that this article is taken from the consideration of a long-term rental and not short-term, which is a totally different matter.
1. Damage to property is reduced as moving furniture is one of the most damaging events your property will experience
2. Lower vacancy (in some cases)
3. Higher rents
1. Initial outlay of money for furniture, delivery and installation
2. Additional risk of damage
3. Repairs and replacement
4. Potential of theft
5. Risk of the furniture style becoming obsolete
6. Additional accounting as depreciation is different than real estate (furniture in Czech Republic is depreciated over 5 years and real estate over 30 years)
It seems from this list that cons outweigh pros 2 to 1! Does it make any business sense then to furnishing a property?
It all depends on payback. Certainly you should look to have the furniture paid back in 2 years at a maximum. The furniture should last for at least 5 years, depending on the quality of the furniture installed and what kind of tenants you get in place.
How do you calculate if you are getting your furniture paid for over this time period? Well, for sure you need to look at the increased rent you should get for a furnished flat. So let´s say you put out 36 500 CZK for a furniture pack and your flat normally rents for 15 000 CZK/month unfurnished. This means that you would need to rent the flat for 1500 CZK/month more in order to get your pay back in 2 years.
However, there is another factor which weighs in the calculation. If having furniture means that your property would be vacant for 1 less month than if it was unfurnished, this is worth 15 000 CZK right off the start. Thus if you had occupancy one month earlier and were able to charge an additional 1500 CZK/month you would have payback in 14 months. Not too bad!
So it is very important to include vacancy in your calculations about whether furniture is worth it or not.
After the payoff point, you are making money on your furniture! Congratulations, you are now in the furniture rental business, and, most importantly, making money on it.
In terms of the quality of furniture we would recommend, we think only in the rarest of circumstances is it worth furnishing at a luxury level. The additional premium for luxury furniture is, in our experience, rarely recovered in comparison to the same flat furnished with slightly above standard quality of furniture.
In order to assess whether rental is the best option for you, it is extremely important to know the local rental market that you are targeting. If you hire a property management company, you need to know that they have people on the ground with a good knowledge of the local rental market.
A recommendation we have for newly completed flats or flats which had been rented unfurnished in the past but are now unoccupied is to offer them as furnished or unfurnished. You can make a list of furniture which would be required to furnish and then calculate what sort of premium you would need to get a property return. If you are furnishing from IKEA, it is possible to have the flat furnished within a week. However, be sure to have the first month´s rent and damage deposit from the potential renter before heading off to IKEA!
If you do decide to rent furnished what are some cautions which can help you to realize your return on this investment?
From our years of property management experience in Czech Republic we would recommend the following:
1. Increase the damage deposit by another half month´s rent
2. Don´t rent to people with pets but, if you do, increase the damage deposit even more
3. Consider carefully before renting to smokers. It is possible to remove a smoke smell from an unfurnished flat but rarely will it be possible if it is furnished. A smoker early in the life of the furniture could decrease the return you will get on it
4. Furnish at a basic standard (medium to slightly above medium quality) and not completely. The tenants can add filler items (pictures, plants, kitchen items, etc.) which can be costly and are the most easily damaged pieces of furniture.
By stepping through the three C´s of furnished properties in Czech Republic, you can decide whether you should go into the furniture rental business or not!
©2010 CZECH POINT 101 s.r.o.
This report is published for general information only. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no legal responsibility can be accepted by Nathan Brown or Czech Point 101 for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the view of Czech Point 101 in relation to particular properties or projects. Reproduction of this report in whole or in part is allowed with written permission from Czech Point 101.