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Furniture is back in fashion for rentals, for good reason Bradley Beer
By Bradley Beer (B. CON. MGT, AAIQS, MRICS), Cheif Executive Officer of BMT Tax Depreciation.
One of the first decisions investors will make when renting out a property is whether to offer it as furnished or unfurnished. While both options have their benefits, it seems that furnishing a rental property is falling back into fashion in some areas for a number of reasons. According to one Sydney Property Manager, furnished properties in the North Shore area of Sydney have been a ‘river of gold’ for investors since May 2012.
“Around 25 per cent of our available properties in Mosman, Balmoral and Neutral Bay are now fully furnished, whereas twelve months ago virtually not a single property came with furnishings,” said Raine & Horne Mosman Senior Property Manager, Drew Schofield. “We believe more yield-hungry landlords are choosing to let out their property fully furnished in the hope of beefing up their returns,” he said.
While research Raine & Horne conducted last year showed that furnishing a two-bedroom apartment in Mosman saw an increase in rent from $750 to $900 per week, an increase in rental yield is not the only reason investors will benefit from furnishing their property. What often goes unconsidered when weighing up the pros and cons of unfurnished versus furnished rental properties, is the difference this will make to the depreciation deductions an investor can claim.
BMT Tax Depreciation took a look at the deductions which could be claimed for the owner of an unfurnished two bedroom, two bathroom unit. This was then compared with the deductions found for the owner of the same property if a $16,000 furniture package was added. The following table provides the results of their findings.
While the owner of the unfurnished apartment could claim just $9,700 in depreciation in the first financial year, by adding only $16,000 of furniture their deductions increased by $3,500. Over five years, they would be able to claim an additional $14,500 in depreciation.
In addition to the financial benefits furnished properties provide to their owners, True Property Management Director Anne Warren says that these properties can also assist property professionals to attract better tenants. “If you are leasing a property in a city centre, you may attract a business traveller who does not want to spend several months in a hotel room or a serviced apartment,” she said. Furnished properties close in proximity to universities or vacation hotspots can also attract students or short stay tenants holidaying in the area.
Don’t forget that even unfurnished properties contain depreciation deductions an owner can claim for the building structure and the plant and equipment assets contained within the premises. Assets such as smoke alarms, air-conditioning units, shower curtains, garbage bins and door closers which can be found in both furnished and unfurnished properties are among some of the most common assets missed by investors when claiming depreciation each financial year. It is recommended that property professionals encourage their clients to request a depreciation schedule immediately on settlement of any rental property, furnished or unfurnished. This way the owner can obtain the maximum deductions available to them.
Bradley has substantial knowledge about property investment supported by expertise in property depreciation and the construction industry. He is a regular keynote speaker and presenter covering depreciation services on television, radio, at conferences and exhibitions Australia-wide. Please contact 1300 728 726 or visit www.bmtqs.com.au
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