Landlords / Guide
Posted at March 22, 2021

Advantages of furnished rentals for the owner

Advantages of furnished rentals for the owner

 

Better gross profitability

 

Furnished rentals show higher rents per m2 than unfurnished rentals, because of the rental equipment. The difference is worth the trouble! Indeed, rent for a furnished property can be between 5 and 30% higher than that of an empty rental.

However, who says that a higher rent means better gross profitability! The gross profitability of a rental investment reflects the ratio between the home's purchase price and the annual rent through a percentage. It calculates as follows: (annual rent/price of housing) x 100).

On average, we consider that an empty rental's gross profitability is between 4.7% and 6.6%, while it can reach 8% for a furnished rental! It can even be higher if you combine a 9-month student lease with seasonal rentals during summer vacation.

For example, take an apartment in the 15th arrondissement of Paris purchased for 200,000 €: count on a 1000 € rent per month or an unfurnished rental and 1200 € monthly for a furnished rental:

  • gross profitability of the unfurnished rental amount to 1000 / 200,000 x 100: 6% 
  • gross profitability of the furnished rental amounts to 1,200 / 200,000 x 100: 7.2

 

Advantageous taxation

 

The tax regime of furnished rentals versus unfurnished rentals differs. The income generated by an unfurnished rental is "land income," that of a furnished rental is "industrial and commercial profit (BIC)." The latter is generally more advantageous. Tax authorities consider landlords of furnished rentals as merchants. There are two statuses:

  • Non-professional furnished rental (LMNP), which allows you to pay taxes only on 50% of your income, or to reduce tax by applying a system of charges deduction and depreciation; 
  • Professional furnished rental (LMP) applies when annual rental income exceeds 23,000 € and all other income. This system allows deducting the deficit on your yearly income with no limitation (thanks to a depreciation system), a capital gains regime, and a non-taxation of property tax.

 

The advantages for the tenant

 

It is not only for the owners that the furnished rental is advantageous! For tenants, renting a furnished property makes life easier too. Furnishings are provided with the accommodation; the tenant saves money while simplifying his move-in. Furniture, appliances, crockery, lighting..., everything is already there!

Not having to equip oneself makes furnished rentals the ideal type of rental for students and professionals on the move. Furnished rentals allow one to find "ready-to-live" accommodation with a reduced notice period of 1 month, regardless of the area, and with no justification necessary. 

Likewise, a furnished rental implies a shorter lease term than an empty rental, with only one year compared to three years! If a student rents the property, the time of the lease is reduced to the duration of a school year, i.e. nine months, which eliminates the need for giving notice.

 

Does a furnished rental investment involve risks?

 

With its high profitability, the furnished rental investment is a safe real estate project. But like any investment, it still involves some risks:

  • unpaid rents, which represent 3% of the rental market (ie, very few cases);
  • a higher turnover of tenants due to shorter leases;
  • higher maintenance costs due to the obligation to maintain the various pieces of furniture and equipment.
  • longer and more complex inventories since it is necessary to make an accurate inventory of everything provided with the accommodation.

 

The obligations of the landlord

 

Mandatory equipment

 

To rent a furnished property, one needs to provide more than two or three furniture pieces and a fridge! A decree published in 2015 thus lists the mandatory equipment for a furnished rental:

  • Complete bedding (bed or sofa bed) with duvet or blanket
  • A device for obscuring the windows in the bedrooms (shutters or curtains)
  • A table
  • seats
  • of storage shelves
  • luminaires
  • from housekeeping equipment adapted to the characteristics of housing (broom, vacuum, mop, etc.)
  • cooking plate
  • an oven or a microwave oven
  • a refrigerator with freezer minimum (maximum temperature of -6 ° C)
  • The crockery necessary to take a sufficient number of meals
  • Kitchen utensils

Note: a judge may decide to reclassify the lease of a furnished accommodation into an unfurnished accommodation lease in the event of non-compliance with this list of mandatory equipment. Also, remember to furnish all the rooms in the home if there are several.

 

A specific lease

 

Beyond its duration, a furnished rental's lease meets specific conditions:

  • The security deposit can go up to 2 months' rent, against one month's rent for unfurnished rentals.
  • The lessor's notice is three months, against six for an unfurnished accommodation.
  • The tenant's notice must be given one month in advance, against three months for empty rentals (except in tight areas).

 

Credits photo@Sidekix Media

 

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