Furnishing can have a dramatic effect on yields, and this is still undeniably the case. As most investors know, the decision to furnish depends on your location and target tenant. Marketing to a transient, professional tenant increases the likelihood that you’ll furnish; marketing to a family, or an older professional, then don’t bother - all straight forward. But the issue for investors comes in the grey area in between.
So how big is this “grey area”? The LSL tenant survey, which comes out every year, breaks the PRS sector into four sections:
Younger Independents (22%) Flexible Professionals (26%) Budgeting Families (29%) Reconciled with Renting (23%)
Common sense would suggest that the majority of Young Independents and Flexible Professionals would go furnished, and the majority of Budgeting Families and Reconciled with Renting would go unfurnished, so broadly 50:50.
But speak to any PRS operator, and they confirm that properties they originally marketed to Younger Independents get taken by older tenants, Reconciled with Renting; in a similar survey, carried out by Knight Frank, 40% of iGens (Knight Frank’s equivalent), would not pay a premium for furnished accommodation.
So if properties are being rented by all types of tenants, and even Younger Independents/iGens aren’t exclusively wanting furniture, then this “grey area”, is significant, perhaps even 50% of the PRS market, with furnishing delivering solid returns in only 25% of the market.
Could investors be furnishing too much? 20 years ago, furnished property didn’t exist. Then, clever investors started furnishing, and with their unique product, benefited from increased returns. In urban areas, the default position from many agents now is to recommend furnishing, to the extent where there is now no shortage of furnished accommodation - just search “furnished rental” on Rightmove in many of the growing new build areas. In some developments, it would be a differentiator to offer unfurnished than furnished, as both the Knight Frank and LSL surveys suggest.
But what do tenants actually want? The idea that Landlords have actually started furnishing too much, has been highlighted by a recent tenant survey by GoCompare. As they state “The majority of renters want to move into an unfurnished property, but relatively few landlords offer homes without furniture”.
GoCompare surveyed 1,000 tenants about what they look for when renting a property, before comparing these features with those available in 1,546 homes currently listed on the property portal Rightmove. The research found that Landlords were underestimating how many tenants want to live in unfurnished properties, with 60% wanting an empty home but just 14% of properties being offered unfurnished. As those in the market know, it’s not as black and white as this. There are some markets where you simply have to furnish, but it does highlight that certain areas may have become over-furnished.
The benefits of unfurnished From a Landlords perspective, you clearly don’t have to make the investment, which is a big win, especially given the squeeze that is happening from all fronts at the moment (think tax changes, removal of 10% wear and tear allowance etc.). It also removes the temptation to do things "on the cheap”, which can make things even worse - as one agent remarked to me recently “the biggest problem I have is not whether a property has been furnished or not, it's Landlords furnishing with poor quality items”.
But from a tenants perspective, there’s a stronger incentive for them to make their property a home. A recurring theme at the recent UKAA was personalisation. Allow tenants to personalise their property, and they’ll look after it better and stay for longer. This is especially relevant given the predictions from all fronts of the growth of the PRS sector. Unfurnished is not right for everyone; there is the hassle and expense, plus the lead times, but as we will look at next, some of these pain points are being addressed.
The world is moving on.. Many of the pain points for tenants furnishing are now being addressed. On the product side, take Ikea, the go to choice for many PRS tenants. 2018 has been billed as the year of catch-up, by Gillian Drakeford, UK Country Manager. As she says, "We have better delivery prices, better time slots, we can now roll out click and collect, really bringing us up to speed with many of the other services that other retailers provide". Habitat, another PRS favourite, have 129 sofa options that are available for delivery within 10 days, Made.com a similar number.
On the cost side, many of the expenses that tenants incur are being addressed; innovative deposit schemes are reducing moving costs, plus, tenant fees are being removed by agents, as they prepare for the inevitable ban. Moreover, most retailers now offer accessible point-of-sale financing. Even Ikea offers Interest free financing for 12 months, and Interest bearing finance, at 7.9% over longer periods.
At Homewings, we’ve seen a big demand from tenants for our service, as they’re able to design their own space with our interior designers and then pay for the goods in monthly instalments.
Your furnishing strategy So, as a Landlord, be aware of the “grey area” for furnishing. If your property sits in a highly furnished market (think Canary Wharf or Central Manchester), or you're trying to access the Short Let market then furnish properly (don’t cut corners). But, if your investment is outside these areas, the expectations of tenants are changing, and they’re likely to be grateful for the opportunity to turn your property, into their home.
Homewings offers a Tenant Referral scheme. Refer a tenant to us, who places and order, and we will give you £150 or a £300 voucher to spend with us; your Tenant will receive 50% of their first room design.