Sydney residential property buyers and investors from Southeast Asia have been experiencing literally rivers of gold in the Lower North Shore area since May 2012 according to one real estate firm, yet rents have naturally failed to keep pace with average annual double-digit capital growth.
As a result, investors are now adopting new tactics to entice tenants into properties, according to Drew Schofield, Senior Property Manager, Raine & Horne Mosman.
“Around 25 percent of our currently properties on the market in Mosman, Balmoral and Neutral Bay are now fully-furnished, whereas 12 months ago, virtually not a single property came with furnishings, so this is a major change in the mind-sets of landlords with assets on the Lower North Shore,” said Schofield.
“We believe that more yield-hungry landlords are increasingly choosing to let out their investment properties fully-furnished in the hope of beefing up their returns.”
According to Raine & Horne Mosman’s research, a two-bedroom apartment in Mosman, which is currently selling for AUD$900,000, will rent for AUD$750 a week if it is unfurnished. However, adding furniture will see the same apartment rent for AUD$900 a week. This represents a gross yield of 5.2 percent, compared to only 4.3 percent for an unfurnished apartment.
“However investors need to do their sums before offering fully-furnished apartments to the market on a long-term lease of six months or more,” added Schofield.
“Apart from the wear and tear on the furniture, there are also the added costs of producing a fully-itemised inventory report, which needs to be monitored regularly.
“As furniture is involved, property managers must inspect a property more regularly, which means landlords, can expect to pay management fees of between 8 percent and 15 percent for the services of a property manager, rather than 6 percent if the property is unfurnished.”
Other costs involved in maintaining a fully furnished investment property include additional contents insurance, which is an additional charge to property owner insurance.
“While the contents insurance is tax deductible, it’s still an extra financial outgoing that eats into yields. It’s also fair to say fully-furnished apartments can be harder to rent as most tenants have their own furnishings.”
On the flipside, by taking a fully furnished apartment to market, property owners can save on storage costs, according to Schofield.
Short-term leases can maximise returns from a fully furnished property
Schofield noted that a mix of lease terms can often be the best way to maximise returns from a fully-furnished property.
“A fully-furnished two bedroom apartment with views of Sydney Harbour can rent for as much as AUD$1,700 a week on a short term lease in the summer months. Short-term leases can be as short as a week, and as long as three months,” he said.
“Also if you’re renting out an apartment, be sure to check that the strata by-laws allow for a short-term lease, as some individual owner’s corporations don’t support leases of fewer than three months.”
However the key to a successful strategy of short and medium term leases involves ensuring that the property has the ‘wow’ factor that justifies the additional rent, said Schofield.
“There must be no expense spared on the furniture, the fittings and the interior, which should all present in an immaculate fashion. The exterior must also present well, along with the foyer when you walk in, which can be tricky unless you own the entire block, or you have a very strong say every time the body corporate meets,” said Schofield.
“Only when the property presents at its very best, can a fully-furnished apartment on a short-term lease truly justify a premium weekly rent.”
Andrew Batt, International Group Editor of PropertyGuru Group, wrote this story. To contact him about this or other stories email andrew@propertyguru.com.sg
