Asked by Anonymous
Does it makes financial sense to fully furnish a high rise property for rental from investor point of view assuming that the market for the property that you rent out is of the range of rm 900 - rm 1200 unfurnished
Say a budget renovation for a high rise 3 rooms property cost rm40k.
1) Assuming that 50% the furnitures would fully depreciate in 5 years (60 months) thus require replacement for the next tenant, i would need to get an additional of rm20000/60mths = rm 333 per month for fully furnish break even
2) The opportunity cost of 40k cash for the renovation if deposit in FD would fetch a compound interest of rm8.8k (assuming 4% FD interest rate), making my opportunity cost to be rm8800/60 = rm147 per month for opportunity cost break even
3) Depending on the market or rental price range of the property, fully furnishing the unit may make the unit harder to rent out as some market, renters may just want to look for rock bottom price thus would go for unfurnished with their own furniture from their previous tenancy or live minimally by getting very cheap furniture
4) Opportunity cost of additional 1 to 2 months of renovation time that can be used to rent out unfurnished
5) Additional effort and time overhead in making sure that tenants take care of the furniture or deal with tenants when furniture is broken upon moving out or the need to service the furniture if broken
6) Wow factor of new furniture to woo new tenants diminishes over time as furniture gets older while for unfurnished, a new coat of paint and a thorough cleanup is all that you need to do and it may be as good as new
What i read a lot is that by fully furnishing a unit, your rental and cost (instalments + maintenance) may break even but that is at the cost of using cash at hand to do that and those came with opportunity cost.
All the quantifiable cost sums up a total of about rm480 additional markup that i need to make for fully furnishing the property just to break even.
Say a budget renovation for a high rise 3 rooms property cost rm40k.
1) Assuming that 50% the furnitures would fully depreciate in 5 years (60 months) thus require replacement for the next tenant, i would need to get an additional of rm20000/60mths = rm 333 per month for fully furnish break even
2) The opportunity cost of 40k cash for the renovation if deposit in FD would fetch a compound interest of rm8.8k (assuming 4% FD interest rate), making my opportunity cost to be rm8800/60 = rm147 per month for opportunity cost break even
3) Depending on the market or rental price range of the property, fully furnishing the unit may make the unit harder to rent out as some market, renters may just want to look for rock bottom price thus would go for unfurnished with their own furniture from their previous tenancy or live minimally by getting very cheap furniture
4) Opportunity cost of additional 1 to 2 months of renovation time that can be used to rent out unfurnished
5) Additional effort and time overhead in making sure that tenants take care of the furniture or deal with tenants when furniture is broken upon moving out or the need to service the furniture if broken
6) Wow factor of new furniture to woo new tenants diminishes over time as furniture gets older while for unfurnished, a new coat of paint and a thorough cleanup is all that you need to do and it may be as good as new
What i read a lot is that by fully furnishing a unit, your rental and cost (instalments + maintenance) may break even but that is at the cost of using cash at hand to do that and those came with opportunity cost.
All the quantifiable cost sums up a total of about rm480 additional markup that i need to make for fully furnishing the property just to break even.
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