How to Double Your Rental Income with Furnished Rentals
In 2016, furnished rentals collected $3.2 billion per month in rents across the United States.
I bet that piqued your curiosity! Peaked
For example, there are 100,000 to 200,000 traveling nurses per year in the United States. They work for 6 to 12 months on a contract basis before picking up and moving to another part of the county. That’s 100,000 to 200,000 candidates for a furnished rental, and it’s just one example.
Kimberly Smith has been involved in the furnished rental business for over 20 years, way before popular businesses like AirBnB were founded. In our recent conversation, she gave us an inside look at how to run a successful furnished rental business. This business model is relevant to a single-family investor, an investor with a 1000-unit apartment building, and everyone in-between.
How to Find Tenants?
Marketing for tenants for a short-term, furnished rental is different than finding a standard renter.
One way to find tenants is through old-fashioned relationship building. The idea is to find a large corporation or institution to tap into. For example, you could reach out to a nearby university’s student housing department, a hospital’s housing coordinator, or a corporation’s human resources manager and ask if they are in need of short-term housing.
Kimberly said when she searches for potential tenants, “I would do old-fashioned request proposals with major corporations, and they would say, ‘Okay, I need 103 one-bedrooms for 6-months. Can you get them all ready for me?’”
Fortunately, with the advent of the Internet, finding tenants is much easier than the old-school cold-calling of the past. There are distribution portals online you can leverage. Example of these distribution portals, Kimberly said, “You’ve got HomeSuite, you’ve got AirBnB, you’ve got Booking.com, you’ve got HomeAway. All these guys are just starting to think, ‘How do we best service the needs of the business traveler?’ So in the short run, you want to be in all those places.”
Another great resource is a creation of Kimberly’s called Corporate Housing By Owner. “For the last 8 years, Corporate Housing By Owner has created an annual report,” Kimberly said. “You can get it on Amazon.com or you can register for free at CorporateHousingByOwner.com and you can download it for free. And it will tell you — we asked hundreds of people across the country, ‘How do you market your furnished rentals and where do you get your best results from?’ We have 8 years of data in that report and [you should] start by just reading the details.”
Who Manages the Furnished Units?
When comparing management of unfurnished vs. furnished rentals, Kimberly provided an analogy of a tortoise and a hare. “In unfurnished property management, you are the tortoise — you are renting a property for a year, and if your kitchen has a leak, you report it and they come out in the next week and they’re going to fix it for you.” For furnished rentals, Kimberly said, “If I’m there for 30, 60, 90 days and there’s something wrong, I need you to deal with that [right away].”
Therefore, the furnished property manager is going to have a level of involvement that far exceeds that of the standard, unfurnished property manager. As a result, you are going to pay a premium. Kimberly said, “for corporate housing, an Avenue West managed corporate housing brokerage (Kimberly’s company) would charge between 25%-35%, depending on the market. If it’s a corporation, it’s paying rents via credit card. Avenue West is incurring that expense, and not passing that on to the owner. They’re doing all the key arrivals. They are doing whatever background checks are necessary. They’re doing all of that service for that corporate tenant. They have extensive software to do the invoicing and such that’s necessary as part of that whole thing. And they’re building relationships. [The owner is] working with a management company that doesn’t say, ‘Oh, I hope to find you a corporate housing rental.’ [They’re] dealing with an Avenue West company who’s been around for 18 years, developing these relationships, that says, ‘Hey, these are the corporations that work with me every day.’”
Most unfurnished property managers do not understand corporate housing. Therefore, Kimberly recommends finding a property management company, like Avenue West, that specializes in furnished rentals. “I would be a little wary in just handing a furnished rental that you’re expecting to get a business client into an unfurnished property management because they don’t really understand how to find that right tenant.”
How Much Money do Furnished Rentals Make?
To determine the rates you can charge for furnished/corporate rentals, Kimberly said, “You want to look at the extent of stays in your neighborhood. You want to look at the hotel rates in your neighborhood. You may even be able to find exact corporate housing rates in your neighborhood.”
According to Kimberly, the average daily rate for a one-bedroom corporate housing rental was $150 in 2016. However, this varies from market to market, so in some markets it will be higher and in others, lower. Kimberly said, “You have to understand your individual market and figure out where you fit. And you can purchase something called Corporate Housing Industry Report, which this year is a 206-page document that goes through all major metropolitan state areas and looks at … the average rent that was collected last year on a studio, on a one-bedroom [and] on a two-bedroom.”
For example, Kimberly said in Arizona, an unfurnished, one-bed unit will rent for $750 a month, but the same unit furnished will rent for $2,500. Whereas in other locations, like San Francisco in 2016, an unfurnished unit rents for more than a furnished rental. It is very market dependent. Kimberly’s recommendation is to look at the Corporate Housing Industry report to see if corporate housing is an effective business model in your area.
For a personal example, I currently own a four-bed single-family property in Dallas, TX. It currently rents of $1,200 a month. Kimberly said if I furnished the unit and offered it as a corporate rental, I could get $4,100 a month in rent. Knocking off the 35% management fee, that’s $2,665 a month, which is more than double the rent I am charging now!
Furnished, corporate rentals are a $3.2 billion a month industry and is relevant to investors in all niches.
To find tenants for furnished rentals, build relationships with local corporations, hospitals, and universities, or post a listing to any number of distribution portals like AirBnB.
To manage the furnished rentals, hire a property management company who specializes in corporate rentals. However, expect to pay 25% to 35% in management fees.
Depending on your market, the increase in cash flow from converting an unfurnished unit into a furnished unit will more than cover the increase in management and other expenses. However, before pursuing furnished rentals, determine the rental demand in your area.
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