How much value does having furniture in a property add to the value of the property?”
You can find the video at: https://www.youtube.com/watch?v=bEgk3x5WSvo
This week I had an intriguing question from a listener regarding increasing the value of property through furnishing it. Our first glance assumptions will be that furniture isn’t really something to consider when looking at the value of the property, being that furniture isn’t permanent or part of the structure of the property- it can simply be removed, added in and changed around on a whim.
A property valuer would certainly not be looking at the furniture to arrive at his assessment of a property’s capital value for this reason.
My listener then asked… “Being that it’s true that having furniture in a property can increase the rental value of the property… Why does the overall capital value of the property not increase as well?”
As rental value ultimately effects the capital value of the property.
Here are some assumptions that need challenging… and those assumptions all revolve around tenant expectations!
Where my personal property portfolio is based, in the North-East of England, there is always an assumption from Letting Agents and the overall market that the properties available to let will be unfurnished. As many of my tenants are on benefits, a lot of people are surprised by this! Surely they would want their property to come with furniture so they don’t have to worry about sinking money into furnishing a flat they don’t own.
Not necessarily, I’ve found my particular tenants would much rather bring their own furniture than use what is there already. A reason for this can be that they’ve already got a good collection of furniture they don’t want to part with, especially if they are moving in from another home. Conversely, there will be types of tenants who don’t want to buy their own furniture. For example, two of my properties are furnished and situated in Manchester, away from my main investment area.
I imagine that if I let these properties unfurnished, I would struggle to fill them, and see a big drop in the Rental Value of the properties at the very least. This is because the tenants who are likely to rent these properties have different needs and priorities than the needs of my tenants in the North-East. But on the completely opposite side of the spectrum, if I furnished my properties in the North East, I probably wouldn’t see any positive effect on the Rental Value of those properties.
If the tenants don’t want it, they will not be prepared to pay anything extra for the rent! Instead you might even have tenants asking for you to clear the property so they can move their stuff in.
To be successful, you have to understand the local rental market and the people you are going to be letting to. Speak to your local Letting Agents, speak to people on the street in the area, ask other investors in the area!
To answer Danny’s supplemental question- the bank’s expectations are different from your tenants.
The way the bank views a property’s value is in terms of what is there if they had to repossess the property, quickly sell it and get their investment back.
When we look at furnished property, the furniture is really quite easy to remove- when compared with the intrinsic rooms, walls and bricks of the property. Furniture won’t be bolted into the property, and the bank would have no guarantee of the furniture’s quality or condition when they did come to repossess.
So you can see why banks, and by extension a valuer, won’t consider furniture in the valuation process, but how it can, in the right areas and with the right tenants, lead to an increase in rental value!
Thank you to Danny for the question this week, keep them coming in and as always….
Here’s to successful property investing!