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March 20, 2020 / By Stephen Osomba
Investing for Rental Income: Furnished or Unfurnished House, Which is Best?

The real estate industry has carved its place as one of the most reliable investment avenues for those keen on long term wealth creation. Indeed, there exist several venture opportunities within the real estate industry itself and one of the ways is rental income. This involves offering the property for lease to willing persons or entities for occupation and getting periodic payments in exchange throughout stay. Most people prefer investing in real estate for rental income because of the passive and mostly steady income it generates.

Investment for rental income can be in two ways; residential or commercial. Residential rental income investment covers leasing houses designed for people to live in while commercial or industrial rental income on the other hand relates to letting properties for purposes of commercial use e.g. office space leasing. This feature article, however, focuses on residential rental income investment.

The ever increasing demand for decent housing especially in urban nodes has continued to spur the growth of the real estate industry across the globe. In Kenya, for example, the government estimates indicate that the country needs at least 200,000 housing units annually for all income levels. However, the production of housing units is currently at less than 50,000 units annually, well below the target number, culminating in a housing deficit of over 2 million units, with nearly 61% of urban households living in slums. This is further is aggravated by an urbanization rate of 4.4%, equivalent to 0.5 million new city dwellers every year.

Undeniably, there lies a great opportunity in investing for residential rental income. Whilst thinking about the vast investment opportunities in Kenya’s residential market, the big question is; should you offer a furnished house or unfurnished house? And between the two, which is best?

Letting Unfurnished House
Unfurnished house is an unequipped residential house that is provided by the landlord for dwelling. In other words, the housing unit is void of any household items that are necessary for a decent lifestyle. However, they still come with fixed items such as cabinetry, kitchen countertops, blinds or curtains rails, bathroom vanities, and light coverings. This in effect requires tenants who wish to stay in those particular units to bring in their household items. Letting of unfurnished houses has largely dominated Kenya's residential housing market. There are varied reasons why this particular letting trend continues to hold.

One of the reasons is that there are very few risks to the property. With unfurnished house, the landlord doesn't have to worry about the safety of the household items as with the case of a furnished house. There is also the issue of market demand. Most tenants want an unfurnished house so that they can move in their household items as they deem fit and usually for a long term lease. Put differently, an unfurnished house gives tenants the flexibility in furnishing their house according to their taste and preferences, an advantage that is usually not available for furnished houses. The last and perhaps the strongest motivation for an unfurnished house is that they are easier to manage for a property owner. Furniture doesn’t have to be purchased and maintained, there’s no need for an inventory and time-consuming condition reports after each tenancy and in most areas, unfurnished appeals to the most potential tenants. However, there is one downside; potential damage. Moving household items in and out every time a tenant vacates or occupies, can cause damage to the property, like scratches to walls, floorboards and door frames.

Letting Furnished House
A furnished house may mean something different depending on the person you ask. However, a basic definition of a furnished house would be a residential house that is fully equipped with household items and is ready for occupation. The household items may vary depending with the taste of the landlord but the most common ones include couches, beds, tables, chairs, and appliances like washing machines, microwave, dryers and fridges, ovens etc.

Many investors in Kenya’s real estate circles are beginning to take a little bit more interest in furnished houses, particularly furnished apartments. The growth of furnished apartments in Nairobi, Mombasa and other major urban centres has mainly been driven by increasing demand for short stays. This comes from an increase in business trips, expatriates, and tourists, both local as well as foreign. Indeed, the furnished houses have emerged as a preferred alternative to hotels which are bit pricier when the two are compared head to head.

Most landlords go for furnished housing because they can charge premium rates given that the units are mostly used for short stays. Owners of furnished houses have a chance to rake in higher rental income by virtue of higher tenant turnover. However, as with anything that has higher returns, the risks are also high and potent. Perhaps, the biggest risk of being involved in renting out furnished houses is that tenants don’t take care of the household items yet they are priced real estate assets. Repairing and replacing damaged household items can be costly thus eating into the returns. It is for this reason that most furnished house landlords demand higher security deposits to guard against property damages. Additionally, today, companies like Airbnb have revolutionized accommodation through the use of technology that connects homeowners and short-stay tenants. This innovation has opened many more opportunities for investors keen on furnished houses.

So which is best, unfurnished or furnished?
The question of whether it's best to offer a property furnished or unfurnished is a complicated one. As an investor contemplating to buy a house, you need to think about your investment objective and where the property is located. What do you want to gain from the real estate investment?

If the property is low cost and located in large urban centres with lots of working-class, as a landlord you will have more success offering an unfurnished house with a long term tenant. However, if the property is high end and is in a more transient location like a CBD or around the port of entry like an airport then as a landlord you should consider offering a furnished house. All said and done, it comes down to analyzing the market potential for your property. Are you likely to score big with an unfurnished house or furnished house? Think about location, business environment, culture, and market trends among others.

A Perfect Real Estate Investment Opportunity in Nairobi, Kenya.
Are you looking for a real estate investment opportunity in Nairobi Kenya? Square Foot Real Estate Ventures has a great investment opportunity for investors interested in residential rental income in Nairobi. 108 Sapphire Apartments is our latest project being developed in Nairobi’s South B estate. The development consists of forty, two-bedroom apartments with a potential rental income of Ksh.45,000 per month for unfurnished units which may increase as the demand for city housing exacerbates while furnished ones range from Ksh.80,000-Ksh.100,000. The location is strategic for either type, furnished apartment or unfurnished apartment, and as such, you are assured of consistent tenancy whichever your choice maybe. The apartments are going for only Ksh.9.5 million with only a 10% deposit.

For more information call us today on +254 799 751 740 or email sales@squarefoot.co.ke