When a full house really pays off

At the top end of the market, quality furnishings can add hundreds to a weekly rental, says Chris Partridge
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The Independent Online

Buy-to-let landlords used to have a simple choice when marketing their investment: furnished or unfurnished. Now, demand is fluctuating wildly, making it impossible to predict which will let better.

Buy-to-let landlords used to have a simple choice when marketing their investment: furnished or unfurnished. Now, demand is fluctuating wildly, making it impossible to predict which will let better.

And the boundary between the two is beginning to blur. More tenants want to bring their own bed, and often their prized comfy sofa as well. They are also bringing domestic items such as table linen and cutlery.

As a result, landlords need to be ready with a removal truck when tenants change over. But too many refuse to compromise. "Landlords must be more flexible," says Claire Gibb of Bective Leslie Marsh in central London. "Increasingly, tenants have their own beds and sofas, so landlords should be prepared to remove items from furnished flats or add items to unfurnished accommodation."

The volatility of the market in London is largely due to American executives, who have traditionally driven the demand for furnished flats. They disappeared after 9/11, flooded back in 2004, then went back again when it became clear that the global economy was not expanding as fast as had been expected.

"When the Americans left, the British and Europeans took their place," says Gibb. "They have all their furniture, whereas the Americans just have a suitcase and toothbrush."

Strangely, so many landlords spotted the trend and removed the furniture, that the shortage has gone the other way. "Now there is almost no furnished flats at the higher levels of the market," Gibb says.

The swings have added substantially to the costs facing landlords, who are already facing a tenants' market. The cost of furnishing at the upper levels of the market can be formidable - up to £10,000 for a modest two-bed flat.

And if you want to push the rent up to pay for it all, they have to be top-of-the-range, according to Katy Maclean of Mayfair estate agents Wetherell.

"If the furnishings are fantastic then it can certainly add a premium," she says. Wetherell recently had two nearly identical two-bed flats to let above the new Mayfair Marriott Hotel. One landlord had their flat renovated by an interior designer, while the other left their flat a blank slate for the tenant to decorate to their own taste and fancy. The decorated flat at £1,900 a week while the unfurnished flat let for only £1,100 a week.

The split in the lettings market between furnished and unfurnished does not exist on the Continent, where unfurnished is the rule. It grew up over here mainly because of rent controls in post-war socialist Britain, which gave almost absolute security of tenure to tenants of unfurnished flats. As a result, unfurnished flats became almost unobtainable by the 1970s.

Even so, many tenants of furnished flats successfully argued that the furnishings were inadequate, becoming sitting tenants in the process.

"It was the longest-standing gross injustice in property law," says Geoff Cutting, former chairman of the National Landlords Association, still with anger in his voice.

There is now no legal distinction between unfurnished and furnished flats, Cutting explains. "The main reason for letting unfurnished is the cost saving, though it also means the landlord is not exposed to the liability for foam-filled furniture that can catch fire," he says.

But there is one reason for biting the bullet and buying or renting the furniture, which many landlords fail to appreciate, Cutting points out: "The tax allowance for furniture is really quite generous, with an overall allowance of 10 per cent of the rental of the flat."

Because the furnished/ unfurnished decision is so difficult and expensive, many landlords leave it to the last minute, says Steve Russell, managing director of Fully Furnished, a company specialising in suplying complete furnishing packages for landlords.

"A lot of novice investors are sold the dream, but are not told they need to budget for furnishings," he says. "The problem is there is no uplift in rent for furnished accommodation, though it may let quicker and to a better quality tenant." Fully Furnished offers packages to buy or rent. Renting is the more expensive option over the life of a let, but it does have its advantages.

"With rented furniture, the landlord does not have disposal issues or dilapidations," Russell says. "We have three ranges. At the lower end, to rent everything for a two-bedroom property from pots and pans to wardrobes will cost from £250 to £300 a month," Russell says. "VIP rentals cost from £500 to... whatever."

The furniture is designed specifically for the rental market. It complies with fire regulations, naturally, but is also designed not to put any potential tenants off. Care is taken to ensure no religious symbols appear, for example.

"A lot of thought goes into the design of our furniture," he says. "It must be market-friendly, gender-neutral and not offend anyone."

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