Furnished or empty rental : which is the best option for your real estate investment ?

If you're looking for a way to generate passive income, you're in the right place! Rental real estate investment can be an interesting option, but you might be wondering whether it's better to rent your property furnished or unfurnished. This is a crucial question that can have significant impacts on your finances and rental management.

In this article, we will explore in detail the differences between furnished and unfurnished rentals to help you choose the best option for your rental real estate investment.

Furnished Rentals : A Smart Choice or a Risky One?

Investing in furnished rental properties can offer considerable advantages in terms of financial returns. However, before making a decision, it's essential to understand the benefits and risks associated with this option.

Benefits of Furnished Rentals

Furnished rentals are an attractive option for landlords looking to maximize their rental income.

1-Furnished Rentals : The Jackpot of Profitability?

Furnished rentals can offer higher profitability than unfurnished rentals. Indeed, landlords generally set higher rents for furnished homes than for unfurnished ones.

Moreover, furnished rentals allow for a more favorable tax regime, which can increase the profitability of the investment.

2-Furnished Rentals: Attracting Tenants, a Decisive Advantage

Furnished rentals can be an interesting option for tenants looking for temporary accommodations or for short periods, such as students or expatriates.

The fact that the accommodation is already equipped with furniture and appliances can attract tenants, as it can save them additional expenses.

Furthermore, furnished rentals can allow investors to build long-term tenant loyalty.

3- Furnished Rentals: Short Term vs Long Term, the Investor's Arbitration

Furnished rentals are a smart choice for real estate investors because they offer additional flexibility in terms of rental duration.

Short-term leases, suited for vacation rentals or professional stays, allow for higher rates for short-term occupancy.

On the other hand, long-term leases guarantee regular income and more stable occupancy.

Investors can thus opt for the option that best suits their needs to optimize their yield.

Furnished Rentals : The Risks and Disadvantages Not to Be Overlooked

Investing in furnished rentals might seem like a practical and lucrative solution for landlords looking to get into rental real estate. However, it's important to understand that this type of investment also involves risks and disadvantages that should not be ignored.

1- Furniture: An Investment That Must Be Managed

Furnished rentals necessarily involve investing in furniture and equipment for the property. It's therefore important to manage this investment well to avoid ending up with furniture that doesn't suit the tenants or that wears out quickly.

The landlord may thus face additional costs if the furniture needs to be replaced regularly.

It's therefore important to choose furniture according to the target tenants (students, families, workers on the move, etc.), and to ensure that it is of quality and durable.

It may also be interesting to rent the furniture rather than buying it to avoid investing a significant amount upfront.

2-Furnished Rentals: Transient Tenants, Risks of Rental Vacancy

Landlords often prefer furnished rentals for short-term leases, such as tourist stays or for workers on the move.

This implies that tenants may change regularly, which can lead to risks of rental vacancy.

Indeed, if the demand for furnished rentals is strong in certain areas or for certain times of the year, this may not be the case throughout the year. It is therefore important to properly assess the demand and competition to ensure that the property does not remain vacant for extended periods.

3- Furnished Rentals : When Furniture Can Weigh on Profitability

Furniture can also weigh on the profitability of furnished rentals, especially in the case of frequent furniture replacement. Indeed, if furniture needs to be replaced regularly, this can reduce the profitability of the rental and incur additional costs for the landlord.

It's therefore important to properly evaluate the maintenance and replacement costs of the furniture, and to ensure that the profitability of the rental is sufficient to cover these costs.

4-Furnished Rentals : The Disadvantage of VAT

Renting furnished properties can prove to be a disadvantage due to the imposition of VAT, unlike the rental of unfurnished properties which offers a more advantageous fiscal option.

In other words, renting a furnished villa or apartment subjects you to additional tax burdens, while renting these same properties unfurnished exempts you from this tax.

It's therefore important to fully understand the tax implications before choosing your type of rental to avoid any unpleasant surprises.

Unfurnished Rentals: The Minimalist Choice to Maximize Your Returns ?

One of the most common choices in real estate investment is unfurnished rental property, which involves renting an unfurnished property to tenants.

Advantages of Unfurnished Rentals

Unfurnished rental property investment is a classic strategy for investors who want to generate attractive returns. Although it may seem like a minimalist option, there are many advantages to this investment method.

1-Unfurnished Rentals: The Choice of Stability and Security ?

Unfurnished rentals have the advantage of offering stability and security to investors.

Indeed, furnished rentals often attract a student or tourist clientele. On the other hand, unfurnished rentals are more sought after by families or employees looking for housing for a longer duration.

However, it's important to note that tenant loyalty also depends on the quality of the housing and the relationship with the landlord. Investors must therefore be attentive to the maintenance of their property and the quality of their customer service.

2-Reduced Rental Charges

Rental charges for unfurnished rentals are often lower than for furnished rentals, as landlords are not responsible for the maintenance and replacement of furniture and equipment.

Moreover, this lesser responsibility can facilitate rental management and the relationship with tenants, since there are fewer potential points of dispute regarding the maintenance and repair of furnished goods.

3- Favorable Taxation

In Morocco, landlords who opt for unfurnished rentals have good reason to rejoice! Thanks to a favorable tax measure, they can save money by not paying VAT on the rents received. This means they can set more attractive rents for tenants, which can improve their occupancy rate and increase their profitability.

Circular 717 of the General Tax Code has established that the rental of unfurnished real estate for non-professional purposes is considered a non-taxable civil operation. This favorable tax measure can represent a real opportunity for real estate investors, allowing them to save up to 10% on rental costs.

Disadvantages of Unfurnished Rentals:

Landlords may be tempted to choose unfurnished rentals to save on the costs of furnishing and decorating their property. However, this option can have several disadvantages to consider.

1. Strong Competition Compared to Furnished Rentals

As a property owner in Morocco, it's important to consider the impact of increasing competition in the unfurnished rental market. With an ever-growing supply, it may be challenging to find tenants and rent out your property. This situation can be exacerbated by downward pressure on rental prices, which can reduce rental income. To face this, it's essential to stay competitive and be vigilant at all times. This may require revising your marketing strategy, adjusting rental prices, or even improving the services offered.

2- Lower Rental Income than Furnished Rentals

In general, rental income from unfurnished rentals is lower than that from furnished rentals due to lower rents. This is particularly because tenants must provide their own furniture and equipment, leading to additional costs for them. In contrast, for furnished rentals, rents are often higher to compensate for these expenses for the landlord.

3- Higher Risk of Non-payment

In unfurnished rentals, the lease duration is generally longer, which can increase the risk of non-payment for investors.

Indeed, the tenant may face financial unforeseen events during the lease term and be unable to pay their rent, which can lead to payment delays or even non-payments.

Moreover, the eviction process in case of non-payment can take time and cost money, which can lead to a loss of rental income for investors.

Investors must therefore consider this risk when deciding to invest in an unfurnished rental property.

Choice Criteria for Investors

The choice criteria for real estate investors can vary depending on their investment objectives, initial budget, taxation, profitability, and rental management.

Investment Objectives

To begin with, you need to clearly define your investment objectives. Do you want to earn a regular income from renting your properties, or do you want to build a long-term real estate portfolio? Depending on your answer, you can choose between furnished and unfurnished rentals.

A Realistic Initial Budget

Indeed, real estate investment can require a quite high initial capital. Determining your initial budget before you start your search will help you avoid disappointments and financial problems in the long term. It's important to consider your investment capacity, taking into account your income, expenses, and savings. This way, you can define a price range for real estate that matches your budget and optimize your chances of making a profitable real estate investment.

The Impact of Taxation on Your Investment

If you're considering investing in rental real estate in Morocco, it's crucial to consider taxation. The difference between furnished and unfurnished rentals can have a significant impact on your investment.

To help you make the best choice, it's important to understand the available tax regimes.

The lump-sum profit regime may be perfectly suited for furnished rentals, while the real estate income regime may be more appropriate for unfurnished rentals.

Take the time to analyze each regime and choose the one that best suits your investment objective. This will allow you to optimize the profitability of your real estate investment in Morocco.

The Profitability of Your Furnished or Unfurnished Rental

To succeed in your real estate investment, you need to consider several factors. The purchase price, operating costs, taxes and duties, management fees, and rental income are all important parameters. Do not overlook any detail, as each can influence the profitability of your investment. Take the time to calculate the potential of each option to evaluate the profitability of your investment. This will allow you to minimize financial risks and optimize gains.

Rental Management

One of the key factors for a successful real estate investment is rental management. Management fees can have a significant impact on the profitability of your investment.

It is therefore essential that you find a solution that matches your objectives and your budget.

If you're ready to invest personally, you can manage your real estate yourself. Otherwise, you can call on a rental management professional to make your life easier.

By entrusting rental management to an expert, you can optimize the profitability of your investment while minimizing risks and worries.

Unfurnished or Furnished Rentals : The Rent Match, Who Wins?

Landlords generally offer lower rents for unfurnished rentals than for furnished ones, but this depends on the location of the property and the amenities offered.

However, the initial costs for unfurnished rentals are usually lower, which can offset the lower rents in the long term.

In the end, the choice between unfurnished and furnished rentals depends on the goals and investment strategy of each owner. It's important to consider the advantages and disadvantages of each option before making a final decision.

Salima Hamrini Editor and journalist specializing in real estate.

25 Oct 2023