Subletting and To Furnish or Not To Furnish

By
13/01/2014


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Subletting

Question: My tenant asked if she could sublet one of the rooms of our three-bedroom rental property to another person. What’s your view on this? What are the risks of this strategy and how do we ensure we protect our property?

Answer: There are some simple steps that help transform a sub-letting scenarios from a potentially risky situation to a sound and accommodating business arrangement. Let’s start by acknowledging that the idea of a tenant subletting part of a rental property is not an outrageous proposition.  When a financial institution settles on terms with you for a loan for example, you are solely responsible for the repayments, and the source of the funds is largely irrelevant.  

Similarly, your tenant is responsible for the full payment of the rent, as the landlord, regardless of sub-letting, economic climate or occupancy.
The notion of allowing your tenant to share the cost of renting your property by subletting to someone completely unknown to you may still leave you with some misgivings.  Keep in mind, though, that you can reduce risk and give yourself some piece of mind by taking into account the points below.

Ask that a prospective subletting tenant complete a tenancy agreement.  With this in hand you can carry out any checks that you deem necessary and your tenant, assuming all is as it should be, can rest assured that the rent for which they are ultimately responsible is being part paid by someone who has checked out. Win/win!

Write it down.  Another safeguard that you can put in place requires the tenant to engage in a binding agreement with the subtenant that complies with regulations.  As always you should be very clear on this point from the outset, in fact put it down in writing before your tenant sublets.

Check your insurance.  It is important that when you are allowing or making a significant change to how your property is going to be used, you ensure that you remain protected by your policy.  Some changes may lie outside the terms of your existing policy, so as usual, it’s best to check and be sure you have the appropriate insurance policy.

Finally, it is as reasonable for tenants to seek a subletting scenario to manage costs as it is for the landlord to be protected against incurring additional costs. While a landlord cannot deny a reasonable request to sublet, a tenant should not deny reasonable requests to safeguard both the return on investment and the savings benefits that come with subletting.

-Nicole Keene

To Furnish or Not to Furnish

Question: When do you consider furnishing your rental property? I heard from a few investors that they’re able to generate good cash flow by furnishing their property. Is it a good idea? When is it a bad idea?

Answer: Frankly, a furnished property can be as divisive as it can be rewarding because it is difficult to pick the “right” furniture for a prospective tenant you have never met.   But let’s look at some tips and tricks as well as the pros and cons of the “furnished” .

On the one hand, furnished properties may emphasise the lifestyle that a tenant might enjoy in a given location to great effect, as well as minimising imperfections that may be obvious if the room is empty.  Furnished properties often generate higher rents and attract shorter-term tenants such as “seasonal staff”.  On the other hand, these types of contracts may be reviewable at six-month intervals and must be managed carefully to protect against occupancy issues that could keep you out of pocket for five-plus months.

When considering a furnished apartment, the prospective tenants are no longer just asking themselves if the property is suitable; they maybe be having doubts about the shape of the dining room table, the age of the sofa or perhaps the size of the fridge.  And will those higher incomes I mentioned cover the cost of upgrading your furniture as fashions change and certain furnishings become outdated?

The solution here is to ask those in the know: a property manager in the local area who has extensive experience in furnished properties would be ideal.  Find out what has worked best in the area and use this as your guide.  Doubtless, they will advise against expensive, highly stylised options and suggest you stay with standard, budget furniture options that are neutral and adaptable to various lifestyles.

Finally, keep in mind that if demand trends shift away from furnished properties you may face the prospect of lengthy periods of vacancy.  In cases such as these, desperate times call for desperate measures and I have seen investors throwing out their furniture in the hope of regaining the interest of prospective tenants.

Furnished property options do present opportunities to attract a wide variety of tenants as well as tap into niche markets, but the key may well be to leverage local knowledge from experts in this field.

-Nathan Birch

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