The advantages and disadvantages of furnished vs unfurnished rental property

L'eletal property in France offers investors two main options: furnished and unfurnished rentals. These two types of lease offer distinct advantages and disadvantages for both owners and tenants. Understanding these differences is essential to making an informed choice, as they can have implications for property profitability, rental flexibility, as well as tax and legal aspects.

1. Furnished rental

Definition

Furnished rentals consist of offering accommodation equipped with all the furniture necessary for the tenant's daily life. By law, the accommodation must include a certain number ofessential items, such as furniture, appliances, kitchen utensils, bedding, etc. The aim is to enable the tenant to settle in without having to buy additional furniture. The aim is to enable the tenant to settle in without having to buy additional furniture.

Benefits

1. Higher rents

One of the main advantages of furnished rentals is the ability to set higher rents. Furnished accommodation, particularly in large cities and tourist areas, is often sought after by students, young professionals or professionals on temporary assignments. As a result, landlords can usually charge 10-30% more than for equivalent unfurnished accommodation.

2. Shorter, more flexible leases

Furnished leases are often shorter, with a minimum legal term of 1 year for standard rentals, or 9 months for students. This flexibility enables owners to adapt more easily to market changes, or to recover their property more quickly for personal use.

3. Attractive tax benefits

By opting for furnished rental, the owner can benefit froma more favorable tax regime. They can choose between two systems: the micro-BIC system (Bénéfices Industriels et Commerciaux) and the actual system. The former provides a flat-rate deduction of 50% on rental income, while the latter allows the deduction of numerous expenses (depreciation of furniture, works, etc.), which can significantly reduce taxation.

4. Growing demand

The demand for furnished accommodation is constantly increasing, especially in urban areas. Young professionals, expatriates and professionals on assignment often prefer fully-equipped accommodation for its flexibility and comfort.

Disadvantages

1. Higher maintenance costs

Owners of furnished accommodation regularly have to replace or repair furniture and appliances. This can represent a significant cost, especially if the tenant is not very careful. Maintenance management is therefore more time-consuming and costly than in unfurnished rentals.

2. More frequent turnover

The temporary nature of furnished rentals can lead to a high turnover of tenants, which means more frequent vacancy periods. This generates additional costs (inventory, refurbishment, finding new tenants) and an increased risk of not renting the property for certain periods.

2. More complex management

The investor must ensure that the property meets the comfort standards required by law. What's more, managing equipment, insurance and potential disputes can be more complex than for unfurnished rentals.

2. Unfurnished rental

Definition

Unfurnished, or empty, rental means renting a property with no furnishings, except for basic equipment such as kitchen and bathroom facilities. Tenants are responsible for bringing their own furniture and equipment.

Benefits

1. Greater rental stability

Unfurnished rental contracts have a minimum duration of 3 years for conventional leases, offering greater stability for the landlord. Unfurnished tenants tend to stay longer, as they tend to settle in more permanently. This reduces the risk of vacancy and the costs associated with finding new tenants.

2. Less management and maintenance

Unlike furnished rental, the owner of an unfurnished property doesn't have to worry about maintaining furniture and appliances. This simplifies day-to-day management and reduces maintenance costs. Obligations are limited to the structure of the property and essential equipment.

3. Stable rental income

Although rents are generally lower than for furnished accommodation, the stability of tenants often guarantees a more predictable rental income. The landlord can count on a more regular cash flow, without having to deal with the frequent interruptions associated with tenant changes.

4. Advantageous tax system

For unfurnished rentals, the owner is subject to the property regime. They can opt for either the micro-foncier system, with a flat-rate deduction of 30% on rents, or the real-estate system, which allows the deduction of numerous expenses (work, loan interest, management fees, etc.).

Disadvantages

1. Lower rents

Rents for unfurnished rentals are generally lower than those for furnished ones, as the tenant takes care of the furnishings and often settles in for a long time. This can limit the profitability of the investment, especially in areas where rents are capped or subject to strong competition.

2. Stricter termination constraints

Owners of unfurnished accommodation are subject to stricter rules when it comes to terminating their lease. It is, for example, more difficult to reclaim your property before the end of the contract, except in the case of sale or personal use, and even in these cases, the notice period is longer (6 months versus 3 months for a furnished rental).

3. Less flexibility

Because of the longer lease terms, the landlord is less flexible in adjusting rents upwards in line with the market. What's more, it's more difficult to quickly change tenants or sell the property without waiting for the lease to expire.

3. Tax and legal implications

Taxation

As mentioned above, furnished rental is subject to the BIC regime, while unfurnished rental is subject to the real estate regime. The choice between these regimes depends on the owner's personal situation, but it's important to note that the real estate regime, available for both types of rental, makes it possible to optimize expenses and depreciation to reduce taxation.

Regulations

Furnished rentals are subject to specific obligations, particularly in terms of furniture quality. In addition, the lease contract and termination conditions differ. The tenant of a furnished property has a reduced notice period (1 month), whereas for an unfurnished property, this is generally 3 months. For the owner, the constraints are also different, especially as regards the time required to recover the property.

Conclusion

The choice between furnished and unfurnished rental depends on the investor's objectives. Furnished rental offers greater flexibility and higher rents, but requires more active management. On the other hand, unfurnished rental guarantees greater rental stability and simplified management, but with potentially lower returns. It's essential to consider the tax aspects, legal constraints and market situation before embarking on either option.