A common question asked by investors is whether to rent their investment property furnished or unfurnished. Brad Beer looks at how furniture can impact depreciation in terms of the deductions which can be claimed, the assets investors may not be aware will be classified as furniture and the specific types of residential properties in which furniture is more likely to be prevalent.
Transcripts:
Kevin:  A fairly common question asked by investors is whether to rent their investment property furnished or unfurnished. We’re going to give you an answer to that. Furniture can improve an investor’s depreciation claim. In fact, Brad Beer from BMT Tax Depreciation joins me.
Brad, does furniture impact depreciation in terms of the deductions that can be claimed?
Brad:  Kevin, great to be here as always, firstly. And yes, furniture, effectively is plant and equipment. It’s items within a property that are used to help increase that income. Usually, you’d hope that the rental income from a furnished property is slightly higher.
The furniture that you have there, all of that is a plant and equipment item. It’s written off fairly quickly in comparison to the structure of the building, so yes, it gives you additional deductions and additional cash flow after tax if you furnish the property.
Kevin:  Brad, are there any assets that investors may not be aware could be classified as furniture when they’re calculating a depreciation claim?
Brad:  Firstly, they probably shouldn’t calculate it themselves. But some of the items that you don’t think about if you were to buy a furnished property are things like even children’s play equipment is a plant and equipment item.
Chairs outside on the deck or the porch are examples of things that may be easily missed. Things like garden gnomes are potentially things you can claim depreciation from. Anything that’s kind of loose that you put inside that property or outside the property, for that matter, is potentially an item that you own that has potentially some depreciation attached.
Kevin:  I guess any house that’s being rented with a pool, that has pool equipment, that’s probably another good example, isn’t it?
Brad:  Yes, pool equipment. In a pool, your pumps and things have a different rate that’s a bit faster than the structure of the pool. But even your other equipment around there that’s loose, you generally would be providing that as the landlord and they’re things that you’d be entitled to some depreciation against.
Kevin:  Are there any specific types of residential properties where you’ll find furniture more likely to be prevalent?
Brad:  There are a few obvious ones or maybe not so obvious. Student accommodations are often furnished because students don’t often own a lot of their own furniture, or I didn’t when I was a student, some old stuff. But when you’re providing that student accommodation, it’s very regularly provided furnished.
Obviously, if you have a holiday home that you use part of the time and rent out the rest of the time, you usually always have to have that furnished. A lot of Airbnb these days: people are using their properties for that sort of thing, so furnished property in those sort of situations.
Look, I have furnished property as well, and it’s just because it was actually furnished when I bought it, which was good because I didn’t actually pay for all the furniture, but I got it as part of the purchase, and the depreciation on that was quite high in the early years, as well.
Kevin:  I’m curious to know from you, then, if you think that it’s a disadvantage or an advantage when you’re renting a property if you leave the furniture in there, Brad.
Brad:  Furniture is something that will potentially help to increase the rental amount that you can get for the property, but not everybody wants a furnished property, either. It needs to be transient areas or areas where students might want to live and you want students as tenants who might be nice or not nice to your furniture.
I don’t think that it’s always right to put furniture into a property, because sometimes it’s just not the right thing. If it’s a property in the right area that has the ability to get additional rent because of that, it’s a factor to consider.
Buying furniture for the purpose of more depreciation is not a good idea, because you have to pay for it. Depreciation is great if you have the furniture, but if you have to pay for the furniture, don’t make that the reason.
You have a bit more maintenance and a lot more things to fix up when you have furniture in a property, because furniture is more likely to break than your brick walls, for example, but that’s why you get the claim a bit quicker. The turnover of tenants is often a bit quicker because most people in their life want to buy furniture of their own at some point.
Look, there are some pros and cons, and it depends on areas, but my furnished properties worked very well for me.
Kevin:  With furnished properties, too, one of the other problems is if it breaks down, you’re obliged to replace it because it was part of the original lease. So, that’s something you have to bear in mind, as well.
Brad:  Yes, and it does break down more regularly, and that’s being nice. But generally, people, when they don’t own the furniture are probably not quite as careful with it sometimes, so it’s likely to break down.
Yes, because you’ve provided it as part of what they’re paying the rent for, you have an obligation to replace some of those things, so it can become a bit more expensive. But in the right area, sometimes you can get really good rent for a furnished property.
Kevin:  Yes, you have to balance that out for yourself, that’s for sure. Brad Beer there from BMT Tax Depreciation.
Brad, thanks for your time.
Brad:  Thanks, Kevin.