Furnished or unfurnished rental ? Advantages and disadvantages
While in some countries an owner may see a tax benefit from renting out an unfurnished property rather than a fully furnished one, in Luxembourg the owner sees no such benefit. Whether or not the decision to equip your rental property will affect your taxes, it is still important to consider. The following advice will assist you in making the best decision possible.
Taxes are the same whether you rent an empty house or a fully furnished apartment
Rental income (rent received during the fiscal year) is reported (and subject to the same taxation) in the same way for both "empty" and furnished properties. The tax burden, however, can be mitigated by deducting depreciation from the owner's overall income. An investor in a fully furnished apartment may deduct the cost of the furnishings over a short period of time in order to lower their taxable income. The tax implications of this question should not guide your thinking; rather, you should consider the needs of the people who will be living in the property to determine whether or not it is necessary to equip the property.
"Consideration of this matter should not be motivated by tax considerations”.
Consider the market before furnishing (or not) your rental property
Now that you're a landlord, you need to figure out if the people who might be interested in your rental property are students. New graduates? Those with kids? Who are these people? Are the people here generally wealthy or more modest?
To put it more concretely, if you live in a studio or two-room apartment near public transportation and schools that caters to a young and student public, it is in your best interest to furnish your apartment so that it is more appealing to that demographic. These consumers rarely have the time or money to buy new furniture and appliances, so they will appreciate renting a studio where all they need to do is bring their own belongings.
However, once you reach 3-, 4-, or 5-bedroom homes or your demographic shifts to adults with established careers, empty homes remain in demand. A family that is already well-furnished may have trouble relocating to a furnished home because it will likely not want to get rid of any of its belongings.
“For a family that has everything they need, moving into a furnished apartment can be a disaster”.
Which, renting out an empty or furnished property, yields the highest rate of return?
To begin, the monthly cost of a fully furnished apartment is typically higher than the monthly cost of an identically equipped and unfurnished home (surface area, services, neighborhood, etc.). Spending more money up front on furnishings for the rooms will result in higher earnings in the end.
Nonetheless, keep in mind that upkeep expenses can make a significant impact. There is significantly more turnover in furnished apartments as opposed to unoccupied ones. Tenants come and go from rental properties, and they aren't always the most careful with the tools. Overall, you run the risk of higher maintenance costs to keep the apartment in good condition, as well as more time and effort spent on the hunt for new lease signers.
In the end, the purpose and size of your lodging will dictate whether you opt for an empty or furnished rental (it is easier to furnish a studio than 5 rooms). For optimal decision-making, you should first ascertain the rental demand for your property type.