Thought process behind rental property budgets.

In the last two months I have gotten calls from people who have purchased foreclosed properties, some of them quite expensive too. Their plans are to turn key furnish the property and put it in a rental program. The new issue I have been facing though is that they put all their money into purchasing the property and have very little left over for furnishing it.

Here is how I come up with a budget for turn-key furnishing a property for rental.

First take into consideration the true value of the property, just because it was purchased for hundreds of thousands dollars less - it still has a perceived value.

I am going to use the latest job that I did not get because the owners were unrealistic about the cost to furnish it. They purchased the home for I'm guessing $1 million, I think it probably is worth $1.3 mil. Location is amazing - walking distance to St. Armands circle, on a canal with a dock and lift. Short distance to Lido Beach. Gorgeous mediteranian style home. Approx 4500 s.f., 4 bedrooms, 3.5 baths, den, family room, game room, laundry, kitchen, living room, dining room, breakfast room, 3 lanais and a rooftop deck! Not a stick of furniture, window treatments or electronics - completely bare.

If furnished properly and to the level that the house demands it could easily rent for $12-15,000 a month! So after crunching the numbers and my rates are very fair I came to $137,000 to turn key furnish it with window treatments, electronics and the works - move in ready. And what I have found over the years is that if the owners put in 10% of the property value it will come out perfectly - my fees included in that figure.

The owners then email me that their budget is $60,000! Four couples bought this house together and all they can come up with is $60k. I was floored! The house had to have 30 windows and sliders - how on earth can those be dressed with this budget? Not to mention the number of tv's and electronics needed. There wasn't even a washer and dryer in the place.

When furnishing a property for rental I have a checklist of all the items that are to go into that property; everything needed in the kitchen, bedding, t.v. size requirements, etc. Think about it this way, if you are going to pay $15,000 a month for a rental property you probably have a lot of money in the bank and you are used to a certain level of comfort and you expect the same or close to the same level as you have at home. So I emailed them that there is no possible way that They, I, or anyone else could turn-key furnish that place for $60k AND get it rented. I said prove to me on paper how it can be done and I will do it. My thought process is that once they put some real thought into it they would realize it can't be done. I also said if they came up with $85k I could realistically attempt to do it. Never heard from them again....

To do that place for $60k I would have to put roller shades -without the blackout liner on the bedroom windows only, one bed, one nightstand, one lamp, and one set of bedding in each of the bedrooms, no t.v. in the living room, one flatscreen in the game room and one in the family room, there wouldnt be much of any artwork in the place and the rest would go to furnishings. I would only be able to put KMart outdoor furniture on two of the lanais - if I'm lucky and I would be doing this for free because there would be no money left to pay myself! SPARSE would be the design concept!

So yes, it can be done for $60k, BUT, can it be rented? Definately not for $15,000. Maybe for $3,500. So that equates to a huge loss of income. Had the owners chosen to do it right the first time, they would have paid for the cost to furnish the property within the first year from the rental income they could have aquired at the higher rate. When you decorate to the level of the property value the results are that the property is rented far more often than a property that is done cheaply.

For example, I had one couple who called me after the rental company told them they would be dropped from the program because their condo was not getting rented and was too dark. I came in renovated the place for about $40k and the results were that the property is rented most of the year and they couldnt even use it themselves because it was always rented out! The renovations were paid for the first year - now it's all gravy!

I had another couple called me that bought a luxury condo at the Ritz. It was completely empty when the rental agent wanted to show it to a potential renter so I showed up with the concept boards in hand and they signed a 2 year lease at $20k a month! The place is gorgeous and again was paid for in the first year - gravy!

When purchasing a property, owners can use a general rule of 10% of property value to turn-key furnish the place so that it is getting the most out of the rental program.