By Paul Sheremeta
March 2013 was a busy and exciting time for my wife, Melissa and I. We were moving into our new home in North Vancouver while at the same time setting up our first investment property. We handed over the keys to our hospitality management company and just days after our Agreement and Tenancy Start date, our first guest was in place.
As I write this article, it has been just over two years since we converted our previous residence, a condominium in Kitsilano, into a furnished rental property. The past two years have been very rewarding – both financially and personally. It is very satisfying seeing that the hard work that went into setting up this property is paying off. Let me share with you the most important steps that led to where we are today
I had been a REIN member for nearly two years and we were ready for our first investment property. At a REIN monthly workshop I learned about the furnished rental investment strategy. I had suspected that this strategy could be a good fit for our condo and I wanted to learn more. I knew that Derek Peever, an acquaintance of mine through REIN, was having tremendous success with furnished rentals. I reached out to him and asked if he would be willing to meet with Melissa and I to discuss the ins and outs of setting up and managing an investment property of this type. Derek agreed and I cant overstate the importance of that meeting for us. During the course of that meeting our idea became a plan and we left with the confidence to say, This is something we can do! On top of being incredibly gracious and generous with his time, Derek was also incredibly helpful. He provided us with a wealth of information (things to consider, links to follow, etc.) During that meeting, Derek also sent an email, on our behalf, HighStreet Accommodations.
A few weeks later we had our first meeting with them. Very early on in the process, I was asked for the strata bylaws for our condo to ensure the bylaws would allow rentals in our building. Upon being presented a contract, we reviewed it with our lawyer.
Getting the property ready for occupancy was a fair bit of work and it required a significant initial outlay of cash. We were given a comprehensive and itemized list of all the things required for one of their fully furnished suites. We purchased new couches, an HDTV, a king-size bed, kitchenware and linens. We also did some painting and some minor renovations.
Looking back, two years later, Melissa and I are very happy that we chose this path. Our Kitsilano condo is a perennial performer in our portfolio. In 2014, our suite was occupied 353 days for a 97% occupancy rate – with the same couple!
Under the right circumstances, I would highly recommend the furnished rental investment strategy. Based on our experience, here are some things worth considering when starting out:
– As with any investment property, location is key. Choose areas where there will be excellent demand for your rental.
– You will have to spend more money up front to get the property up and running.
– The property has to be in excellent condition and it must be maintained to very high standards.
– Rents generated from a furnished suite, however, can be significantly higher than what you could expect from the same property rented out unfurnished and longer term.
– There could be a higher turnover rate, (the minimum stay for a guest is 30 days) and possibly some vacancy between guests. As a result this type of property can be much more management intensive.
– Who will handle all the property management responsibilities? Will you do it yourself? Will you hire a property management company, or a corporate housing provider?
Here are some of the responsibilities that a corporate housing provider will handle on your behalf:
– Marketing the property
– Establishing and nurturing excellent referral relationships with global partners
– Scheduling and booking guest reservations
– All aspects of accounts receivable including credit and collections
– Housekeeping and maintenance from their own in-house professional staff
– Professional linen laundry
– Ensuring full compliance with all property bylaws and strata rules
For my wife and me its a no-brainer. We both have careers and busy schedules. We have no problem paying for services that add value to our business and our quality of life. After HighStreet Accommodations takes their well-earned share (which is much higher than typical property managers) we are still left with a consistent positive monthly cash flow, which is hundreds of dollars more than we would have if we rented our suite unfurnished (and we dont have to worry about management or operations).
On the other hand, you may feel that you have the bandwidth to handle the day-to day responsibilities for this type of property yourself. Maybe the challenge of managing your own furnished rental excites you. Maybe self-management is the best or possibly the only option where you choose to invest. If this is the case, I would encourage you to lean into the process and give it your all because customers pay a premium for impeccable service.
My wife and I have been very fortunate. In the time that we have owned our condo, the value has more than doubled. Because the mortgage remaining on the property is relatively low compared to the rent that we are able to charge, the numbers make excellent sense. However, if we were to purchase and finance this property today, at its current value, even with the higher revenues generated using this strategy this property would not positively cash flow.
For that reason, if this strategy appeals to you, seek out areas of excellent affordability.
Perhaps you have an under-performing property in your portfolio that might do well if you converted it to a furnished rental? Or maybe your residence would make an excellent furnished rental? If you have enough equity in your home, maybe it could be the springboard to a new home and your first investment property!
Paul Sheremeta is a strategic real estate investor who owns cash flowing properties in B.C. and Alberta. He is a B.C. REIN member and a dedicated student of investing strategies. Contact Paul at firstname.lastname@example.org