Furnished Rentals Business Model for those Interested

[furnishedowner]

A few readers on this site have sent messages asking for more information and the "Business Model" of furnished rental homes. So I have now done some research to figure out what the heck a "business model" is!

 I am going to give the six components of the furnished business model over the next few days for those interested. I am happy to answer questions. Critiques are also okay.

It's all a learning experience as my business is evolving and not cast in stone. If something doesn't make sense, tell me. Maybe it really doesn't. I dreamed up this business myself and there are NO landlord books that cover it specifically. I am constantly modifying how we operate.

FURNISHED RENTAL HOMES BUSINESS MODEL

( Value proposition--A description of the customer problem, the product that addresses the problem, and the value of the product from the customer's perspective).

1.  Our current newspaper ad running under HOUSES FOR RENT-FURNISHED (using the monthly rate discount) addresses the customer problem. The product is the fully-furnished home, with all bills paid, at a lower cost than most hotels. And all you need to bring is your toothbrush.

NEED TEMPORARY housing with
all bills paid? 40+ Furnished
Homes, all sizes. 30 day minimum
stay required. $1200-$2100/ month.
($30-$70/day).  Pet Friendly! Call
anytime for info. or availability.
Phone number, phone number,
website address.

Just now I caught that the numbers don't add up! No one has caught that or questioned it however. We have a small studio unit that we have dropped the price on to $900/month as it doesn't have a washer/dryer or stovetop. It is our least sought-after unit, and barely pays for itself.

Tomorrow I will answer any questions and post some customer comments--the value of the product from the customer's perspective.

I am doing this because I believe some of you will find that you ARE in a market that will support a furnished rental. It is a great way to start in real estate, especially if you live in a duplex or have a guest cottage. You will receive the absolute maximum rent possible from your furnished unit, two or three times more than unfurnished. You will minimize negative cash flow. You will have a high quality of tenant. You may even enjoy being a landlord!

Furnishedowner   

[furnishedowner]

When people are ready to leave their furnished rental unit, we put a "Move Out" letter on their door. This letter tells them how we would like the unit cleaned, and what we will charge if they don't do it--such as $25.00 for picking up dog waste, and $25.00 for picking up cigarette butts. I hate both of those jobs. We ask the tenants to clean the oven, refrigerator, etc.

We also ask for comments about their stay. These opinions of tenant value were left behind when they left:

"Comfortable and cozy place, I felt at home while here. Any issues were taken care of promptly by friendly staff. If I return, this will be my 1st choice of lodging."

"Nice and friendly neighbors. Clean apartment."

"I felt very safe. I wasn't in need of anything when I got here."

"The house was great and we loved the location next to the park & the library. It was convenient to move in and already have internet and cable on and ready to use."

"Like the others we have occupied, this unit has everything you could want. For golfers, the proximity to the golf course is great."

"Bed was comfy. Hot water and water pressure great. Cottage was darling--reminded me of my childhood at my granny's."

"Most of all I enjoyed the homey feeling of having a fenced yard for my pup."

These comment sheets have been very valuable. They also allow people to ventilate about what they don't like:

"Too small, too dark, too little storage for anything longer than a week. For what is charged and the cleaning procedure at the end, the charge far exceeds any quality for this stay."

That comment pushed us to give 30-days notice on that furnished home we were leasing. We couldn't improve it, and and this was the 2nd negative tenant testimonial. Other comments we can deal with, such as:

"Maybe pave the parking area @ back apartment. You carry a lot of rocks & dust from those rocks in your car."

"We use a toaster oven daily so we bought one for our time here. There wasn't a large mixing bowl and no stove top utensils."

"Definitely need to replace sleeper loveseat. I had to put throw pillows under the cushions in order to be able to sit on the loveseat at all."

"Air conditioning doesn't circulate air to bedroom--freeze in dining room, hot in BR."

These comments help us maintain the furnished rental units so that they work for the tenants.

Furnishedowner

[Hooch]

This is an interesting business that you have created. Are they all SFH, mulifamily or what?

Are these properties all in the nicer parts of town?

Who is your typical temporary tenant? People doing business or training in your town for a short time frame? Visiting relatives or what?

Are you in a large medium or small city?

[reedmaca]

Great information.  Thanks!

[furnishedowner]

Most of the units are multi-family--duplexes, 4 or 5 cottages on 1 lot, or a main house with a guest house.

Now we have only 1 business-owned SFR (single family residence) left, as we sold the others. We do have some leased SFRs, in order to keep a mix attractive to most tenants.

The SFRs just couldn't carry their weight as far as all the costs, including office overhead. Also the SFRs are larger, and take more cleaning. Our most profitable unit has always been the 1-bedroom. However, this 1st quarter the 2-bedroom units have been the most profitable and sought after. I'm trying to figure out why.

The units are all located in the central, older parts of town. Like many other landlords in other towns, I found the older area to have big trees, sometimes charming architecture, and convenience to bank, post office and library.
Also the housing stock is not so pricey there as in the newer subdivisions. Lots of the older homes had guest cottages added in the back yards. Those guest cottages are gold.

Business travelers like downtown convenience without downtown crime. If a single female can walk her dog down the sidewalk at 11 PM, feeling safe, that is a good barometer. I avoid streets with lots of apartments, heavy traffic, dirt front yards, excessive numbers of parked cars, cars parked in the front yard. If tenants have area worries, and we can't fix it, then we get rid of the property.

The typical tenant is anybody who would otherwise be staying in a hotel. This is a big subject, so I will expand on that another time.

My furnished rental home business is located in a small, lower-income town. Everyone here is pushing to try to hit 50,000 for this census. So I think this business model could work well in larger, more affluent cities. Cities where the cost of real estate is higher and so you need to bring in more rental income to cover that cost.

Furnishedowner 

[Hooch]

I would definitely like to hear more about the typical tenant demographics when you have time to write some more about it. Also about marketing to them. Is this newspaper ad run constantly every single day? Do you use anything else?

And what is the standard vacancy rate?

Also, do you have a Craigslist in your area and if so have you tried it? I get quite a few calls from my Craigslist ad from companies that want short term 3 month leases for health care staff that will be training on a short term basis at one  of the local hospitals. I always turn them down because I haven't considered using this business model that you are developing.

[furnishedowner]

We have a vacancy whiteboard where current and upcoming vacancies are listed. Today there is only one, the ugly duckling "Stone Adobe Studio" which has no washer, dryer or stovetop. It rents only 60% of the time.

We put a monthly ad in our local newspaper whenever the vacancy board starts filling up. Those newspaper ads are available online and people do read them and call from other states. Our paper charges about $90.00 for a 30-day ad.

We don't advertise if we are full. It eats up a lot of time to answer calls from people we can't house. We have tried many other methods of advertising and we track the responses on our "call-in list". It is one of the first questions we ask--"How did you hear of us?" Then we write that on the form and try to figure out which advertising dollars are actually working.

We used to be full almost always, with a waiting list. That changed with the economy in late 2008. Last December we were 25% vacant, which got a little concerning since furnished expenses are high.

Now we are tracking vacancy/occupancy monthly. Our occupancy rate January through May 2009 is 88%. That's not bad, considering right now we have many tenants on 1-month contracts which may or may not extend. The key to lower vacancy is to pre-book units, and have fast cleaning time turn-around.

We have just started using Craig's List, which is just now becoming popular here. It has gotten us a few tenants.  Craig's Rental List here is buried in phony ads with phony pictures from people doing shotgun marketing of supposed foreclosed homes. We're trying to stand out from the phonies.

Hooch, If you are being targeted already by Health Care Agencies looking for housing, you should consider it. Today we have 16 homes occupied by medical travelers. The agencies are our biggest customer. You need to get your pricing estimate in order first (don't under quote) as well as furnishing the units.

The good thing about medical agencies is that they are very loyal, if you are helping them solve their problems. Imagine you are a Housing Clerk for an agency. Now the nurse recruiter calls you and says, "I have a nurse who will sign a 3-month contract for the Medical Center if she gets good housing. She says she's sick of hotels. She also has two cats."

Now you, in charge of housing, have 2 options:

1. Try to rent a nice,vacant apartment, five states away, sight-unseen, on a 3-month lease. It must accept cats. And be in a safe area for night workers.

2. Call a Rental Furniture place and arrange delivery of an entire 1-bedroom apartment's furniture, dishes, microwave, etc.

3. Call the gas, electric, cable TV, water companies to get your nurse her utilities. Spend lots of time on hold, while you do it long-distance in another time zone.

OR:
JUST E-MAIL to FURNISHED RENTAL HOMES: "We need another 1-bedroom.  The nurse is arriving Saturday with 2 cats. Let us know which unit she is going into. We will overnite the check with UPS."

Which option would you choose if you are the Health Care Agency Housing Booking Clerk?

Furnishedowner
 

[furnishedowner]

One of the things that pushed me to furnish my first rental units was a stay in a motel. I had just pulled into town for the real estate closing the next day on the duplex rental units we were buying, and was checking in again at the small locally-owned motel where we usually stayed.

The driveway was full of white logo trucks, and the lobby full of traveling gas pipe and electric company workers. "We're back for 3 weeks this time, Ma'am," one of them said as he checked in.

"Those are some of my regulars," the lady behind the desk turned towards me. "They come here all the time, their companies put them up on them corporate credit cards."

Bingo. A light bulb went off in my head. I knew what I was paying, and if those four "regulars" were staying for 3 weeks this time, that was pretty good money! Why couldn't they stay in my future rental units?
Which were going to be a lot more comfortable than this little motel! Which could have washers and dryers, kitchens, recliners, and dog yards! Yard chairs to sit outside and gab in.  Barbeque grills for the steaks!  A plan was forming in my head.

Now five years later, some of those gas and electric people do stay in our fully-furnished rental homes. But our biggest customer has become  the traveling temporary medical worker.

After painting, cleaning, furnishing and decorating our first duplex for weeks, I had made a call on our local hospital's then Human Resources Director. I made my pitch with colored pictures of the units, and she agreed to come by to evaluate them as potential housing for their temporary emergency room doctors.

It was a big day when the HR Director pulled up in front of the duplex.  I was outside waiting. Everything inside was polished and shone. Cowboy music was softly playing, the lights blazed and fresh flowers were on the kitchen table. I was almost out of money and desperate for a tenant. Desperate for the hospital to like us and send those nurses and doctors our way.

"Very cute," she sniffed, walking inside with her clipboard.  "But there is no garage, your rent is WAY too high, and I don't like the landscaping OR the area. This isn't going to work for the hospital."

It was devastating. Didn't like the landscaping! It was FEBRUARY, for pete's sake!  Didn't like the area!  The area was charming, historic, and full of trees!  With National Historic Site designation! ...No, not new and tacky-suburban, where SHE probably lived.

I went back in and dropped onto the couch. In that bright, fragrant, homey room with music playing.  I couldn't move, or even gather my thoughts. That day became the bottom. The rock bottom.

"That tasteless b---- is not going to sink me," I finally thought. I was trying to get my grit back up. "The tough don't quit, they keep toughing it out." "No one is going to stop me, I will show them."

I hammered in a "For Rent" sign in that frozen front yard. I drove to the local newspaper office to put in an ad. "FURNISHED Houses For Rent?" said the ad lady, "We don't have a category like that. No one asks for that. Wait, oh, yes, we do."

That ad brought my first customer, a traveling Texas cowboy who owned a fireworks company. "I am so tired of hotels," he said, stepping inside and wiping his cowboy boots. He took off his hat. "This place looks just right for me, and I'll take it if you can give me a little break on the price."

"What can you afford?" I asked, "I can give you a better deal than the hotel, and you got your own kitchen, washer and dryer." We settled on $1200 a month, down from my test-the-market hoped-for rent of $1800.  The first tenant.  Who stayed six months. Now I was in business. The former owner had rented that unit for $400.

A few weeks later we got our first self-pay nurse. Then our first agency, referred by co-workers of that first nurse. Now five years later, we have housed hundreds of medical staffers.

There have been locum tenens doctors in a number of specialities, especially hospitalists, and pathologists.  Nurses, physical therapists, x-ray technicians, surgical techs, heart cath techs, mammogram specialists, laboratory technicians. Also infection control professionals, and hospital auditors. Anyone you see in a hospital could be a traveler! If the hospital doesn't have adequate staff, they can pull them in from nationwide agencies that do nothing but supply temporary, skilled, and highly-paid workers to all facilities in the United States.

Housing medical workers is a boon to the furnished rental home business.

Furnishedowner

 

[Brian06]

This is great stuff.  Thank you again.

[Hooch]

This is a fascinating story. Entertaining and written with a nice style.

You should seriously consider writing everything you have learned about the furnished rental business here, writing about one specific aspect or another and as time goes by you will have enough together for a book to sell and train newbies in this niche market of real estate.  You will need to cover it from this interesting history of how you got into it, to what to look for in a good furnished property, to negotiating the first deal, best places you have found to get the furniture, used or new, how to communicate with your tenants, what to expect from them, how to get them, etc.   

Good Stuff!

[furnishedowner]

Thank you, guys. It's nice to hear that you enjoyed it! I like to write, and I have done little chapters on "Curtains, Sheets, and Towels", and some other basics. All the stuff I had to learn by trial and error. But it is more fun to write in a stream of consciousness sort of fashion rather than a text.

There are a dozens and dozens of regular real estate books, but no furnished real estate books. I have found a "How to Have Vacation Rentals" book, and there is a book on renting furnished to handicapped people.

I'll keep writing as it's more fun to have you all as an audience actually reading it. I would like to gather it into a book when I am out of stories, so thanks for encouraging me.

Furnishedowner

[jbhollis1180]

I'm glad you are doing this post!  I have seen many posts from you before with a little detail here and a little there, but I was always curious as to how exactly you ran this unique business.  Thanks again and I look forward to reading many more posts. 

[furnishedowner]

Temporary traveling medical staffers are a huge market for furnished rental units. Look to your local economy for other prospective tenants.

If you are interested in furnishing your rental units, do some research on your local manufacturing companies. In our area, we have a huge cheese factory, a candy factory, a Christmas ornament factory, dairies, milk-shipment plants.

There is also a large airport that does airplane painting, repairs, and parting-out. I learned that today as we checked in an executive who is in charge of parting-out an Air New Zealand 747. Airports are a good source of tenants; we also have people staying with us who were hired to put in new runway lights. That kind of expertise is seldom local; it is a speciality job and those workers travel. They will need housing. Go visit your local airport and talk to the manager about people who come regularly and need furnished housing.

Also here there are ranchers, cowboys, and a downtown stockyard and horse and cattle auction house.  Your area will also have industry of some kind. Those industries will have prospective employees, new-hires, consultants and head office executives. If there is a plant expansion, there will be a construction foreman, electricians and installers. Many from other areas, just in town to do the job.

Federal and state employees are the next category of prospective tenant. Here we have a U.S. Border Patrol training facility about an hour away. That facility also trains Indian Police, Secret Service, Air Marshalls, Tobacco and Firearm agents, every kind of federal police.

Government workers make great tenants. They will have a per diem stipend for the local hotels. That stipend is calculated annually, and would be much higher for, say, Washington D.C. and New York City than for our rural area. We accept the government per diem, currently $70/day for any and all furnished housing. This per diem stipend is one of the lowest in the nation. It was initially $60/day. It could be hundreds more in your area. We charge the going rate because these government workers can leave with minimal notice. It is as if they are staying in a hotel and can just check out. But $2100/month for a furnished unit helps make our business profitable.

After Hurricane Katrina, government officials were rightfully concerned about helping the populace MORE during disasters. So when Hurricane Rita was threatening the SE coasts later that season, we suddenly had 4 or 5 Border Patrol agents who were ordered east. They left with just a phone call for notice. We accepted that and have special contracts for government employees basically allowing them to leave anytime, for any reason. That is why we charge the maximum per diem. That is why we don't charge any deposit on those workers. We function like an extended-stay hotel.  We customize the service needed for the tenant.

Furnishedowner

[furnishedowner]

There are websites that tell you the current government GSA (General Services Administration) per diem rates for federal employees on travel. This rate becomes effective October 1 of each year and is set for the fiscal year. There is a complicated schedule whereby rates are set for high-and-low season in different areas.

We love to hear the question: "Will you accept the government per diem?"

YES. We will.  Currently, the 2009 per diem for Washington D.C. ranges from $165 to $233 per night. New York state is $79 in Niagara Falls, and $360 in Manhattan.

The standard rate for 2009 is $70 for lodging, $39 for meals and incidentals. The meals and incidentals don't affect our rental business, it just compensates the government employee for his/her other travel expenses.

3,000 counties have the standard rate set by GSA. If your city or county is not listed, you will be under the standard rate. Sometimes you see hotels advertising the "Government Rate". This may or may not be the same as the GSA rate.

In our state, traveling state employees have a per diem compensation rate of $85-$115 per night. This may cover more than lodging.

You might say, "We have no government employees here, so I couldn't get that rate for my furnished rental." 

But don't you have a Military Recruiting Office? Where are the Marine, Army, and Air Force recruiters staying? How long are their stays? Aren't they on the government per diem? Drop in and visit your local recruiter; they are there to talk with locals, even if you're not signing up.

Here we have had a number of state traveling veterinarians stay with us. They come to test water, do necropsies on dead animal populations, and evaluate fish habitat, etc. There have been USDA (U.S. Dept. of Agriculture) employees as well. These employees get state or federal travel benefits.

Remember, anyone staying in a local hotel for weeks or months could be your tenant. You just have to find your market in your area.

Furnishedowner

[Hooch]

Wow, you really know where to find these people. I never would have thought of some of the things you mentioned. This information is highly valuable. You clearly have a very good handle on the furnished rental business.