My first furnished lease came out of a conversation at the county permit desk

I mostly buy land and hold it, and I own one small house that came attached to a parcel I wanted. It's been a plain rental for four years at $1,450.

I was at the county permit counter about a lot split and got talking to someone waiting behind me who was pulling permits for a utility substation upgrade. He mentioned his firm was putting two engineers in the area for about five months and the nearest extended-stay hotel was 30 minutes out and running $110 a night per person.

My tenant was already leaving in six weeks. So I asked him who at his firm handles housing, got a name, and emailed her that afternoon with photos of the empty house and a number.

How it went. I furnished it for $8,600, buying most of it in one weekend from a warehouse store and a couple of estate sales for the dresser and dining table. Utilities, internet, lawn, and a cleaning every other week are included and run me about $420 a month. They signed a five-month lease at $3,100, company as tenant, one of the engineers named as occupant, paid monthly by ACH on invoice.

Over five months that's $15,500 in, about $2,100 in included costs, versus $7,250 if I'd re-rented plain. So call it $6,150 more, against $8,600 of furniture I still own.

The part that nearly broke it: they wanted a W-9 and a certificate of insurance naming their firm as additional insured, and my policy was a plain landlord policy. I had to call my agent and get that sorted in four days, and he told me furnished short-ish stays can change how a policy is written, which I did not know. Talk to your own agent about that, it isn't something to guess at.

What I'd keep: asking who handles housing instead of pitching the guy in front of me.

4 replies

0diane_kowalskiPassivePRO9

@marlow that's the question I had too. Also @parcel, was the five-month lease firm, or did it have an early out if the substation job finished ahead of schedule? Every corporate lease I've read about seems to have a termination clause with 30 days notice and I don't know whether that's standard or just what people accept.

2Rena Expert

@arbor early termination language is common in corporate leases because the company's need is tied to a project schedule they don't fully control. It isn't imposed on you. It's negotiated, and the trade is usually rate. A firm five-month term at a lower monthly number and a cancelable term at a higher one are both reasonable structures. If you accept a 30-day out, you're carrying the schedule risk, so price it.

On @parcel's numbers, the thing doing the work isn't the $3,100. It's that the unit was going vacant anyway and the furniture spend was $8,600 rather than $18,000. The furnished premium here is about $1,650 a month gross, roughly $1,230 after the included costs. That pays back the package in about seven months of occupied time. If the unit is occupied furnished eight months a year, the package earns its keep. At four months a year it doesn't, and you'd have been better off plain.

So the assumption to test is annual furnished occupancy, not the monthly rate. Rate is easy to verify by calling extended-stay hotels and a corporate housing provider in your market. Occupancy you can only estimate from how many placing entities you actually know.

One mechanical point. Stays of 30 days or more often fall outside city short-term rental ordinances, but that threshold and its definition vary by city and state, and some jurisdictions apply lodging or occupancy tax below a longer cutoff. Read your own ordinance and confirm the tax treatment with a professional in your state before you price around it. How furniture is depreciated is also a question for your CPA.

3tylerbrooks9PassivePRO5

What I like about this is that nothing about it required you to become a hospitality operator. One lease, one company paying by invoice, biweekly cleaning. That's about the boring end of the range I'd be willing to work at.

My first furnished lease came out of a conversation at the county permit desk

4 replies