Niche market I have had good success with

[Don Konipol]

Niche market I have had good success with

Fully furnished, high end condos with 6 month leases

These 6 month leases are usually ok with condo owners  association.  If not, you can be somewhat creative and use a 12 month lease with a “out” option after 6 months. 

On very high end rental I’ve found I can payoff furnishings with 18 months of rental difference.

Actual example was a 2,000 sf 9th floor condo I owned in Tempe, AZ in a 10 story condo building. Modern architecture, unfurnished rental going for about $2700 per month (2016 - 2020). Fully furnished, I was able to obtain rents of $4250 - $4600 on 6 month leases (minimum allowed by HOA.

I ended up purchasing 5 condos around the Phoenix area, and lived in one, kept 2 as conventional 12 month unfurnished rentals, and 2 as 6 month furnished rentals. I paid cash for all. HOA fees were high, as these were higher end mid and high rise units; but other than HOA fees there was almost no maintenance and repair expense.

The two conventional rentals achieved an ROI until sale of 8%, while the furnished rentals ROI was 13.6%. In 2019 and 2022 offers I received were so good that I sold them all as I was able to reinvest for larger return.

Interestingly, the short term furnished rentals were kept in better condition by the tenants than the unfurnished rentals.  
If renting furnished, be ready to completely write off the furnishing in 6 years if quality furnishings, 3 years if lower quality, 18 months if very low quality. 

[Don Konipol]

Quote from @Chris Seveney:

Quote from @Don Konipol:

Niche market I have had good success with

Fully furnished, high end condos with 6 month leases

These 6 month leases are usually ok with condo owners  association.  If not, you can be somewhat creative and use a 12 month lease with a “out” option after 6 months. 

On very high end rental I’ve found I can payoff furnishings with 18 months of rental difference.

Actual example was a 2,000 sf 9th floor condo I owned in Tempe, AZ in a 10 story condo building. Modern architecture, unfurnished rental going for about $2700 per month (2016 - 2020). Fully furnished, I was able to obtain rents of $4250 - $4600 on 6 month leases (minimum allowed by HOA.

I ended up purchasing 5 condos around the Phoenix area, and lived in one, kept 2 as conventional 12 month unfurnished rentals, and 2 as 6 month furnished rentals. I paid cash for all. HOA fees were high, as these were higher end mid and high rise units; but other than HOA fees there was almost no maintenance and repair expense.

The two conventional rentals achieved an ROI until sale of 8%, while the furnished rentals ROI was 13.6%. In 2019 and 2022 offers I received were so good that I sold them all as I was able to reinvest for larger return.

Interestingly, the short term furnished rentals were kept in better condition by the tenants than the unfurnished rentals.  
If renting furnished, be ready to completely write off the furnishing in 6 years if quality furnishings, 3 years if lower quality, 18 months if very low quality. 

 Nice to learn new strategies. Few questions I had:

1. Did you go condo because of lower maintenance costs and amenities within the building?

2. Do you think people take care of it more because of the higher price point, or because of your vetting process for tenants (or both)?

3. If someone wanted to further review this strategy in other markets, what are some of the lessons learned you have (looks like furnishings is one), but curious about selective location etc.

Thanks as always Don - great post

I got into it by accident.  In 2012 I moved from Houston to Phoenix for a number of reasons, both personal and business.  The first condo I purchased was for my wife and I personal residence.  Another condo in the same building came up for sale, I offered a ridiculously low price, and amazingly it was accepted.  

I decided to lease the condo the conventional way, 12 months unfurnished, and leased it shortly thereafter.  The Realtor I used saw an opportunity, and started cold calling condo investors in nearby high rise buildings.  He found one wanting to sell in a building down the block, that already had a tenant in place.  The condo had to be purchased all cash since the condo didn’t qualify for Fannie financing because there were too many units not owner occupied.  As a result I bought it for a very low price (all these were purchased approximated 65% below the previous purchase price - this was the great real estate depression in Phoenix, Miami and Las Vegas). The tenant had a month to month, and was unwilling to pay the rent I wanted, so he said he’d move.  He had very nice furniture, and when we got to talking he said he was moving to Colorado and would I mind if he held a “garage sale” in the apartment (not allowed by condo bylaws). Instead I made him an offer for everything he had - appliances, furniture and furnishings, sheets, etc.  An analysis of the furnished for rent market showed almost no competition, so we just priced it at what we believed to be the highest rental amount possible.  Well, we got a couple of inquiries from PREI-lender wanting to lease the condo for less than 12 months, somewhere in the 4 - 6 month range.  Problem was the HOA minimum lease time was 12 months.  We came up with the 12 month lease with a “out” after 6 months, sent it to the HOA for review and it was approved. 

I have owned lower end residential apartments - after having to foreclose - LOL and higher end.  I don’t even care if the lower end has a greater ROI - I don’t want to deal with it.  Evictions, drive by shooting, domestic disturbances, tenants fighting with each other, threats, unemployment, child welfare visits, - not the way I want to spend my time.  Mangers get burnt out QUICKLY.  

Yes, higher end properties, with carefully vetted tenant - I rather have an empty unit than one occupied by a “bad” tenant, will result in significantly less wear and tear than normal.  Further, with high end furnishing you can ask for TWO months security deposit, somewhat mitigating your risk.  If your rental is $5000 per month, that’s $10,000 security deposit.  To produce that much damage, someone has to purposely damage the property, or an insurable issue occurs like water damage, etc. 

Since I almost exclusively invest in commercial notes and commercial properties now I haven’t attempted to qualify what attributes would make a location profitable for these types of leases.  However, it would probably be quite easy for experienced investor to raise limited partnership type capital for a package of these furnished rentals, as investors could be offered an attractive cash on cash return and possibility of capital gains 5 years hence.