In March there was a flooding in the furnished basement of the home and the tenants belongings were damaged.   

Insurance companies use them because they know they can make 1 call and get a tenant anywhere furnished or unfurnished for any length of time.

Wouldn't that involve me needing to spend money on furnishings..?

We rent entire houses and apartments primarily to later year or graduate students and have a property where we rent furnished rooms to international students.Students are a little more management than many tenant classes - mostly because of being young and ignorant - however, if you offer them a lifestyle service rather than simply a roof, they can be wonderful tenants.  

Our concern is that even though the unit up for rent is nicer than the one already rented, we might be limited by the area itself and not by the unit.We are entertaining the idea of renting the unit fully furnished.

Or is this a prohibited transaction ("furnishing of goods, services, or facilities between a plan and a disqualified person" comes to mind)?

I had one for years that was awesome and last year he fell off the wagon and I was glad to be there to catch all the patch jobs, material wastage, small deficiencies ie: missing outlet covers, doorstops, strippings which you really don’t catch if they are behind furnishes.

I would have a relationship with probate attorneys and see if they would furnish me with sellers that I could help unload problem homes.  

They are around 400 SF and come fully furnished (appliances, A/C)...one of their "bigger" ones comes in a 2/2 configuration and is around $40,000.

I do short term rentals on furnished houses, all bills paid.