IL Postcard

An Easy Way to Get Higher Rental Yields

Date: 06/20/2008 Author: Lief Simon

Saturday, June 21, 2008

Get more tips on investing in foreign real estate in International Living Postcards—Saturday Edition

I know two (elderly) American sisters who rent out their Paris apartment when out of town. Because they use it sometimes, they decorated it for themselves with high-end antique furniture, crystal glassware, linen tablecloths, and plenty of breakable knickknacks. While this gave them a comfortable apartment, it also limited the type of renter. No children, no pets, no singles...only couples who were put through a rigorous process before being allowed to book the apartment.

Furnishing an apartment for short-term rental can be a challenge. You have to balance the cost with comfort...practical with convenient...personal taste with neutral decoration.

The first thing you’ll have to decide is how much effort into screening guests you want to do. For a mid- to low-priced studio, you don’t have to think too much. But for a two-bedroom apartment in the best neighborhood—that you may need to use yourself—you’ll need to pay more attention.

The rigorous screening of guests that these American women undertook obviously affected their occupancy rate, but on the other hand, they could charge more than their neighbor’s similar-sized apartment, because their place attracted higher-end renters.

Many investors go to the opposite extreme. They furnish the apartment with the bare minimum to accommodate guests. Cheap furniture...limited kitchenware and appliances...inexpensive towels...no extras. They think that the less they spend, the more profit they’ll make. If you’re going for the backpacker crowd, this approach is fine, but to maximize your rental returns, you should consider being somewhere in between personal posh and campground basics.

The key isn’t so much putting in expensive furniture or 280-count sheets. It’s more about creating a comfortable environment with all the amenities a guest might like. Spend the extra $70 to put in a DVD player and keep a few movies on hand. Set up the phone for free local calls and block it for long distance calls...but leave instructions on how to get a phone card to make international calls so they can call home if they need to. Installing Internet may seem obvious, but many owners don’t think the expense is worth it...but it is. Dishwasher, coffee maker, toaster, can opener, cork screw, spatula...all of these are relatively inexpensive, but many times overlooked by an owner.

One thing to remember is that cheap things will probably run you more in replacement costs over time than buying something more expensive but more durable.

Some things like plates and glasses will break. They should be a plain, standard type that isn’t likely to be discontinued. White plates and simple glasses from a store or brand that you know will still be available in the next few years are best. If one plate is broken and you can’t find a replacement, then you either replace them all or end up with mismatched plates...neither of which is a good option.

Make sure your rental manager does a regular inventory...and replaces any broken or damaged items...and that he knows where to put the replacements. I’ve stayed in an apartment advertised as accommodating six people only to find one glass, three plates, and two bowls in the cabinet. Fortunately, it was only my wife and me staying in the apartment, but we still had to arm wrestle over the one glass. Needless to say, that apartment didn’t get any recommendations.

In many markets, people return every year. This allows you to create repeat clientele if your rental is attractive, comfortable, and user-friendly. Over time you end up with a better occupancy rate as guests not only return, but also refer their friends. A good occupancy rate coupled with a reasonably priced apartment will, over time, produce better rental yields.

At the end of the day, rental yield is what you’re after. Putting the effort and extra expense into providing a comfortable stay for your guests will pay off in the long run.

Lief Simon
For International Living

P.S. One thing that costs almost nothing except time, but adds a tremendous amount of value to your rental, is a “user’s manual” for the apartment. Write up the basic information on how to operate things in the apartment like the heat, dishwasher, etc. Also include a telephone directory for emergency numbers, an English-speaking doctor, pharmacy, restaurants that deliver, etc. Another helpful page to include is a map with the locations of the nearest grocery stores and ATMs.

Editor’s note: For more details on how to maximize your occupancy rates while minimizing costs, plus everything else you’ll need to know to become a successful global real estate investor, take a look at IL's Global Real Estate Investor Kit.

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