Differences between unfurnished and furnished rental

When investing in real estate, both unfurnished and furnished rentals have their advantages and drawbacks. Your choice will therefore depend on your expectations and market conditions.

In order to direct your cursor to the most advantageous formula, we have compared these two statuses in the following sections.

This question was resolved by the administration, which published the list of furniture and mandatory equipment for a furnished apartment in the decree of July 31, 2015.

You can access this list of equipment in the here.

You should know that when you rent as furnished, the property must be immediately habitable by the tenant. They should only bring their personal belongings.

In addition, a richly ornated property will receive more rental income than a poorly furnished apartment.

The choice is not always obvious. It involves repercussions on rental management but it has tax consequences as well.

Is unfurnished rental more advantageous?

Furnished rentals are more expensive, by 10% on average. This ratio can be seen on the rise depending on the location of the property and the standing of the equipment offered by the owner.

But beware: you certainly receive more but you also spend more. Indeed; equipment must be purchased, repaired and replaced as it breaks down. Added to this is the need for more frequent maintenance work.

Do tenants stay longer in furnished or unfurnished properties?

In furnished rentals, tenants stay shorter than in unfurnished rentals. People who occupy this type of property (students, traveling professionals, vacationers) are more mobile.

This turnover therefore brings to the owner the risk of rental vacations. He must therefore devote more time and energy to replacing tenants.

Generally, if the surface is small, there will always be comings and goings of tenants.

If your furnished property is in a tourist area, we recommend that you rent it out to students for nine months in order to have possession of it during the summer.

Indeed, seasonal rental, especially in dynamic geographic areas, is very profitable, but you need to have the time and energy to take care of this type of short-term rental.

Please note: in furnished rentals, a single lease renewed year after year with the same tenant for six consecutive years may imply a requalification as unfurnished rental from French Tax offices.

In order to protect yourself from this risk, new leases must be signed regularly with a new inventory listing of the replaced furniture even if they are minor.

What if I want to get my accommodation back?

In furnished rental, you can recover your accommodation each year while unfurnished rental commits you over three years.

This is an important number to take into account if you plan to sell the property or put it available for one of your family members.

This contract period is one of the main differences between unfurnished rental and furnished rental.

Furnished or unfurnished rental: what is the notice period?

Lease management is more flexible in furnished rentals than in unfurnished. In fact, in furnished rentals, the owner only has three months to give to his tenant prior the lease expires.

In unfurnished rental, this latter must justify himself. He can only give leave to the tenant to “live there himself, rent it to a member of his family or sell it”. The notice to be given to the tenant is six months.

This point is therefore not insignificant if you want to dispose of your property quickly.

Taxes: how are the rents you receive taxed?

Whether you choose to rent furnished or unfurnished, your rental income is taxed with the rest of your income. The choice between unfurnished and furnished is important because the deduction rules are different.

For both unfurnished and furnished rental, there are two tax regimes: the “régime forfaitaire” (micro-BIC) and the “régime réel”.

• The “régime forfaitaire” (Micro-BIC): it offers a fixed percentage of abatement: 30% for unfurnished rentals and 50% for furnished rentals.

You have to declare your gross rental income on your personal tax return (2042 forms) and the tax office will automatically take into account this abatement in the calculation of your tax due.

The main advantage of the “régime forfaitaire” is therefore its simplicity.

• The “régime réel”: this tax regime does not offer an allowance but you can deduct the costs and charges for their real amount: works, condominium charges, loan interest, cost of diagnoses, taxe d’habitation etc.

Rather from furnished or unfurnished rental, we recommend that you opt for:

• The « régime forfaitaire » (Micro-BIC) if you have limited expenses. This is the case if you have no loan interest to pay, if you don’t have a lot of construction works to do or if the condominium fees are low.
• The “régime réel” if you just bought your property and you have loan interest. You can deduct:
  • In unfurnished rentals: certain fees and charges (see summary here)
  • Furnished rental: all costs and charges for their actual amount (work, condominium charges, loan interest, cost of diagnostics, property tax).

In addition, unlike the unfurnished rental, the tenant can add depreciation of the value of the home, which limits or even eliminates the taxation of rents.

In furnished rental:

• The “regime forfaitaire” is financially attractive if the charges are limited (no work, no loan, low co-ownership charges, etc.)
• While it is significantly financially advantageous, the “régime réel” in furnished rental is complicated and requires the intervention of an accountant. Indeed, the taxation linked to the rules for calculating the depreciation of an asset is complex.

So, this is the regime for informed taxpayers.

In unfurnished rental:

• The “régime réel” is preferred by the owners even if it does not allow the property to be depreciated because the 30% reduction offered by the flat rate scheme is insufficient.
• Even if the “régime réel” in unfurnished rental scheme is more complicated than the flat-rate it remains intelligible while being advantageous.
• Unlike furnished rentals, it does not necessarily require the help of an expert because the taxation is more simple and there is no depreciation to calculate.

However, we recommend that you call on the latter if you are unsure of your calculations or to identify which type of plan to opt for.

Thus, you will optimize your investment by increasing your earnings: it is better to be safe than sorry.