When investing in under-construction properties, your returns are tied solely to property appreciation. In contrast, completed properties generate returns from both rental income and appreciation.
However, one common dilemma for property owners is deciding how much to invest in furnishing before renting out their flat. Here’s a structured way to approach this decision:
Example Scenario
Consider a 3 BHK apartment valued at ₹1.5 Cr (approximately 1,500–1,700 sq. ft.). Selling an entirely unfurnished flat can be challenging, so it’s typically either semi-furnished (with essentials like a modular kitchen, wardrobes, and water heaters) or fully furnished (with complete interiors and furniture).
1. Cost of semi-furnishing: ₹15 lakhs
2. Cost of full furnishing: ₹40 lakhs
3. Depreciation period: 15 years (straight-line depreciation)
4. Expected rent for a semi-furnished flat: ₹40,000 per month
5. Expected rent for a fully furnished flat: ₹60,000 per month (50% premium)
6. Property appreciation: 5% CAGR over 15 years
7. Rental yield (pre-depreciation): Assumed constant over time
Rental Yield Comparison
1. Effective Rental Yield for a Semi-Furnished Apartment (Amount in Lakhs)
2. Effective Rental Yield for a Fully Furnished Apartment (Amount in Lakhs)
Key Takeaway
After accounting for depreciation, the average effective rental yield over time is:
1. Fully furnished flat: 3.5%
2. Semi-furnished flat: 2.7%
Conclusion
If furnishing the apartment fully allows you to command a 50% premium on rent, it’s financially beneficial to invest the additional ₹25 lakhs (~2.5x more on interiors) for a higher rental yield.
