The main reason to consider furnishing an investment property would be to increase the annual income return. A furnished property can provide these additional returns above the standard rent, as tenants are willing to pay more for the convenience of moving into a furnished property and possibly being able to rent for a shorter-term.
While furnished properties can attract long-term tenants, they are more often than not rented to tenants looking for a shorter-term tenancy, such as three months. Less than three months is often considered a holiday rental. This can, in turn, result in increased letting fees and advertising costs and there could be greater vacancy periods with the higher turnover in tenancies.
Short-term tenancies allow owners the flexibility of moving prices with the market at different times of the year. Furnished properties are the perfect solution for longer-term vacationers, students, expatriates working from overseas on contracts, or people going through a relationship breakdown. Short stays might be the perfect solution for property investors who also want to use the property as a vacation home.
An unfurnished property is more likely to appeal to tenants looking for a home over the long term. Typically, this means that leases will be for twelve months and a tenant will bring a house full of furniture with them. Some tenants would prefer to furnish the property with their own style and worldly possessions, creating a home rather than just having a place to stay. Generally, long term lessees are often thought to take better care of the property.
There can be fewer tenants wanting to rent a furnished property, however there are often less furnished properties, which can increase the demand and rent achievable. Letting a furnished property also has the added advantage of increased depreciation deductions. Other tax advantages may depend on the type of dwelling it is (separate house or an apartment in a managed complex) and your tax advisor will need to advise you on these. Furniture can typically be written off at a reasonably rapid rate or often immediately, depending on the purchase price.
Renting a furnished apartment means you're going to have to buy all of the furniture and it will need to be updated from time to time, as well as repaired and/or cleaned - all of which are ongoing costs. To reduce replacement costs, you could consider providing the furniture only without kitchen utensils, appliances and bed linen.
The most important thing is to research the area your property is in and find out what else is available and at what price. Ultimately, the decision should be based on your investment goals and your individual financial situation.