Is It Better to Rent Your Property Furnished or Unfurnished in Arequipa? A Strategic Guide for Expats and Investors

As a foreign investor or expat looking to capitalize on Arequipa’s dynamic real estate market, one of the most significant decisions you will face is whether to offer your property furnished or unfurnished. This choice has profound implications for your rental income, tenant profile, operational costs, and overall investment strategy. Based on extensive experience within the Arequipa market, this guide provides a detailed, practical, and legally informed perspective to help you make an astute decision.

Understanding the Arequipa Rental Landscape

Arequipa's rental market is diverse, catering to a broad spectrum of tenants from local families and students to international expats, digital nomads, and corporate professionals. Each segment has distinct expectations regarding property amenities and furnishings, heavily influenced by their duration of stay and personal circumstances.

Long-Term Local Tenants: These individuals, often families or established professionals, typically seek unfurnished properties. They generally own their furniture, desire stability, and are looking to establish a long-term home, sometimes for many years. Their priorities include space, good schools, and proximity to family or work.
Expats, Digital Nomads, and Corporate Rentals: This segment predominantly prefers furnished properties. These tenants are often on temporary assignments, prefer convenience, and are unwilling to invest in or transport furniture for a stay that might range from a few months to a couple of years. They seek turnkey solutions.
University Students: While a diverse group, students, especially those from outside Arequipa, often prefer furnished rooms or small apartments, prioritizing affordability and proximity to universities like UNSA or UCSM.

Your strategic choice should align with which of these segments you intend to attract.

The Case for Furnished Rentals in Arequipa

Renting your property furnished can be a highly attractive option, particularly in Arequipa’s expat-centric neighborhoods and for properties appealing to corporate clients or temporary residents.

Advantages:

Higher Rental Income: Furnished properties typically command a 20-40% premium over unfurnished ones in Arequipa. This is the primary driver for many investors. For example, a two-bedroom apartment in a prime area like Yanahuara might rent for S/2,000 (approx. USD 540) unfurnished, but S/2,800-S/3,500 (approx. USD 750-950) furnished, depending on the quality of furnishings, appliances, and amenities.
Attracts Specific Demographics: Expats, foreign students, digital nomads, corporate transferees, and even Peruvian professionals on temporary assignments are the target audience. These individuals often arrive with limited luggage and expect a turnkey living solution, complete with essential appliances and comfort.
Faster Occupancy: High-quality, well-appointed furnished units in desirable areas like Yanahuara, Cayma, or the more modern parts of Cerro Colorado often rent out more quickly, minimizing vacancy periods, especially if marketed effectively to international platforms.
Shorter Lease Terms: Furnished rentals are often suited for shorter-term leases (e.g., 6 months to 2 years), providing more flexibility for the landlord to adjust rental rates, manage the property, or even consider seasonal offerings.
Tax Deductions: The cost of furnishing and maintaining furniture can often be deducted against rental income, reducing your overall taxable base for Impuesto a la Renta de Arrendamiento. It is imperative to consult a local Peruvian accountant (contador) for specific eligibility, documentation requirements, and current rules regarding tax deductions.

Disadvantages:

Significant Upfront Investment: Furnishing a property from scratch requires substantial capital. This includes not just furniture, but also essential appliances (refrigerator, stove, washing machine, microwave, water heater), kitchenware, linens, and tasteful decor. Budget anywhere from USD 5,000 to USD 15,000+ for a two-bedroom apartment, depending on the quality and style chosen.
Increased Wear and Tear: Furniture and appliances will inevitably experience wear and tear from tenant use, necessitating more frequent repairs, maintenance, or eventual replacement compared to an unfurnished unit. This adds to ongoing operational costs.
Inventory Management and Legal Documentation: A meticulously detailed inventory list, notarized with photos, is not just helpful but crucial in Peru. This can be time-consuming to prepare and verify with the tenant at entry and exit, but it is your primary legal protection against claims of damage or missing items.
Higher Insurance Costs: You will need to insure the contents of the property (furniture, appliances, decor) in addition to the building structure itself.
More Frequent Turnover: While faster to rent, shorter lease terms can lead to more frequent tenant turnover, increasing marketing costs, cleaning expenses between tenants, and potential minor vacancy periods.
Maintenance and Repairs: You are responsible for the repair and maintenance of all provided furnishings and appliances. This requires a network of reliable technicians and a commitment to prompt resolution of issues.

The Case for Unfurnished Rentals in Arequipa

Opting for an unfurnished rental often appeals to a different, yet substantial, segment of the Arequipa market, particularly those seeking long-term stability and a personal touch.

Advantages:

Lower Upfront Costs: The most apparent advantage is the minimal initial investment required. You primarily need to ensure the property is clean, functional, safe, and in good repair (e.g., working plumbing, electricity, freshly painted walls if needed).
Attracts Long-Term Tenants: Local families, established residents, and individuals planning an extended stay often prefer unfurnished properties to bring their own belongings. This often leads to longer lease durations (e.g., 2-3 years or more), providing greater income stability.
Reduced Wear and Tear: Since tenants bring their own furniture, you are not responsible for its maintenance, repair, or replacement. This significantly reduces your direct costs and worries related to internal furnishings.
Simpler Property Management: Fewer items to manage, inspect, or maintain means less administrative burden and fewer potential disputes over damages to landlord-owned items. Your focus is primarily on the property's structural integrity and basic fixtures.
Lower Insurance Premiums: Your insurance costs will primarily cover the structure of the property and built-in fixtures, not its contents.

Disadvantages:

Lower Rental Income: Unfurnished properties generally command lower rental prices, typically 20-40% less than their furnished counterparts in comparable locations.
Slower Occupancy (Potentially): While there's a steady demand, the pool of tenants specifically looking for unfurnished units can be smaller than for furnished, especially for properties in prime expat areas. This could potentially lead to longer vacancy periods between tenants.
Tenant Retention Challenges: While long-term tenants are a plus, if one leaves, it might take longer to find a suitable replacement, depending on market conditions.
Limited Market Appeal for Expats: You will largely miss out on the lucrative expat and corporate rental market, which heavily favors furnished options, particularly for shorter-term stays.

Key Factors to Consider for Your Arequipa Property: A Step-by-Step Decision Process

Step 1: Define Your Target Tenant Demographics

Expats/Digital Nomads/Corporate: These groups prioritize convenience, security, and amenities. They will pay a premium for a fully furnished, move-in-ready unit. They often seek properties in desirable, secure neighborhoods like Yanahuara, Cayma, Vallecito, or some modern sectors of Selva Alegre and Cerro Colorado.
Local Families/Students: Often prefer unfurnished, especially for long-term stays. They bring their own furniture and are typically looking for stability, access to good schools, or proximity to universities and workplaces. Neighborhoods like Sachaca, Paucarpata, or older parts of Miraflores often cater to this segment.
Mixed Appeal: Some properties in central areas or specific urbanizations might attract both, but often with differing expectations for furnishing and rental rates.

Step 2: Assess Your Property's Location and Type

Prime Expat Areas (Yanahuara, Cayma, Vallecito): If your property is in these high-demand zones, furnishing it is often the most profitable strategy. These areas are known for their safety, green spaces, amenities (cafes, restaurants, supermarkets), and easy access, making them highly attractive to foreign residents.
Commercial/Business Districts: Properties near significant business centers (e.g., financial district around Av. Ejercito or Porongoche) may benefit from corporate rental demand, often requiring furnished options for company executives.
Local Residential Areas: In neighborhoods primarily catering to local families, unfurnished might be the standard and preferred option, aligning with community expectations.
Historic Properties (e.g., Centro Histórico): While charming and attractive to specific niches, properties within the Historic Center of Arequipa (a UNESCO World Heritage site) are subject to strict municipal regulations (e.g., the Plan Maestro del Centro Histórico) regarding renovations and modifications. Furnishing them tastefully to complement the architectural style can attract tourists or expats interested in a unique living experience, but ensure any permanent installations or significant changes comply with local heritage laws and require prior municipal approval.

Step 3: Evaluate Your Investment Goals and Initial Capital

Maximize Income (Higher ROI, More Management): If your primary goal is to generate the highest possible rental income and you have the capital for initial furnishing and ongoing management, a well-executed furnished strategy is likely your best path.
Minimize Hassle (Stable Income, Less Management): If you prefer a more hands-off approach, lower initial costs, and don't mind a slightly lower rental yield, unfurnished might be better suited, leading to fewer tenant-related issues concerning property contents.
Budget: Realistically assess the capital you have available for quality furnishings. Skimping on quality can lead to rapid depreciation, tenant dissatisfaction, and higher replacement costs in the long run. Invest in durable, functional, and aesthetically pleasing items.

Step 4: Consider Your Time Commitment and Management Style

Self-Management: Furnished rentals demand more time for inventory checks, coordinating repairs, managing utility transfers, and handling more frequent tenant turnover. This requires a significant local presence or reliable local support.
Property Management Company: If you plan to use a local property management company, factor in their fees (typically 8-15% of monthly rent). They can handle the complexities of furnished rentals, from marketing to maintenance, but this will reduce your net income. A reputable management company in Arequipa can be invaluable, especially for absentee owners.

Step 5: Conduct a Market Analysis

Before making a final decision, consult with a licensed local real estate broker. At ArequipaRealEstate.com, we can provide up-to-date market data for your specific property type and location, showing current demand, average rental prices, and typical lease terms for both furnished and unfurnished options. This localized insight is invaluable.

Legal and Tax Implications in Peru: Essential Due Diligence

Regardless of your furnishing choice, adherence to Peruvian law is paramount for foreign investors to ensure a secure and compliant operation.

Rental Income Tax (Impuesto a la Renta de Arrendamiento): As an individual landlord in Peru, rental income is generally subject to a monthly 5% tax on the gross monthly rent. This is calculated on a deemed income base: 5% of 80% of the declared rent (effectively a 5% tax). This must be declared monthly via SUNAT (Superintendencia Nacional de Aduanas y de Administración Tributaria) Form 1683. For legal entities (e.g., a company), the tax structure for rental income is different and integrated into the corporate tax regime. Always consult with a Peruvian accountant (contador) or tax lawyer to ensure full compliance, understand specific deductions, and optimize your tax strategy according to your legal entity status.
Rental Contracts (Contrato de Arrendamiento):
- Notarization is Crucial: All rental contracts in Peru, especially for foreign investors and for properties intended for long-term rental, should be notarized by a Peruvian public notary (notario público). This provides significant legal weight, verifies the identities of the parties, and facilitates enforcement (e.g., eviction proceedings) in case of disputes, streamlining the judicial process.
- SUNARP Registration: For contracts exceeding certain durations (e.g., two years or as advised by your lawyer), or if you wish to provide an additional layer of security and legal enforceability against third parties (e.g., protecting the tenant's right to occupy the property even if the landlord sells it), registering the notarized contract with S.U.N.A.R.P. (Superintendencia Nacional de los Registros Públicos - National Superintendence of Public Records) is highly recommended. This public record protects both landlord and tenant interests and makes the contract public knowledge.
Security Deposits (Garantía): Peruvian law allows for a security deposit, typically equivalent to one or two months' rent. The contract must clearly state the conditions under which the deposit can be used (e.g., for damages beyond normal wear and tear, unpaid utilities, unpaid rent) and the precise timeline for its return after the tenancy ends and property inspection is complete.
Inventory List for Furnished Rentals: For furnished properties, a meticulously detailed inventory list, including photos and the condition (new, good, fair, worn) of each item, must be appended to the notarized rental contract. Both landlord and tenant (or their representatives) must sign and date this document upon entry and exit. This is your primary legal defense against claims of damage or missing items, preventing disputes.

Local Context and Warnings: Navigating Arequipa's Specifics

Utility Transfers and Payments: Clearly stipulate in the contract who is responsible for utility payments (electricity via SEAL, water via Sedapar, internet, cable, bottled gas). Expats often prefer an all-inclusive rent for simplicity, which means you, as the landlord, would be responsible for having utilities in your name and billing the tenant or incorporating it directly into the monthly rent. Clarify this upfront.
Furniture Durability: Arequipa's climate is dry and relatively stable, but consistent tenant use demands durable furnishings. Invest in quality furniture that can withstand tenant turnover. Locally sourced wood furniture (like caoba or tornillo from the Peruvian Amazon, though note the dry Arequipa climate might require special care for wood) or modern, sturdy designs can be good, durable options. Avoid overly delicate or expensive items that are prone to damage or difficult to replace.
Appliance Standards: Ensure all appliances are of good quality, energy-efficient where possible, and properly installed. While major power surges are less common in Arequipa than in some other regions, surge protectors for sensitive electronics are always a wise precaution and a thoughtful addition for tenant convenience.
Cultural Nuances in Maintenance: Peruvian tenants, and indeed many expats, expect prompt attention to maintenance issues. Having reliable contacts for plumbing, electrical work, and general repairs (e.g., a good handyman, maestro de obras or gasfitero) is essential for tenant satisfaction and property upkeep, especially if you are not locally present.
Historic Property Regulations: If your property is in Arequipa's UNESCO World Heritage Centro Histórico, be acutely aware of the strict preservation rules enforced by the Municipality and the Decentralized Directorate of Culture of Arequipa. Any exterior modifications, and even some interior ones that affect the structure or historical integrity, require prior municipal approval and often specific material use. This can impact furnishing choices if they involve built-in elements or major installations.
"Amoblado y Equipado" (Furnished and Equipped): In Arequipa, when advertising a furnished property, it's common to specify "amoblado y equipado," meaning not just furniture, but also essential appliances (refrigerator, stove/oven, washing machine, microwave, and often a water heater or terma for hot water). Ensure your offering matches this expectation to meet tenant demand effectively.

Conclusion: A Strategic Decision Based on Your Vision

There is no universally "better" option between furnished and unfurnished rentals in Arequipa. The optimal choice depends entirely on your specific property's location and characteristics, your financial goals, your risk tolerance, and the amount of involvement you wish to have in property management.

For properties in prime expat locations like Yanahuara or Cayma, targeting higher rental yields and specific international tenants, a well-executed furnished strategy often proves more lucrative despite the higher initial investment and management commitment. For those prioritizing stability, lower upfront costs, and a more hands-off approach, particularly in areas catering to long-term local residents, unfurnished might be the more suitable path.

The most effective strategy always begins with thorough due diligence, a clear understanding of the local market dynamics, and unwavering adherence to Peruvian legal frameworks.

⚠️ Legal Notice: Consult a Local Lawyer.

The information provided in this article is for general informational purposes only and does not constitute legal or financial advice. Real estate laws, tax regulations, and municipal codes in Peru are complex, specific, and subject to change. It is imperative to consult with a licensed Peruvian real estate attorney and a qualified tax advisor (contador) to discuss your specific situation, ensure full legal compliance, and protect your investment in Arequipa.

Ready to explore your Arequipa real estate opportunities? Whether you're looking to buy, sell, or manage rental properties, ArequipaRealEstate.com offers expert guidance and local market insights to help you navigate the Arequipa market with confidence. Contact us today to discuss your investment strategy.