Investment Properties

Managing an Investment Property in Japan: FAQs

Here are some of the most frequently asked questions about managing an investment property in Japan. The answers were provided courtesy of Mr. Nils Herchenroeder of Tokyu Housing Lease Corporation, one of Japan’s leading property management companies.

1. How do I find tenants for my investment property?

Setting the amount of the monthly rent will be one of the most important decisions you make in making your rental property profitable.

How do you set the rent high enough so that you can maximize profit from your property but not so high as to price it out of the market for your target tenants?

This is a key question that a property manager (PM) can help you answer.

Comparable Properties

When you engage the services of a property manager, one of their first steps will be to conduct market research based on comparable properties in the area in order to advise you on the appropriate rent level. PMs have access to market data that is not widely available to the general public, so they can provide invaluable insight on this point.

Marketing Your Property

You can market your property yourself through a variety of channels available to consumers, such as online classified and print ads and word-of-mouth, etc., but for many owners who buy properties for rental income (especially overseas owners), marketing their property is simply too time consuming and cost-ineffective.

Also, there are a number of marketing tools and channels that are simply not available to private citizens not actually working in the real state industry.

This is where a PM can cast a much wider net in reaching out to potential tenants.

Please see this article for more info about marketing your property: How to Rent Out Your Property in Japan: Tips from a Property Manager

2. What kinds of properties are in demand by renters and buyers?

Generally speaking, family-type properties with several bedrooms are a bit easier to sell when vacant because it gives you access not just to other investors looking for properties but also to the second-hand market of people looking to live there themselves.

Family-type properties can fetch a higher price per tsubo (on the re-sale compared to those that are tenanted). A “tsubo” is a commonly-used unit of measurement for property in Japan. Equivalent to 3.306 square meters or 35.58 square feet, a tsubo is essentially the area of two standard-sized tatami mats.

Smaller, one-room properties are generally easier to sell tenanted because their purpose is mainly investment and other investors will look only at the yield and getting instant cash flow when purchasing these types of properties.

3. How can the type of lease contract (ordinary or fixed-term) affect my investment?

In Japan, there are two kinds of residential leases: ordinary lease contracts (with a duration of two years) and fixed-term contracts (where the lease term is defined in the contract and is generally less than two years).

With ordinary leases, the tenant has the right to renew indefinitely, so in general, it is not possible to evict tenants once they have signed the lease agreement except in extraordinary circumstances e.g. long delinquency in paying the rent.

Overseas owners who know for sure they want to sell their property in “n-number” of years or want to use the property for themselves after a certain period of time has passed usually pick fixed-term leasing contracts for potential tenants.

One downside of fixed term leases for investors is that the monthly rental income is usually lower compared to ordinary leases, as the shorter the term, the lower the monthly rent will be.

Also, ordinary leases are usually preferred by tenants in Japan.

Most rental guarantee schemes offered by property managers only work with ordinary lease agreements since offering fixed-term leases limits the market for potential tenants.

4. Is it possible to raise the rent during the term of the lease?

During the term of the lease, the rent will be fixed at the level agreed to.

That being said, it is possible to approach the tenant during the lease renewal period with regard to raising the rent. The proposed increase should be in line with the current market conditions, and if the tenant accepts the proposal the renewal can move forward.

Should the market and rents decrease in the area or in the property itself, some tenants will ask to reduce the rent during the renewal period.

In either case, your property manager will take the role of communicating on your behalf with the tenant to hopefully come to an understanding beneficial to both parties.

5. What happens if the tenant does not pay the rent?

In the case of delinquency, your PM will contact the tenant (by telephone or in writing) on behalf of the owner.

If delinquency goes on for a long time, payment requests are made through certified mail, and if this still does not resolve the problem, payment requests to the joint guarantor or legal action might be considered.

Cancellation of the lease agreement can be requested, but only if there are reasonable reasons for cancellation, for example,  if the tenant does not pay despite repeated requests for rent payment.

If you are interested in learning more about Tokyu Housing Lease’s PM services, please fill out the form below, and a representative will contact you shortly.

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