Many investors in real estate have come across this situation: You are feeling good about the purchase of your new property, the market situation looks good, and now you just need to find a tenant to start receiving regular rental income.
But somehow, even though you have been waiting, nothing happens. Almost no inquiries, only a few viewings and zero applications. There could be a number of reasons for this, and in this article, I would like to introduce some tools and methods that could help you overcome such a situation:
1. How was the market rent assessed when you advertised the property?
Many sellers will set the expected market rent very aggressively in order to help push the sales of their property. I strongly recommend asking your property manager for market comps of similar properties in order to see what will be a reasonable rent. Many investors who set the advertising rent too high have to deal with longer vacancy periods.
2. Could you be a victim to seasonal fluctuations?
In Japan, the peak season for tenants to find a new home is between January to March. I have written about this more extensively here: Seasonality in the Residential Rental Market in Japan
3. Does your property management company also act as a leasing broker?
Some property management companies will try to find tenants through their in-house brokerage first, because they can earn additional agent fees. This could mean that the information about your property is not as widely advertised as you may want. Pure property management companies will advertise more broadly and will work generally with all real estate brokers in an area to find a tenant for you as soon as possible.
4. Is your unit more expensive to rent than similar units in the same building?
This is also very important to keep an eye out for. What I have especially witnessed in new condominium properties is that a lot of vacant units will flood the market at the same time after the handover to the new owners. Property management companies will regularly sublease a large percentage of units being released to the market at a conservatively assessed market rent. If you as the owner decide to challenge the market rent by setting the advertised rent aggressively, you might get left behind, since the cheaper units in the building will obviously fill up first. If you are in doubt, check with your property manager about the situation in the building and follow his advice when deciding on the advertising rent.
5. Is your property being advertised on the main portal sites?
Most end-users in Japan use portal sites to find their new home, by accessing sites like SUUMO, Home’s, At Home, etc. Ask your property manager if they are advertising on those sites. Additionally, there are sites only accessible for professionals like REINS, At Home BB etc. which might also be worth considering since they can connect directly to real estate agents.
6. Does your property show up online for people searching for a specific budget?
Let’s say your property’s total rent is at 210,000 JPY/month, it might be worth advertising the property with a basic rent of 195,000 JPY rent and 15,000 management fee. Your total monthly rental income will not change, but possible tenants and real estate agents who are searching for properties below 200,000 JPY will be able to find your unit on most portal sites. Also, tenants will be able to slightly save on key money, deposit, and agency fees since those are based on the basic rent, exclusive of the management fee.
7. Are you paying additional advertising (AD) fees?
Advertising fees are payable directly to real estate agents on successfully placing a tenant in your unit. AD fees can be a helpful tool to generate additional interest in the market to for a property. Those fees usually range between 0-2 months of the monthly rent, and can be worth the investment during the slow season or when trying to find a tenant for a unit priced higher than the market rent.
You will often see real estate funds use those fees tactically to fill up their buildings with tenants because they need to satisfy their investors’ needs (which might require rents priced higher than current market rent). If you take it one step further, you could even offer a “free rent” period (tenants can live in the property for a certain time period free of charge) which is also another tool some real estate funds use to recruit tenants above the market rent. I have seen this offered up to half a year in some cases and also during economic recessions.
8. Is the equipment or interior of your apartment outdated?
Once your apartment is several years old and has gone through a few tenants, it might be worth it to consider investing funds into a remodel/renovation to make the apartment more attractive to tenants. Some investors make it their main strategy to buy slightly older units, renovate them and then rent them out at a higher rent level than was achievable before, by making the interior look more attractive.
9. How about waiving the key money or reducing the required security deposit?
While key money is a nice way for owners to generate additional income from a property, it might be worth waiving it to create additional interest among tenants. “No Key Money” properties will also show up in a separate category on most real estate portal sites since it is a popular search. Reducing the security deposit from, for example, two months to one month will also reduce the initial move-in costs for a tenant.
10. Choose a property/property that offers a rental guarantee
If you completely want to avoid the vacancy risk, choose a property where the developer/property manager offers a rental guarantee which will pay you rental income even if there is no tenant. In such cases, the PM will master lease the unit from the owner. Since the PM has to bear the vacancy risk for the owner, the fees for such plans are usually higher than for non-guaranteed options.
As you can see, there are many tools available for owners and property managers to proactively influence tenant recruitment. The best advice for owners is to find a property manager you can trust and who is willing to work together with you to create a win-win relationship.
Tokyu Housing Lease Corporation is one of Japan’s leading property management companies.
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