In this insider insight article, we take a look at some key considerations for property owners who are looking to rent out their property in Japan. The insider’s advice below comes courtesy of Mr. Nils Herchenroeder from the Solution Business Division at Tokyu Housing Lease Corporation, a leading property manager in Japan.
1. Setting the Rent
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.
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.
2. Protecting Your Income Stream
In general, property managers in Japan offer two types of fee schedules.
A. Rental Guarantee
Some PM companies offer a rental guarantee based on the assessed market rent (as determined by researching comparable properties), and they will pay you a certain percentage of this assessed amount every month even if there is no tenant.
For busy overseas owners, this method combined with a Master Lease is preferable, since it is the most hands-off approach. You will be able to protect your downside in regards to vacancy risk.
B. Pass-Through (No Rental Guarantee)
With a non-rental guarantee fee plan, the PM will take a percentage fee when rental income is received before passing it to the owner.
In this case, the owner can decide to challenge the market with a higher than average rent level in order to secure higher rental income, but in general, they might then have to deal with longer vacancy periods, since the cheaper units will usually be more attractive to potential tenants.
This is especially true for large-size developments with several hundred units that arrive on the market simultaneously.
3. 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.
A PM will put your unit on the market by promoting it on their own website in addition to major Japanese nationwide listing sites, such as Suumo and HOMEs. A PM can also release it on REINS, which is the equivalent of a national Multiple Listing Service (MLS) in the United States. The REINS database is only accessible by licensed real estate agents.
Through these various channels, the PM is able to work with many local real estate leasing brokers to arrange viewings, receive applications, and answer questions about your property.
Some PM companies prefer to find tenants through their in-house brokerage, and they might have strong potential clients, but you might prefer to have access to a broader range of the market to gain more exposure for your property.
You, as the owner, have to decide which approach you prefer.
Some owners may also decide to pay additional promotional fees directly to real estate agents for preferential treatment and advertising of the unit. This is called an ad fee and can be a strong tool to give your property an edge in the market.
In some countries, rental units are expected to come with at least some furniture and appliances.
In Japan, leaving aside serviced apartments and short-term rentals specifically advertised as being furnished, tenants do not expect rental apartments to come furnished.
The average length of tenancy in Japan is 3.5 years (source: Tokyu Housing Lease), and tenants prefer to bring their own furniture if they move to a new place.
Air Conditioning Units
The exception to this rule has to do with air conditioning/heating units.
In the Tokyo market, air conditioning units are expected in all the main rooms.
In Osaka, air conditioning only needs to be installed in the living room plus one additional bedroom. The tenant will usually buy A/C units for the remaining bedrooms.
5. The Apartment Search from the Tenant’s Perspective
It’s important also to understand how a potential tenant will go about renting a place.
In Japan, almost all tenants find their housing through a real estate agent.
The agent acts as an intermediary between the potential lessee and the lessor (the property owner) and will search available properties based on budget requirements, area, and preferred layout, etc.
Once a tenant has decided on a place, they will proceed to signing the lease. In general, the agent receives one month of the monthly rent from the tenant, as a fee for their services.
You may also be interested in: Buying and Managing a Rental Income Property in Japan
Photo: The sun setting on the roof of an apartment building in Kobe, Japan.
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