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While hosting an Airbnb can be lucrative it can also be time consuming, and if you’re not excited about the idea of the hospitality business, hosting an Airbnb might not be the right fit for you. Another option is turning your newly renovated property into a long-term rental. Being a landlord of a long-term rental will give a lower financial return, but can be significantly less time consuming. The things you need to consider when renting a manshon apartment or a free-standing house long-term are very similar.
Things to Consider
Becoming a landlord in Japan can be a rewarding venture, both financially and culturally, but it comes with its own set of considerations. Here’s a list of things to consider about being a landlord of a long-term rental.
Laws and Regulations
Acquaint yourself with Japan’s real estate laws and regulations. Japan has specific laws governing landlord-tenant relationships, and it’s essential to understand your responsibilities and obligations as a landlord. Engaging a local attorney or real estate broker can be a wise move to navigate these legal waters.
Property Management
Decide whether you’ll manage the property yourself or hire a property management company. Managing it yourself may save you money, but it will require time and effort. Property management companies can handle everything from tenant screening to property maintenance, but they charge fees.
Tenant Screening
Finding reliable tenants is crucial. You’ll want to conduct thorough background and credit checks on potential tenants. Ensuring they have a steady income and a clean rental history can help prevent future issues. Tenant screenings are more complex and time-consuming compared to many other countries, as selecting a tenant here is often likened to choosing a lifelong partner.
Furnishing and Maintenance
Consider whether you’ll offer the apartment furnished or unfurnished. Either choice has its pros and cons. Maintenance is another key factor. Regular upkeep, repairs, and addressing tenant concerns promptly are vital for maintaining a positive landlord-tenant relationship.
Rental Agreements
Draft a comprehensive rental agreement. Japan has various types of rental contracts, but the standard fixed-term lease is common. Be clear about rent payment schedules, deposit terms, and responsibilities for repairs and utilities. Traditional rental contracts in Japan grant tenants significant power, making eviction a challenging process for landlords.
To address the challenges posed by standard contracts, many landlords are now turning to fixed-term lease agreements. These contracts have an expiration date but offer the possibility of renewal. However, with each renewal, conditions often change, typically resulting in rent increases. This trend provides landlords with more flexibility and predictability in the rental process.
Language Barrier
Communication can sometimes be a challenge, especially if you don’t speak Japanese fluently. You might want to consider hiring a bilingual property manager or using translation services to facilitate communication.
Property Insurance
Ensure your property is adequately insured. Property insurance can protect your investment from damages caused by tenants or unforeseen events like natural disasters.
Tax Implications
Understand the tax implications of renting out your property. Japan has specific tax rules for rental income, so consult a tax professional to ensure compliance.
Cultural Considerations
Be aware of cultural differences that can impact your role as a landlord. For instance, Japanese tenants often expect a high level of privacy and respect from landlords.
Exit Strategy
Have an exit strategy in mind. If you decide to sell your property, consider factors like market conditions, capital gains tax, and the impact on your rental income.
Many of my friends, including Canadian Senpai and Isono-san, who both invest in older Japanese homes, take a straightforward and human approach to renting. They skip extensive tenant screenings and avoid charging renters unnecessary fees. Instead, they opt for a simple deposit system. As my friend Isono-san frequently emphasizes, having a landlord with DIY and renovation skills provides a sense of security for renters.
This approach leads to reduced tenant turnover, meaning less work for the landlord. Renters tend to stay for longer periods, in contrast to properties with exorbitant key money, gratitude money and other extraneous fees.
Returns on these older properties tend to improve as the building ages. In Tokyo, where a 10% return on investment (ROI) is considered excellent, my friend Isono-san’s rental chart shows that he sometimes achieves returns of up to 40%. These exceptional returns are typically associated with older houses located a bit further away from the city’s core.
Japan has strict tenant protection laws, ensuring that tenants’ rights are respected. This adds an extra layer of security for both renters. (And is one of the reasons many landlords charge high fees and do excessive tenant screenings.) If you’re looking for renters, platforms like Facebook Groups and Craigslist are options where you can create listings. However, my recommendation would be to work with a real estate broker for a smoother rental process.
Whether you choose a short-term or a long-term rental strategy for your renovated property, you’ll want to make sure you maintain that investment over time. We’ll explore that in the next chapter.