Our goal is to ensure that foreign nationalities receive the most accurate information and are more than satisfied with the service’s quality.
In our previous article, we introduced guideline for searching the best area for Property Investment in Tokyo.
Today we would like to continue the topic and give you information on Property Management in Japan. We structured this article in the form of question&answer.
The following are the most common questions related to Property Management in Japan:
1. What are some general guidelines for buying your first property in Japan?
a. Concerning investment funds:
If you buy a property with cash, the risk is limited to your investment.
If you are borrowing funds to invest, it is necessary to service the loan. You need to be careful and make sure that there is enough cash flow from the property. Try to borrow as less as possible, because you want to be cautious as a newbie to the real estate investment market.
As you gain experience with the market, you may become more confident to use loan funds to give leverage to your own resources.
It is a well-known fact that Japan’s population is declining. However, despite the national trend, Tokyo area is attracting people from rural Japan and overseas. It helps to maintain the dynamics of the market.
b. Concerning investment area:
We have highlighted some high-risk, low return and relatively safe areas for Property Investment in Tokyo. It does not mean that the whole area is safe, but it is better to take it into account when comparing different investment options in Tokyo.
c. Concerning building type:
There are different types of building models in Japan:
- SRC – Steel Reinforced Concrete
- RC – Reinforced Concrete
- S – Steel
- W – wooden
Wooden buildings tend to be cheaper to build, but are more likely to be damaged by natural forces.
The steel building is more expensive and more protracted to build, but last longer and takes more time to depreciate.
For example, with a wooden building, you can depreciate value over 22 years, but reinforce concrete takes 47 years to amortize.
2. Can a person purchase property in Japan while living abroad?
This question might be one of the most popular of those which our Property Management department have been asked.
The answer is yes, it is possible to purchase property while not being a resident of Japan.
The person must, however, fly to Japan at least once to sign the contact with the seller. There is a rule that a real estate consultant needs to meet a customer in person to check his/her ID to prevent the “犯罪収益移転防止法” (Hanzaishuekitenboshiho)ー money-laundering through a cash transaction.
That is the primary reason why a buyer needs to come to Japan at least once.
3. Is it better to be a private landlord or use an agent to manage your property for you? Why do I need property management?
In today’s environment, you need a professional skill and knowledge:
A. to manage a property appropriately
B. to ensure the highest return you get from the investment
C. to prevent any potential problem that can arise
If it is a small property and you live nearby, you could probably manage it by yourself. However, you must be prepared to cases when you might need to confront the problems during the night.
Property managers, on the other hand, know how to deal with such cases and know how to act within the rules, while trying to keep the cost of the landlord to a minimum.
From the tenant’s point of view, it is better to deal with a certified property management company. Some contractors in Japan are not willing to deal with an individual.
4. Is a property management company responsible for finding new tenants?
It depends on the type of arrangement you have with a property management company. Some companies can give you a rental guarantee and pay about 80% of market rent.
They will try their best, but unfortunately, they do not have full control of a market.
Good news is they know what properties are in demand – what is market looking for. They will come up with the appropriate recommendation like rent amount, facilities, tenant relations strategy for the owner to consider.
It may work like this:
The real estate market has leasing specialists who are working with potential tenants looking for a place. And on the other side – property management company that has a business network with leasing agents and is trying to meet the match.
5. What costs are there to consider when owning rental property?
- In case of leased land, you must pay a land rental fee, amount of which depends on the area.
- Secondly, it is mandatory to pay (typically annually) fire insurance for the property, approximately 0.5% of the building value.
- Property tax, which is equal to 0.5%.
- Also in case if you work with property management company then you need to pay PM fee. Generally, it is equal to 5% of Gross Rental Income.
- There might be some additional costs, for example, repair and maintenance cost. The amount depends on age and state of a building, usually between 5-10% of total rental revenue.
- And in case if a property requires significant repair work the amount will increase.
- The cleaning fee can apply if a tenant damages the room. The amount differs from district to district.
6. What are general property management fees?
Property management company does a great work assisting the property owner by dealing with tenants, reporting on property condition on a monthly basis, submitting rental income report, etc.
A property management service fee in Japan is usually 5% of Gross Rental Income plus tax.
Please note that it might be useful for a landlord to give PM agent an allowance around 10,000-20,000 JPY for small repairing works. It is better to provide it in advance because even a minor issue can cause a delay, which can result in tenant’s dissatisfaction. And keeping tenants satisfied is the primary goal of the landlord and PM company because he/she is their primary source of income.
7. What is the most significant mistake landlords/property managers make when renting a property?
Choosing a wrong tenant!
A property management company interview potential tenant on behalf of an owner to avoid this mistake.
The first step is application screening, where they check the potential tenant’s ID, personal information, etc.
If there are no gaps in the resume, then they will proceed to the next step – interviewing the tenant. If this went well, they would report back to the landowner because he is the one who makes the decision.
A worst case scenario is if you fail to find an average tenant. It would be difficult and painful to resolve issues with tenants.
It is well-known that the rental fee is the primary source of income for the property owner, and if the cycle brakes it would become the worst situation for everybody.
Therefore it is essential for the landlord to work with a trustworthy and professional PM company which will avoid critical mistakes.
Fortunately, we have a highly skilled English speaking property management team in Japan Properties Co., Ltd., which would be more than happy to assist with any inquiry.