You, too, can be a landlord in Japan

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You, too, can be a landlord in Japan

Unread post by Are they the lemmings? » Sun Jul 27, 2008 11:45 pm

A while back in [url=http://www.letsjapan.org/forum/viewtopic.php?f=2&t=255747]this thread[/url], Mogura wrote:Would you be interested in doing a little write-up about how you ended up landlording in the Business Center? I would really like to hear how you got into it, what challenges you had, lessons learned, etc. Probably some other people would be interested in knowing as well? Whaddya say?
So, here it is (edits in blue).

First, some general information. I am not a professional landlord; I do not make my living by letting apartments. I just have one apartment that I rent out to earn a bit of pocket money, although I have owned others before. Also, this is all just my opinion based on my experience; the pros out there will no doubt be able to offer much better information than I.

Please, let's stay on topic. This thread is not a discussion of:
  • How to become a professional landlord and maximize your income. There are countless books on that.
  • Real estate purchase prices or rental incomes in Japan. These are easily found on the 198,437,198,436,165 real estate search sites out there (here is one of them). Suffice to say that you can find apartments for as little as a couple of million yen and as expensive as... well, let your imagination run wild.
  • Banks, mortgages and their relevance to purchasing and letting an apartment.
  • General real estate topics.
It will, however, cover things relevant to buying and letting an apartment for pocket money in Japan like:
  • Location
  • Amenities
  • Investment properties
  • The purchase
  • The lease
  • Key money
  • Problems
  • How to look up potential properties
So, with the preliminaries out of the way, here we go.

The actual process of buying and letting an apartment turned out to be quite easy; I think anyone could do it. However there is a surfeit of rental apartments in Japan and potential tenants are spoiled for choice, meaning that although there are heaps of affordable apartments out there and they are easily bought, you have to choose wisely, otherwise you will end up with a place that no-one wants to rent.

I made a conscious decision to wait until I found a place that there would be some actual demand for. Even once I had decided to buy a rental property, I sat on my money for months as I looked at and decided against apartment after apartment. The biggest drawback for most of them was that they were too far from the station.

Location
Apparently, previous generations didn't mind being 20 and 30 minutes from the nearest station, but these days, the trend as I see it seems to be towards a maximum of 10 minutes. I held out for an apartment that was on an express stop. Naturally, there was a clear correlation between station proximity and apartment affordability, and a quick trip to your local real estate agent will show that the same applies to rents.

I mean, think about it: You've seen how many out-of-the-way places appear to have been abandoned, right? You've seen the shotengai with most of the shops permanently shuttered, and you've noticed how the only people you see are elderly, haven't you? The general trend sees people moving out of those areas to urban centres. Sure, like any trend or rule, there are exceptions, but I don't have the courage to bank my meagre savings on exceptions, so I decided to put my money where the chances were better.

Amenities
If you want a fighting chance of attracting tenants to your apartment, there are a few things that people have come to expect. These include auto-lock and intercom, elevators and, more recently, a separate bathroom and toilet as opposed to the all-in-one yunitto basu that was common up to the mid-90s. Other creature comforts can be added, but these are basic structural items that cannot be changed without the agreement of the owners of the other apartments in your building (good luck trying to obtain that!) and without spending lots of money, which sort of defeats the purpose of this exercise.

Anyway, I found that many of the cheap apartments lacked some or all of these, and many of them lay vacant, so I'd say it's best to make sure you buy a place that already has these things.

Incidentally, Japan's building code was revised around 1982. That law change covered lots of things, one of which was elevators. Under the new law, it became compulsory to install elevators in any new apartment building with more than five storeys. Little coincidence, then, that a number of apartments I saw that seemed to be perfect (if a little old) were, on closer inspection, seventh floor units with no elevator. Nowadays, when tenants are spoiled for choice, no-one is going to willingly walk up and down anything more than two flights of stairs, so I felt it best to find a place with an elevator.

Ready-made rental apartments for landlords
Any apartment can be rented out; you just buy it and advertise. But many real estate agents and websites trade in toshi bukken (investment properties). These generally come in two types: entire apartment buildings where you buy all the units; and individual apartments that are already let (or at least geared for letting), and the buyer can take over the apartment with tenants already in place. This practice is called owner change by local agents.

Making the purchase
The actual purchase process is easy, and I will not go into detail here except to list what you will need:
  • The money.
  • Your Alien Registration Certificate (not the card - the certificate)
  • Your registered inkan.
  • Your inkan registration certificate.
Naturally some fees are involved. A general guideline for all the extra expenses is around 10% of the purchase price.
  • Agent's fee. This is a fixed amount. Unless the apartment costs less than 4 million yen, I think the fee is 3% of the purchase price + a flat-rate 60,000 yen + consumption tax.
  • Stamp duty for the inshi that has to be affixed to the contract. I can't remember, but I think it was just a couple of man yen.
  • The judicial scrivener's fee. The shiho shoshi is the bloke who files all the documents to the authorities to register the sale and you as the new owner. The real estate agent will have a shiho shoshi on hand.
  • Real estate acquisition tax. This is a one-off tax.
  • Fixed asset tax. This is an annual tax, and you will likely be presented with a bill for the tax for the remainder of the year worked out on a per-diem basis so that the you and previous owner only pay tax for the respective times when you actually owned the apartment.
Renting your place out
Usually but not always, I use real estate agents for this (more details later about why I occasionally don't use them). They advertise your place, show prospective tenants around, handle all the contracts, etc., and their fee is usually one month's rent.

Most real estate agents also provide a management service that includes collecting rent, following up on non-payments, fielding the tenants' requests for repairs and whatnot. They charge a fee for this, too, and I've been quoted anything from 5% through 9% of the monthly rent amount.

While I'm on the topic of fees, remember that, as owner of an apartment, you will need to pay two monthly management fees to the "management committee" of all the owners of apartments in your building. One is the kanrihi for day-to-day cleaning, repairs and upkeep of shared areas and facilities of the building; and the other is a monthly contribution to the tsumitate fund accrued for major renovations and repairs as the building gets older.

I guess the salient point here is this: Your apartment is just one of hundreds on the agent's books. Sure, they'll make an effort to get you tenants but, in my limited experience, an apartment will sit empty for months unless it has what the tenant wants. What do tenants want? AFAIK, close to the station, auto-lock, intercom, clean, tidy, safe.

Now, why would I not use an agent in some cases? Well, maybe things are different in Tokyo, but one thing I've noticed here in Kansai is that the Japanese real estate agencies don't speak English. I suppose that if you want English service, you have to go to one of the companies specializing in real estate for gaijin (not sure though--never dealt with one). So, if you find a foreign tenant who doesn't speak Japanese, there is little point in having an agency do the day-to-day management for you because they rarely speak English. In this case, I've found it much easier to work directly with the tenant in English.

In my experience, an agent will occasionally come to you and say that a potential tenant wants to negotiate. Maybe they've asked for a little discount on the rent or deposit or something. I have found that if you give them what they want--at least to some degree--they will sign the lease.

So that's why they charge key money!
When I first spoke to a real estate agent about letting my apartment, one of the things they asked was, "How much key money do you want to charge?" I admitted the whole key money thing was a mystery to me and asked why I should charge anything at all instead of just a refundable security deposit. "Well, presumably, when the leaves you'll want to replace all the wallpaper and repaint everything and probably the floors, right?" I see...

None of the agents I've spoken were hostile to the idea of not charging key money (after all, they have some such properties on their books), but all of them recommend I charge, even if it was just a little. Their reasoning was that the no-key-money properties invariably attract less desirable tenants and the potential for problems increases.

So, when going through an agency, I make a sort of compromise on key money. Any agent will be able to give you a ballpark figure for key money that other landlords with apartments similar to yours in your area charge; I just take that figure and ask for a substantially smaller amount that I hope will please the tenant, the agent and not nag my conscience too much. When not using an agency, there are no "cultural differences" to be explained so I don't need to bother with key money.

Problems with tenants
I haven't had one yet. Seriously. 8)

I suppose that if you remain patient until you find the right apartment, find the right agency (or agencies) and work with them and the tenants in good faith, you'll prevent most problems before they arise.


How much can a landlord actually make?
Tall Tall Tree wrote:Do you think you could throw some more specific numbers at us? How much did you pay to buy what type of apartment, and did you finance that purchase or pay in cash? How much of the rent are you pocketing after paying the management committees and other fees?

Sorry. I have deliberately kept specific numbers out of this thread. I don't mean to obfuscate or be difficult; it's just that I'm not comfortable with putting any part of my finances online and I seriously don't think it would be of any help because the prices vary so much from area to area.

However, I want to help if I can, so here is a short passage on...

How to look up potential properties
It's quite simple to do a quick calculation for any area. Use the link given above or other such sites to do a search for apartment prices around your chosen station (the sites usually have then under 買う, 買いたい or 売り物件 links). You can narrow it down by area, station, distance from station, price range, no. of rooms and parameters. Then use the same link to see what the same type of apartments rent for around the same station (the sites usually have then under 借りる, 借りたい or 賃貸物件 links).

Don't forget to add 10% on to the purchase price to cover fees and costs. That should give you a rough of idea of how much rent (gross) you will make in relation to the purchase price. But even that doesn't take into account any money you might spend getting the apartment into shape to rent. Don't forget: it's got to be spik'n'span if you want someone to choose your apartment over any of the zillions of others available.

As for how much of the rent you get to keep, well, that depends on so many variables: kanrihi, tsumitate contributions, perhaps mortgage repayments and, of course, income tax as well. When I did my calculations, I assumed that I'd only be able to pocket half of it. If it was more than that, well, bonus.


Conclusion
In my short experience, successfully renting out an apartment comes down to finding the right property to buy. I can't stress enough: renters are spoiled for choice with comfortable, convenient apartments, so your place has to be comfortable and convenient, too.

If your apartment...
  • Is within 10 minutes' walk of the station (preferably an express stop) in an area with a reasonable population;
  • Has auto-lock and intercom;
  • Has a separate bathroom and toilet;
  • Is in good repair;
  • Is clean and tidy; and
  • Is reasonably priced
You should be able to get some sort of tenant in there.

I guess if there's one thing that will help you more than anything, it is the ability to speak Japanese. There is a lot of good information out there for amateurs wanting to invest in an apartment to earn a few yen on the side--books, websites, TV programmes... I found lots good information in all sorts of places. It's just that most of that information is in Japanese.

It is possible to be a landlord in Japan. I am, and I recommend it. Good luck.
Last edited by Are they the lemmings? on Tue Jul 29, 2008 5:30 pm, edited 2 times in total.

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Re: You, too, can be a landlord in Japan

Unread post by Tall Tall Tree » Mon Jul 28, 2008 2:29 am

Nice write-up. Thank you.

Do you think you could throw some more specific numbers at us? How much did you pay to buy what type of apartment, and did you finance that purchase or pay in cash? How much of the rent are you pocketing after paying the management committees and other fees?

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Re: You, too, can be a landlord in Japan

Unread post by Mogura » Mon Jul 28, 2008 7:54 am

Excellent write-up, my friend.

I have some specific questions:

1) Regarding apartments (mansions) with intercom and auto-lock, I am under the impression that these places are built and owned by a single entity (landlord or company). For example, the place I live in is a 4-storey affair with auto-lock and video intercom, which is great for keeping out the axis of evil (NHK fee collectors, Jehovah's Witnesses, newspaper salesmen). However, the entire building is owned by one person, hence the possibility of buying a single unit in this building is nil. I thought that all buildings of this sort are under similar circumstances, with the exception of high-rise units. Can you comment?

2) I have a Japanese friend that buys and lets apartments (mansions) as a side business. He is also choosy with regards to the various factors you mentioned (proxmity to the station, etc.). He was giving me advice about purchasing an apartment (mansion unit) one day, and he said that it's good to purchase 1st floor units. I was a bit taken aback, because I would have thought that tennants would avoid them like the plague (more susceptible to break-ins, noise, non-existent view). For these reasons, he said, 1st floor units' rents are cheaper than other units, and you will never have a problem finding tennants because there are always people looking for a deal. What do you think?

3) A Japanese friend of mine told me the story of how real estate agencies always create a profile for an apartment to be let. This profile isn't shown to the prospective tennant, but it will include details as to whether pets are allowed, etc. One of the checkboxes on the form was whether gaijin were allowed. I kinda thought his story BS, but I have lived in Japan long enough and dealt with enough real estate agencies to think that this might be true. As a landlord, did you ever come across such a thing when dealing with real estate agencies? If so, what was your reaction? (Just leave the box unchecked, deal with another real estate agency, etc.)

4) How do you deal with the issue of charging one month's rent for renewing a lease with a tennant? A lot of Japanese landlords engage in this practice even though it is illegal. "This is how it's done in Japan," is the phrase they invariably resort to in perpetuating this practice.

5) How do you deal with the issue of returning a tennant's key money when they vacate the apartment? A lot of Japanese landlords end up just keeping the money (or at least try), even when there are no apparent damages made to the apartment. Again, "This is how it's done in Japan," is the phrase that they all use.
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Are they the lemmings?
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Re: You, too, can be a landlord in Japan

Unread post by Are they the lemmings? » Tue Jul 29, 2008 5:32 pm

Tall Tall Tree wrote:Do you think you could throw some more specific numbers at us? How much did you pay to buy what type of apartment, and did you finance that purchase or pay in cash? How much of the rent are you pocketing after paying the management committees and other fees?
On reflection, this should have been mentioned in the OP. Thanks for bringing this up. OP edited accordingly.

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Re: You, too, can be a landlord in Japan

Unread post by Are they the lemmings? » Tue Jul 29, 2008 6:08 pm

Mogura wrote:1) Regarding apartments (mansions)... I am under the impression that these places are built and owned by a single entity (landlord or company)... hence the possibility of buying a single unit in this building is nil. I thought that all buildings of this sort are under similar circumstances, with the exception of high-rise units. Can you comment?
AFAIK, both kinds exist: those that are built and owned entirely by a single entity and those that are built and sold off individually. The former are exclusively for renting and the latter can either be occupied by the owner or rented out. In acny case, there are plenty of both kinds out there.
Mogura wrote:2) I have a Japanese friend [who] said that it's good to purchase 1st floor units. [He] said 1st floor units' rents are cheaper than other units, and you will never have a problem finding tennants because there are always people looking for a deal. What do you think?
I have to plead ignorant on this one. I've never owned a first-floor place and I tend to avoid them because, like you, I imagine there might be security issues. The only thing that comes to mind is that some people like them because they sometimes have a little garden plot instead of the balcony that the floors above them have.
Mogura wrote:3) A Japanese friend of mine told me the story of how real estate agencies always create a profile for an apartment to be let. One of the checkboxes on the form was whether gaijin were allowed. As a landlord, did you ever come across such a thing when dealing with real estate agencies?
Nope, never heard of this one.
Mogura wrote:4) How do you deal with the issue of charging one month's rent for renewing a lease with a tennant? A lot of Japanese landlords engage in this practice even though it is illegal.
Charging koshin-ryo is indeed illegal and is apparently a dying practice. I've heard that it's limited to certain regions these days, but I've seen no evidence either way, except to say that I've lived in numerous apartments in four prefectures in Kansai as well as a stint in Tokyo, and no-one has ever tried to charge a lease renewal fee.

In any case, I don't charge a renewal fee, I never asked to charge one and no estate agent ever even broached the subject.
Mogura wrote:5) How do you deal with the issue of returning a tennant's key money when they vacate the apartment?
As I alluded in the OP, I only accept a refundable deposit when letting to a foreigner, and I've never had cause to keep it so I've always given everything back when they leave. With Japanese tenants, the real estate agents suggest charging a small amount of key money.

The concept of key money is referred to in a number of ways. Reikin is out-and-out key money that the tenant will not see again; the advertisement for that apartment will likely mention reikin in addition to a security deposit (usually "hoshokin" or "shikikin"); the latter should be refunded unless you trashed the place. More recently, you will notice (at least in Kansai) shikibiki. This is a deduction from the amount of deposit returned to the tenant when s/he leaves. It is just reikin by a different name. So, if the ad says shikikin 500,000 yen and shikibiki 200,000 yen, you will get 300,000 yen out of your deposit back at the end.

I end up charging a modest shikikin and minimal shikibiki. This modesty and minimality in comparison to other available apartments has also been good way of attracting tenants.

Apparently, some landlords will try and stiff you out of your "refundable" deposit (although I should point out that this has never happened to me, so I assume it is just a very few unscrupulous cowboys among the many decent operators). A tenant should always take photos of the apartment before moving in because if there is proof that the tenant did not damage the place, the landlord knows he will lose at the small claims court and will likely give the money back.

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Re: You, too, can be a landlord in Japan

Unread post by wilde_oscar » Wed Jul 30, 2008 2:25 pm

Mate, that is an excellent write-up!

Well done!
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