How to rent out a residential property – Long-term vs Short-term vs Minpaku (Vacation Rentals)
There are various lease methods for managing a real estate property (a house and an apartment room) for investment. These methods include a short-term lease called minpaku (lodging at a private residence for example Airbnb/Vacation Rentals), weekly apartments, monthly apartments, a long-term lease with furniture, and a regular lease, which is leased out on a yearly basis (long-term lease).
In this short article we will explain how to manage a real estate investment for each type of lease method. If you are considering purchasing real estate for investment in the future, or if you are having a vacancy problem with a real estate property that you own, please use the following information for reference.
An important factor in the profitability of a real estate investment is knowing how to reduce vacancy rate. Here we will take a look at the characteristics of various lease operation methods and how to find tenants for each method.
Long-term lease (Yearly lease contract)
In Japan, it is the most prevalent lease contract and the contract period is generally 2 years. It includes two types of contracts: an ordinary lease contract that can be renewed for extension and a fixed-term lease contract without renewal. When using an ordinary lease contract, it is difficult to terminate the contract and to have a tenant move out at lessor’s convenience. In this sense, a fixed-term lease is recommended if you want to lease out your property for only a few years. For more in-depth information about the differences between an ordinary lease contract and a fixed-term lease contract, read our “Ordinary Lease Contract vs. Fixed-term Lease Contract” article.
Compared to other lease methods with shorter contract periods, the demand for an ordinary lease contract is high all year round, and income from the contract is stable as you can lease out your property for a long time with a yearly contract.
Attracting and Finding Tenants
It is usually efficient for you to ask a real estate company in the vicinity where your real estate property is located as it is easy for them to take applicants to preview the property. However, in Tokyo, there are many real estate companies that cover relatively large areas for seeking tenants. These real estate companies attract tenants by advertising a wide range of real estate properties on their website, utilizing information systems among real estate companies, portal sites, etc. In Japan, it is said that the busy season for real estate leasing is from January till March when many people are starting their new lives, such as going on to higher education, finding a job, job transfer, etc. Leasing demands also increase from September till October as many companies are making personnel changes and many job-related relocations are taking place.
Short-term Lease (Weekly and monthly lease contracts)
This type of lease is for a furnished property with furniture and home appliances necessary for daily life, of which the contract period can extend from one month to one year. This lease style usually does not require the security deposit, key money, income screening, etc. As the property comes with furniture, home appliances, and the internet connection, this method is attractive for a tenant to be able to start his/her life immediately. Tenants choosing to use this type of lease include businessmen in Japan or from abroad for long-term business trips and training, students during the entrance examination season, or by those who need temporary housing while they move out from, rebuild, or renovate their homes.
Unlike the general leasing process where tenants visit multiple properties in person before making a decision, short-term lease tenants often search for properties on the Internet and apply online without visiting and previewing properties, so it is important for you use a real estate company that is able to attract and find tenants effectively via the Internet. However, as there are only a few real estate companies that support short-term lease properties for tenant searches, contract, and management, we would suggest that you find a desirable real estate company on the Internet, etc. and consult with them in advance.
Advantages of Short-term lease Real Estate Investment
- The property is likely to be leased out at a rent higher than a general lease property. The market rent price may be 1.5 to 2 times the rent of an average property.
- The rent for the contract period is often paid in advance, so there are fewer risks of delinquent rent.
- You can flexibly set the rent depending on the quality of room equipment and the lease period.
- In the event that a breach of contract or complaints such as noise come up, you can have a tenant leave the property at the expiration of the contract period, so you able to the reduce risks which are attributed to an unruly tenant.
Disadvantages of Short-term lease Real Estate Investment
- Installation costs for furniture and home appliances are required as an initial investment cost.
- If you decide to switch to an ordinary lease contract, furniture and home appliances will be unnecessary and you may have to pay the removal cost.
- Because of a monthly contract, income from renting-out becomes less stable compared to a yearly contract when considering a possible vacancy period.
- In the case of leasing out an apartment unit of a condominium, there is a chance that a short-term lease contract (lease for monthly apartment, weekly apartment, etc.) is prohibited under the building’s management rules.
Minpaku (Airbnb/Vacation Rentals)
This is a lodging method which is mostly intended for use by tourists to allow them to stay in private residences for a fee. This lease method includes various styles such as; lodging at a private residence with prior notification in accordance with Residential Accommodation Business Act (New law on private lodging business), “Special Zone Private Lodging” that can be permitted to accommodate guests only in the certified properties in the special zones, and a common lodging house under Hotel Business Act.
This section covers lodging at a private residence under Residential Accommodation Business Act, which is relatively easy for individuals to operate. In order to start the operation of a private lodging business, you will first need to report to a local public health center your intention to engage in the residential accommodation business. An individual starting a lodging business who does not stay or live in the apartment unit that they are using to accommodate guests is required to outsource various administrative tasks such as safety and hygiene measures to a residential accommodation management company.
When advertising to for guests you may post your property information on the listing page of a website specialized in private lodgings. Some management agents handle most of the works, from acquisition of the property to notification of the private lodging business, preparation of the rooms and equipment for accommodation, and proxy services for business operation, so they can save you a lot of time if choose to outsource all the work to them
Advantages of a Minpaku Real Estate Investment
- The property is likely to be leased out at a rent higher than that of an average lease property. It is said that the market rent price may be 4 times as much as that of a rent of an average property.
- Compared to other general lease styles, the property may have less damage to the interior arrangements, so it can be less expensive to restore the property to its original state.
- If the location of the property is good, the age of the property does not affect the rent price so much.
- If you outsource the business operation to a private lodging management agency, you can save plenty of time as they can take care of everything from guest services to the cleaning of rooms.
Disadvantages of a Minpaku Real Estate Investment
- Under Residential Accommodation Business Act (New law on private lodging business), the business operation period is regulated within 180 days.
- It is necessary for you to be careful of the Minpaku related regulations and guidelines that may be established by a local government.
- Many apartments are likely to prohibit a private lodging business under the management rules, so the number of apartments that permit such a business is very limited.
- Installation costs for furniture, home appliances, fire prevention equipment, etc. are required as an initial investment cost.
- There are more risks of trouble with neighboring residents.
- Most of the users are tourists, so their stays are affected by tourism demands.
Our Services for Property Owners
At PLAZA HOMES we support our customers’ real estate investments by providing one stop seamless services from real estate purchases to advertising for tenants, restoring units to their original state, renovation proposals, and property management. We propose optimal leasing methods by taking into consideration the characteristics and location of the property, the circumstances of the owner, etc., and by choosing from the methods of the long-term, short-term, furnished, and unfurnished leasing.