Owners Guide
Renting Out Your Property
Renting out your property is hard work if you have to carry out too many of the tasks on your own. What most Japanese landlords do is to just collect the monthly rent from their tenant directly and ask a real estate company to do the rest of the work, while remaining in charge of making decisions whenever something needs repair during a rental term or whenever improvement work needs to be done to prepare the property for the next tenant.
Here is a list of tasks for the landlord and real estate company to do respectively when operating and managing a rental contract. You can ask the real estate company to provide services to you as minimally or comprehensively as you like.
List of tasks to do as landlord
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Examine rental applications and decide whether to accept the applicant or not
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Sign the rental contract
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Receive monthly rent
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Arrange for cleaning services, restoration, and repair works directly with vendors, or just make decisions on what the real estate company suggests to do using their vendors
List of tasks done by real estate company
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Source tenants
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Prepare lease contracts and other paperwork
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Being the point of contact for any requests from tenant during the rental term and send out notices when needed
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Perform spot inspection with tenant upon contract termination
Some landlords may opt for the most hassle-free way possible and entrust all powers to a real estate company to carry out their rental business. They will receive their rental revenues from the real estate company who collects them on their behalf. This will take the weight off their shoulders from having to check their bank account each month to see whether the tenant has paid on time. Bear in mind though, there will be a monthly service charge by the real estate company for servicing you this way. To entrust a real estate company with all powers related to the entire rental process will require a signed power-of-attorney specifying the powers vested. You can limit the powers of what the real estate company can do until you have built a trusting relationship with the company.
Some landlords may want to earn a fixed amount of rent even when the property is unoccupied. To do that they will need to master-lease the property to a real estate company which will then be subleased to a tenant. The earned rental revenues will likely be lower than leasing to tenants themselves directly, but this will allow them to secure a fixed amount of income.
Types of Leases You Can Conclude with Your Tenant
When you rent out your property there are 2 types of contracts you can conclude with your tenant and the simple difference is whether to limit the leasing period or not. A contract that has a limited leasing term is called a fixed-term lease (teiki-shakuya-keiyaku 定期借家契約) and a contract that does not is called a renewable lease (futsu-chintaishaku-keiyaku 普通賃貸借契約).
Here are some advantages and disadvantages of each type of lease contract.
Advantages
Fixed-term lease
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If you have plans to use the property for yourself or for someone else in the future, you are able to end the contract at the end of the term.
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If you have plans to sell your property then you should keep the option to sell it without a tenant to broaden the buyer base, and you will be able to end the contract at the end of the term.
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If you are unable to reach an agreement with the tenant to increase the rent due to unavoidable economical factors, you may end the contract at the end of the term.
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When your property is old and it is unpredictable when it has to be torn down, it is best to keep the contract as a fixed-term lease. You can wait until the term comes to an end to avoid paying hefty eviction fees to the tenant.
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If the tenant is unreliable in paying rent on time or has delinquency in payment then you can end the contract with the tenant at the end of the term.
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If the lease term is 4 years or more then you can save the tenant the renewal fees which are usually required when renting on a renewable lease. This may encourage the tenant to rent for a longer term.
Renewable lease
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You can encourage the renter to keep renting by keeping the lease conditions the same or in terms comparable with the ongoing market.
Disadvantage
Fixed-term lease
-
You may have a hard time finding a tenant if the lease term is too short.
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You may need to bring your rent down to 70 – 90% of the market rates and/or lower the renter’s initial fees by not charging key money, if the lease term is shorter than 2 years. Although this all depends on how much demand there is for your property.
Renewable lease
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Even if you have an undesirable tenant, it may not be easy to evict them out of your property.
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You will not be able to easily take back possession of your property to use it for yourself or for some other people, unless you have a justifiable cause. But even then, you may have to pay eviction fees to a certain extent.
Rental Flowchart
Receive a rent assessment and decide on the asking rent, and the type of rental contract (fixed-term or renewable) that you want to conclude with the tenant
Decide on the scope of services you require from your real estate company and how much you will take on yourself
Contact a real estate company and start sourcing for a tenant. If you have bought a tenanted property, have your real estate company take over the management from the seller's appointed management company, if any exists.
When an application comes in, examine it with the guidance of your agent and decide if you accept the offer or not
Sign the lease agreement and receive payment of the contract fee
Rely on your management company to respond to repair requests from the tenant during the lease term. Your management company will check if the claim is appropriate and relay details to you. If repair is necessary, you or your management company will arrange for it.
Rely on your management company to handle all necessary paperwork during the lease term. If any document needs signing, such as, renewal (re-contract) contracts and termination notices, then it will be sent to you.
Income and Expenditure
Income
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Monthly rent
-
Key money (2 months at most, but easier to find tenant if waived)
-
Renewal fee (1 month at most upon contract renewal every 2 years)
-
Re-contract fee (1 month at most upon concluding a new fixed-term contract)
-
Deposit (2 months at most, but technically this money does not belong to you and will be used to clean and restore the room to its original state after the tenant moves out. Any remaining balance after deducting cleaning and restoration fees shall be returned to the tenant)
Expenditure
-
Agency fee (1 month's rent + tax)
-
Income tax (paid between Feb.16 - March 15 of the following year against income earned between Jan.1 - Dec.31)
-
Agent service fee for receiving monthly rent on behalf of landlord (few percents of the monthly rent)
-
Agent’s renewal (re-contract) processing fee (25-50% of the renewal fee) for handling renewal (re-contract) contract for another term
Renting Out Your Property as an Offshore Landlord
The scope of services you receive from a real estate company when renting out your property as an offshore landlord could be as minimal or as comprehensive as you like. But one thing you cannot do on your own when you do not have a Japanese bank account is to receive the monthly rent from the tenant directly, since the tenant will not make rent payments to an overseas account each month. You will need to entrust a real estate company to receive it for you.
All domestic banks do not allow foreigners without a Japanese address to open a bank account in Japan. They also prohibit non-residents (非居住者 He-kyo-jusha) from keeping their Japanese bank accounts open once they leave Japan with no intention of returning, unless they have a remaining mortgage loan which is repaid monthly through the loan lender’s bank account.
The most hassle-free way to operate your rental business is to entrust powers to a real estate company who you trust, but you can limit the powers of what the real estate company can do if you wish to be more involved in the process, or if you wish to entrust the rest of the powers only after you have built a trusting relationship with the company.
Here is a list of tasks for the landlord and the entrusted real estate company to do respectively when operating and managing a rental contract.
List of tasks to do as landlord
-
examine offers and decide to accept the applicant or not, sign the rental contract
-
receive the monthly rent ※landlords without Japanese bank accounts cannot receive this internationally
-
arrange cleaning service, restoration and repair work directly with vendor, or just make decisions on what your real estate company suggests to do by vendors used by them
List of tasks done by real estate company
-
source tenants
-
preparing lease contracts and other paperwork
-
being point of contact for any requests from tenant during a rental term, and sending out notices when needed
-
spot inspection with tenant upon contract termination
Two Types of Lease You Can Conclude with Your Tenant
When you rent out your property there are 2 types of contract you can conclude with your tenant and the simple difference is whether to limit the leasing period or not. A contract that has a limited leasing term is called a fixed-term lease (teiki-shakuya-keiyaku 定期借家契約) and a contract that does not is called a renewable lease (futsu-chintaishaku-keiyaku 普通賃貸借契約).
Here are some advantages and disadvantages of each type of lease contract.
Advantages
Fixed-term lease
-
If you have plans to use the property for yourself or for someone else in the future, you are able to end the contract at the end of the term.
-
If you have plans to sell your property then you should keep the option to sell it without a tenant to broaden the buyer base, and you will be able to end the contract at the end of the term.
-
When your property is old and it is unpredictable when it has to be torn down, it is best to keep the contract as a fixed-term lease. You can wait until the term comes to an end to avoid paying hefty eviction fees to the tenant.
-
If the tenant is unreliable in paying rent on time or has delinquency in payment then you can end the contract with the tenant at the end of the term.
-
If the lease term is 4 years or more, then you can save the tenant the renewal fees which are usually required when renting on a renewable lease. This may encourage the tenant to rent for a longer term.
Renewable lease
-
You can encourage the renter to keep renting by keeping the lease conditions the same or in terms comparable with the ongoing market.
-
You can earn renewal fees every 2 years at a maximum of 1 month’s rent.
Disadvantages
Fixed-term lease
-
You may have a hard time finding a tenant if the lease term is too short.
-
You may need to bring your rent down to 70 – 90% of the market rates and/or lower the renter’s initial fees by not charging key money, if the lease term is shorter than 2 years. Although this all depends on how much demand there is for your property.
Renewable lease
-
Even if you have an undesirable tenant, it may not be easy to evict them from your property.
-
You will not be able to easily take back possession of your property to use it for yourself or for some other people, unless you have a justifiable cause. But even then, you may have to pay eviction fees to a certain extent.
Withholding Tax
When the landlord is a non-resident or a foreign corporation renting out a property in Japan, a corporate renter is required to withhold 20.42% of the monthly rent and pay it to the tax authority each month before the 10th day of the following month (this does not apply to individual renters). This withholding tax (源泉徴収税 Gensen-choshu-zei) serves as an advance payment towards the landlord's potential income tax liability. If the paid tax total is different than the actual income tax amount, the landlord or landlord’s appointed tax representative (納税管理人No-zei-kanri-nin) will have to appropriate the sufficiency or insufficiency by filing income tax returns (確定申告 Kakutei-shin-koku) during Feb. 16 – March 15th of the following calendar year. The renter may be exempted from paying withholding tax if the landlord possesses an exemption certificate, or if there are tax treaties between Japan and the landlord’s country, and if the necessary paperwork is filed by both the landlord and the renter.
Avenue Far East is neither qualified nor authorized to give legal or tax advice, and any such advice shall be obtained from an appropriate, qualified professional advisor of your own choosing. Moreover, the stated requirements may be revised at any time and the information contained here may not be up to date. Therefore, it should be used for reference only.
Rental Flowchart
Receive a rent assessment and decide on the asking rent and the type of rental contract (fixed-term or renewable) that you want to conclude with the tenant
Decide on the scope of services you require from your real estate company and how much you will take on yourself
Contact a real estate company and start sourcing for a tenant. If you have bought a tenanted property, have your real estate company take over the management from the seller's appointed management company, if any exists.
When an application comes in, examine it with the guidance of your agent and decide if you accept the offer or not
Sign the lease agreement and receive payment of the contract fee
Rely on your management company to respond to repair requests from the tenant during the lease term. Your management company will check if the claim is appropriate and relay details to you. If repair is necessary, you or your management company will arrange for it.
Rely on your management company to handle all necessary paperwork during the lease term. If any document needs signing, such as renewal (re-contract) contracts and termination notices, they will be sent to you.
Income and Expenditure
Income
-
Monthly rent
-
Key money (2 months at most, but easier to find tenant if waived)
-
Renewal fee (1 month at most upon contract renewal every 2 years)
-
Re-contract fee (1 month at most upon concluding a new fixed-term contract)
-
Deposit (2 months at most, but technically this money does not belong to you and will be used to clean and restore the room to its original condition after the tenant moves out. Any remaining balance after deducting cleaning and restoration fees shall be returned to the tenant)
Expenditure
-
Agency fee (1 month’s rent + tax)
-
Income tax (paid between Feb.16 - March 15 of the following year against income earned between Jan.1 - Dec.31)
-
Agent service fee for receiving monthly rent on behalf of landlord (few percents of the monthly rent)
-
Agent’s renewal (re-contract) processing fee (25~50% of the renewal fee) for handling renewal (re-contract) contract for another term