There are three types of building management services in Japan: 1 self-management, 2 outsourced management, and 3 subleasing. Depending on which type is chosen, the psychological, time, and financial burdens can be reduced.
1 self-management
A method in which the landlord performs all management tasks himself/herself.
Advantages
The economic burden is low because you do not have to pay the management consignment fee, mainly because you provide the services yourself.
With the exception of actual expenses related to management services, the expenditure of expenses such as management consignment fees can be reduced compared to other forms of services.
Disadvantages
The main reason is the psychological and time burden.
In principle, the applicant must perform all of the following tasks: recruitment management, rent management, contract management, building management, and troubleshooting management.
In particular, there are cases in which physical and mental strength is exhausted by performing urgent tasks such as dealing with leaks and breakdowns, as well as dealing with rent arrears and complaints by oneself, regardless of whether it is a holiday or nighttime.
In addition, failure to make appropriate judgments in repair work and other tasks that require specialized knowledge can lead to a succession of building failures and premature deterioration of the building.
Furthermore, if you do not understand the appropriate scope and amount of repairs, you may end up incurring unnecessary financial burdens.
2 outsourced management
A method of outsourcing all or part of the management services to a management company. In principle, in this form, the management company is responsible for the performance of its fiduciary duties, but ultimately the landlord must assume all responsibility for the tenants.
Advantages
The main reason is that there is less psychological and time burden compared to self-management.
By outsourcing to professionals those areas that you are not good at or that require a lot of time, you can free up your own time and reduce the psychological burden.
In principle, the outsourced management company handles problems between tenants, and even in the case of large-scale repairs that require specialized knowledge, the work can be carried out systematically with the advice of a professional.
Disadvantages
In principle, the outsourced management company handles problems between tenants, and even in the case of large-scale repairs that require specialized knowledge, the work can be carried out systematically with the advice of a professional.
3 subleasing
This is a form of management in which management services can be outsourced almost entirely to a management company.
Although the landlord is not directly responsible for contract management with tenants and rent collection, the landlord must, in principle, bear the cost of major repairs and restoration of the property to its original condition. Since the contents of sublease contracts differ depending on the sublessor, it is important to listen to the sublessor’s explanation and understand the scope of the landlord’s responsibility and financial burden.
Advantages
It may further reduce psychological and time burdens than the outsourced management method.
Sublease contracts provide a stable rental income since the property is leased to the sublessor in a lump sum. For financial institutions that provide loans, the prospect of a fixed rental income may lead to a positive evaluation.
Since the sublessor is the lessee from the landlord’s point of view, the sublessor and the tenant will be free from many complicated rental management tasks, since all of the above tasks except for building management should be resolved between the sublessor and the tenant.
The sublessor will act as the lessor in recruiting tenants, screening applicants, and managing rent payments. In addition, the sublessor guarantees a certain amount of rent regardless of whether the property is vacant or not during the sublease contract period.
The sublessor, as the lessor to the tenants, will resolve any problems between tenants, for which the landlord would ultimately be responsible under consignment management.
Even if the actual tenant fails to pay rent on time, it is only between the sublessor and the tenant in the lease contract, and the landlord is not, in principle, involved in the trouble.
This type of management is relatively suitable for those who are not yet accustomed to rental management, those who want to reduce their time and psychological burden, and those who are not full-time landlords, such as salaried workers who have other main jobs.
Disadvantages
Compared to outsourced management, the financial burden is greater, and it may be difficult to see the reality of rental management.
Sublease commissions are set considerably higher than those of collection agency contracts, which has the disadvantage of reducing profitability. Although this fee seems reasonable when considered as a cost of avoiding vacancy risk, it should be carefully considered because, in the long run, a property with a collection agency contract that has been vacant for several months may have a better income/expense ratio.
Once a sublease contract is signed, it is quite difficult to terminate it.
This is because rental management companies are protected by the “Land and House Lease Law” just like other lessees.
Under the Land and House Lease Law, it is basically impossible for the lessor to cancel the lease.
In most cases, however, “justifiable reasons” such as “the expected profit is not generated” or “a loss has been incurred” are not recognized as “justifiable reasons”.
Therefore, if you want to terminate the sublease contract, you will have to pay a penalty fee to terminate the contract, which is a high hurdle to overcome.
In addition, since sublease properties generate 10-20% less revenue than the market rate, owners who wish to manage their own properties or collect money on behalf of their tenants may be turned away from sublease properties. As mentioned, the reduction of the sublease fee itself is not a problem under the Land and House Lease Law, so the new owner has to choose whether to accept it or stop purchasing the property. Therefore, it is not uncommon for buyers to shy away from sublease properties.
As described above, there are three types of rental management services. The “first step in rental management” is to be able to choose the management method that best fits your rental management policy. This is not a decision based on intuition or feeling. It is never too late to take your time and make a decision.
If you have any questions or/and if you would like to have more details, feel free to contact us by contact form.
