In Japan, furnished short-term operators should focus on whole building purchases

See also: AirBnB to delist non-compliant listings from June 15th, 2018

Our monthly furnished apartment property management service has proven to be popular with investors and for good reason; for the right property simply adding furniture, including utilities in the rent and allowing flexible leasing contracts has proven to add at least 1.5% to an owner’s net yield.

However, one thing I’ve seen over the last year since we began offering the program is that buyers that wish to purchase real estate to be property managed under this program wish to purchase multiple condos in different buildings rather than buy one whole building.

This is done with the reasoning that if the units are spread out across different locations then risk can be lowered.

What we have found is the opposite to be true; that to achieve the highest occupancy rates then it is easier to keep your units in several highly sought after areas by tenants. It is also very important to remember that this type of tenant will reserve a unit sight unseen.

Imagine yourself someone who has never been to Tokyo before and your company has assigned you to be come here for 3 to 6 months. You search for popular areas online and a list of usual suspects pops up; Harajuku, Roppongi, Omotesando, Ebisu, Shibuya, Shinjuku etc…

Then, looking at where your work will be stationed you decide on an area that is ideal. You next search online for furnished, short term apartments in the city and find a page like ours listing out available properties. These pages list out available UNITS to tenants; tenants who are not concerned whether the units are spread out across different buildings. These tenants only care about a UNIT that is right for them in an area they desire.

If one shifts their attention to the perspective of the owner, then if only given a moment’s thought it seems that spreading out your units across various buildings might lower risk.

However, geographically, the list of highly sought after areas by tenants are not that different; there is very little difference in rents between Omotesando vs. Harajuku, Shibuya vs. Ebisu and so on.

Another complication factor when buying multiple units across different condo complexes are all the different home owner’s associations (HoA) you will have to deal with; one for each unit assuming each unit is in a different building.

Specifically where HoA’s can cause a problem are in the area of allowing short term stay tenants. In preparation for opposition to the federal government to allow residential property owners up to 180 days per year to let out their property for short stay tourists, most HoA’s have rushed to introduce language that outlaws daily, weekly and monthly letting altogether.

Should owner’s within a condo association choose to disregard their HoA’s ruling, the recourse the HoA has is to call the health department and report the illegal letting.

The health department draws the line between legal and illegal letting at one month meaning any lease agreement that is under one month requires the property to pass hotel regulation standards which almost all residential condo complexes do not. Hence, this particular property management scheme we offer requires tenants to sign a lease for a minimum of one month.

Take one client who purchased a condo in a central complex in the city to be leased out under our monthly furnished apartment property management scheme. Very soon after purchase, prior to the furniture being delivered, the HoA changed their rules to specifically outlaw daily, weekly and monthly stays in their building.

In this instance, once Housing Japan’s property management team called the HoA and explained that the unit is professionally managed on a monthly basis, the HoA allowed the client’s unit to continue operating as a monthly rental.

We have been able to work successfully with several HoA’s so far but this is no guarantee we will be able to achieve the same outcome with all HoA’s in the city.

This means there will be a high chance moving forward that condo associations will continue to tighten their regulations to disallow any non-traditional letting of units within the complex.

On the other hand, purchasing a whole building allows your tenants to stay in the area they wish to be in while at the same time simplifying your ownership experience significantly. You are the HoA in a whole building situation and it is you and you alone that chooses how to manage and operate the building.

As a sweetener to the deal, should the daily stay deregulation set to come into effect in June, 2018, then you can choose ask us to daily stay property management the building to the extent the law allows without having to worry about what your co-owners will think.

Simply put; whole buildings offer more flexibility with less headaches and less pain when investing is something everyone should seek out.

Editor’s Note: Shirley is Sales Director for Housing Japan. She has sold billions of yen of real estate and arguably has the highest client satisfaction rating in the industry. Shirley writes a weekly column for Housing Japan readers to help illustrate common challenges buyers and sellers have when trading Tokyo residential property.