Your Key To Passive Real Estate Income

How To Keep Tenants For Longer

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Japan real estate keep tenantsReal estate investing is only as profitable as the length of time that you have paying tenants. One unit that rents for ¥100,000 a month but is vacant 50% of the time generates the same income as an always-occupied ¥50,000 unit. It probably cost more to buy the ¥100,000-a-month unit than the ¥50,000 unit, so the ROI is also lower. Keeping your tenants is of paramount importance and cannot be understated. Tokyo, Osaka, etc. have millions of potential renters, but also millions of choices for renters. Just because you have a tenant does not mean that they will not leave. How can you make sure that they will never want to leave? Of course you can refurbish, but sometimes, a relatively low-cost solution might increase tenants’ satisfaction more than new walls or a new layout- and cost considerably less.

Are You Currently Lacking Important Apartment Features?

A recent Japanese real estate survey asked tenants which features they would like to have that their apartment buildings currently lack. The result was the following ranking:

  1. Free Internet: the vast majority of tenants need Internet at home. In 2016, the UN declared Internet access a basic human right; it is no longer a “special feature” or an “option,” but an essential. It costs significantly less per-person to get Internet for the whole building. Tenants appreciate having Internet from Day 1, rather than having to research ISPs themselves, get the owner’s permission (if the owner even grants permission), schedule the installation, pay hefty installation fees, and possibly wait days or even weeks for it to be up and running. Save them the headache. Free Internet is a relatively minor cost, and a major selling point that makes it easier to find and retain tenants.
  2. A Takuhai box (宅配ボックス) is a delivery box. Basically, the delivery person (e.g. Yamato Kuroneko) brings a package and leaves it in the takuhai box, near the main entrance of the building. Deluxe takuhai boxes even notify the resident when he or she comes home that a package has been delivered, on a little screen. At his or her leisure, the tenant can open the takuhai box with a smart key and take the package. 
  3. “Oidaki-kinō (追い焚き機能) means “[bath] re-heating feature.” Japanese love their baths: an onsen, a sentō, or just an hour-long soak after a long day at work. Re-heaters use gas or electricity to reheat the same water, providing a more comfortable bathing experience and saving water (potentially meaning that more than one person can take the same bath). It also means that if you get preoccupied with something after your bath has run, you don’t have to worry about it cooling off because you can re-heat it when you are ready to bathe.
  4. “Double-glazing means two panes of glass per window instead of one, separated by a space filled with gas or still air. “Glazed” is a misnomer, because panes of glass are not necessarily glazed with a special coating. Their advantage is better insulation, especially in winter, which can help your tenant save on heating bills, and stay toasty.

How Being Cheap Can Hurt Your Investment Returns

Imagine: in July, you go to a small restaurant for lunch, because the food in the display case outside looks absolutely delicious. Only one problem: it is 35° and the owner decided to “economise” on air conditioning today. You sit at your table, pondering your order, then start sweating, and decide “I’ll just go somewhere else.” The restaurant loses ¥1,000—no, actually they lost over ¥1,000,000 because you would have eaten there twice a week for the next ten years—but hey, at least they saved ¥20 on electricity, right? Business decisions like this must be avoided, including in real estate. Sometimes, not spending money will cost you more money later on.

Scenario:

A man named Liam owns an apartment building (six tenants × ¥50,000 a month). He is not sure about providing free Internet. Internet for the whole building would cost ¥60,000.

Liam is a thrifty guy. He irons his own shirts instead of bringing them to the dry cleaners. He cuts the corner off the toothpaste tube to get the last little bit out. Thrifty Liam declares “I’m not paying ¥60,000 for free Internet! The tenants can get that themselves if they want. Besides, most of them can just surf the net on their smartphones or use tethering.”

He opts out of free Internet for the building. No one complains. Liam feels like he made the right decision.

Then one day, Liam’s tenant, Yuto, moves out. Yuto never complained even once.

What Liam does not even realize (and probably never will) is that Yuto was on the fence about renting for one more year. He might have stayed, but as a software engineer, Internet access was very important, and he is good at crunching numbers and finding the best deal. He found another apartment, also ¥50,000, but with free Internet and decided to move. He gives Liam the face-saving excuse that he is moving “for work.”

Liam continues to pride himself on his frugality and thinks he made the right decision. “He had to move ‘for work.’ Shōganai!” Liam consoles himself. Yuto’s unit stays vacant for six months; Liam loses ¥300,000 in potential revenue as a result. His decision not to pay for free Internet saved him ¥60,000, but lost ¥300,000. His decision cost him ¥240,000.

Conclusion

overseas proxy broker Japan real estate keep tenantsMaking your apartments more “sticky” does not have to cost a lot and is not restricted to building work. Sometimes identifying a need that is not being met sufficiently by the current market, and providing that need can have much higher ROI in the form of tenant retention. More so than spending millions of yen re-tiling a floor or changing the layout of an apartment.

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