Your Key To Passive Real Estate Income

What Is Key Money In Japan?

how why key money

japan rent fee costsKey money, or reikin (礼金, “gratitude money”), is a non-refundable rental fee in Japan. The tenant pays it to the landlord before moving in, and it is typically equal to one or two months’ rent, It is typically very expensive for the tenant and equally profitable for the landlord.

Where Does Key Money Come From?

The prevailing belief seems to be that it began as a result of a severe housing shortage in or after WWII, which put landlords in an enviable position of choosing tenants because, due to the destruction, there were more tenants than there were available spaces to rent out. Other competing theories are that key money became popular after the 1923 Great Kantō Earthquake, or that it became commonplace during Japan’s industrialisation as a way to ensure that the children of rural parents would be treated well by their landlords when they moved to Tokyo. In any case, to win a landlord’s favour, renters would offer payment to express gratitude for being allowed to rent their property. At its peak (such as during the Bubble in the late ‘80s and early ‘90s), reikin could be equal to one year of rent.

Key Money Today

More landlords and real estate agencies have begun to offer reikin-free rental housing. In Tokyo, nearly 40% of rental properties do not require it. In Osaka, the percentage of landlords requiring it has fluctuated both up and down in recent years.

Key Money’s Relation to Hoshōkin, Shikikin, and Kōshinryō, and Regional Variations

Reikin is often discussed together with hoshōkin (保証金) and shikikin (敷金), both of which are types of deposits, which are supposed to be refunded at the end of the rental period, minus cleaning fees, costs to repair damage, etc. However, unlike hoshōkin and shikikin, reikin is not refunded when the rental period ends.

Kōshinryō, or “renewal fee” is basically reikin paid one more time at contract renewal. It is more common in and around Tokyo. However, in Osaka, the shikibiki (敷き引き, “shikikin pulling”) system sometimes has landlords “pulling” money from the shikikin instead of charging renters a kōshinryō.

Can I Charge Key Money For My Japanese Investment Property?

Yes, if you can charge key money then you should as it is not illegal and Japanese renters are accustomed to the practice. However, it usually only applies to high-rent properties or newer units or those in prime locations. Currently, the typical key money payment is equal to one month of rent.

Additionally, key money could be charged for a property where the rent is artificially lowered. An artificially lowered rent would boost hits when being searched by real estate agents and would help ensure that the landlord can make the same amount of money for a 24-month contract.

If I Charge Key Money, Will I Be Able to Find Renters?

This depends on several factors and also luck. Some of these are where your property is located, how appealing the unit is, and how much you are charging in rent.

Location: In upmarket areas, there is a good chance you can collect key money. For instance, in the 23 Special Wards of Tokyo, 72% of apartment rentals require it, but this number is trending downward.

In Osaka, the situation is somewhat different. In 2010, 74.1% of rentals required key money, and this increased to 81.7% by 2013. However, in the years 2013-2015, the percentage requiring key money decreased steadily to 79.1% in 2015. Osakans also typically pay more for key money.

Appeal of the Unit: Is it a new building? Is it especially spacious? If so, you have a higher chance of finding a tenant willing to pay key money.

You can also try putting the real estate on the market with key money and seeing if anyone will pay it. Maybe someone will, or maybe someone will not, but even if your tenant negotiates out of paying it, you could still very well end up with a tenant who pays substantial rent and gives you a good ROI.

Conclusion

Key money can be highly profitable, especially if tenant turnover is high. If you have lived in Japan for a significant length of time, you have probably either paid it, or paid something similar to it. That is how the system works. Now you are the landlord. It is your turn. If you think you can get it, go for it.

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