In real estate investment, achieving property management that maximizes profitability requires a detailed strategy from the property selection stage. In particular, since market characteristics differ between Osaka and the Tokyo metropolitan area (Tokyo and Kanagawa), it is important to select property management properties based on an understanding of demand and rent markets in each region and to implement effective management techniques. In this article, we will explain the evaluation axes when selecting investment properties for management, the differences between the rental markets in Osaka and Tokyo/Kanagawa, the effects of using the latest technology (rent assessment AI) to increase earnings, and best practices for management that directly lead to increased earnings.
When selecting an investment property for rental management, the following evaluation axes are comprehensively considered. If an appropriate property is selected, it will provide the foundation for stable earnings in later management.
Profitability (yield and cash flow): Check the ratio of rental income to the purchase price and the cash flow remaining after loan repayment. Consider whether the property has a high enough surface yield and real yield, and whether you can secure income even after taking into account the risk of rent decline in the future. Even if the rent level is high, if the property price is also high, it cannot be said to be highly profitable, so it is necessary to determine the balance between rent and price.
Location (surrounding environment, strength of demand): Evaluate the location conditions directly related to rental demand, such as walking distance from train stations, access to downtown areas, and location of universities and companies. For Tokyo and Kanagawa, the convenience of commuting to the city center and living infrastructure, and for Osaka, proximity to business and tourist centers such as Umeda and Namba, will affect demand. Demographics are also important, and factors such as population increase/decrease and future redevelopment plans for the area are taken into consideration. In general, areas within walking distance of train stations and convenient living facilities have lower vacancy risks.
Facilities and age of the property: The structure of the building (e.g., earthquake resistance), age, floor plan, and ancillary facilities will also have a significant impact on the occupancy rate. For example, newer properties and properties with more extensive facilities (auto locks, delivery boxes, free internet, etc.) tend to have higher rents and shorter vacancy periods, even in the same area. On the other hand, there are cases where even older properties can be made more competitive by renovating or adding popular facilities. Consider the balance between capital investment and profitability, taking into account future repair and maintenance costs.
Occupancy Demand and Vacancy Risk: It is also important to match the needs of the expected tenant demographic. For example, a studio or 1K type apartment in an urban area with many singles, or a 2LDK or larger apartment in a suburban area with many families, make sure that the layout meets the local demand. The vacancy rate for the area is also helpful. The stronger the demand for occupancy in an area, the lower the vacancy rate and the more advantageous it is for the landlord to manage the property. For example, in areas with strong demand, such as central Tokyo and central Osaka, vacancy rates are relatively low and stable occupancy can be expected.
Based on the above evaluation axis, select the most suitable property according to your investment objectives (emphasis on income gain or capital gain) and risk tolerance. Properties that meet the basic points (yield, age, location, etc.) to be considered when selecting a property can be made more profitable through appropriate management by a property management company.
When selecting an investment property, it is necessary to understand the differences in market characteristics between Osaka and Tokyo/Kanagawa (Tokyo metropolitan area). In terms of indicators such as rent levels, demand, and vacancy rates, these areas have the following characteristics.
Osaka is Japan's second largest metropolitan area after Tokyo, and boasts stable rental demand. With many corporate headquarters concentrated in the area and an abundance of tourist attractions, there is a constant flow of people, from businesspeople to tourists, and demand for rental properties is solid. Past statistics show that the vacancy rate for rental housing in Osaka Prefecture has remained lower than that of Tokyo, making it one of the areas with the lowest vacancy rates in Japan. This is due to stable demand from families in the suburbs, in addition to demand for studio apartments in urban areas such as Umeda and Namba.
Looking at rent levels, the average rent in Osaka Prefecture is relatively low compared to Tokyo. For example, as of May 2024, the average monthly rent in Osaka Prefecture was approximately 61,830 yen (+1.7% YoY), which is lower than Tokyo's 79,463 yen (+10.0% YoY). While rent growth rates are not as high as in Tokyo, and there is more leeway in setting maximum rents, investment yields tend to be higher than in the Tokyo metropolitan area (average yields in Kansai: 8.81%, in the Tokyo metropolitan area: 7.58%) due to the lower property prices. In fact, as of 2023, the average price of a single income property in the Kansai region will be approximately 65.52 million yen, lower than in the Tokyo metropolitan area (approximately 84.75 million yen), and the yield is higher because of this.
However, there are some points to note in Osaka in recent years. The population of Osaka Prefecture as a whole has begun to decline, and there are reports that vacancy rates are currently on the rise. If vacancy rates continue to rise, there is a risk of falling rents and lower earnings, so it is important to continuously monitor demand trends in the property area. In some aspects, investment yields are set slightly higher than in the Tokyo metropolitan area to take into account such future risks. In general, Osaka has the appeal of affordable property prices and easy yields, but it is necessary to keep an eye on demographic trends and changes in supply and demand for certain areas and properties.
Tokyo and neighboring Kanagawa (Yokohama, Kawasaki, etc.) are the largest rental markets in Japan, and there is very strong demand for rental properties due to the overwhelming size of the population and economic zone. Tokyo's 23 wards have a large influx of people from all over the country every year, so demand from young single adults such as single workers, newcomers to the workforce, and university students is always high. In the Kanagawa area, stable demand can be expected from Tokyo commuters and families, especially in Yokohama and Kawasaki cities. Looking at the metropolitan area as a whole, the vacancy rate for rental housing is stable at a low level, and statistics show that compared to the national average, the vacancy rate in Tokyo is still low. It is not uncommon to find high-occupancy properties, especially in central Tokyo, where vacancies are quickly filled.
A major characteristic of the rent level is that the Tokyo metropolitan area (especially the 23 wards of Tokyo) is significantly higher than Osaka. As mentioned above, the average rent in Tokyo is one of the highest in the country, at nearly 80,000 yen, and there is a strong upward trend, with data showing an annual increase of as much as 10% in recent years. While high rents can be set, property prices are also extremely high, with the average price exceeding 80 million yen, so yields are generally low. On the other hand, expectations of maintaining and increasing asset values and liquidity (ease of selling) are higher than in regional cities, making them attractive for investors seeking stable long-term investment.
In terms of demand, Tokyo is home to a diverse range of high-income earners, including IT and finance professionals, as well as many foreign professionals, and there is no shortage of niche demand for luxury apartments and small, city-center-oriented properties. In the Kanagawa area, in addition to the demand for bedroom communities in the central Tokyo commuting area, areas with concentrated urban functions such as Yokohama and the Minato Mirai area are popular among both singles and families. While there is basically firm demand for rentals in both areas, it is important to assess regional differences, as there are areas in the central Tokyo area that are unlikely to experience an oversupply, while in some suburban areas of Kanagawa, the supply-demand balance is slackening due to a decline in the population.
In summary, the Tokyo and Kanagawa (Tokyo metropolitan area) markets offer high rents and low yields but are suitable for stable management due to firm demand, while Osaka is a market where high yields can be easily targeted by balancing rent levels with property prices. It is advisable to adjust investment strategies and property types (studio or family) based on the characteristics of each market.
In recent years, rent assessment using AI (Artificial Intelligence) has been attracting attention due to the development of real estate tech. The adoption of AI is accelerating throughout the industry, with major real estate companies partnering with AI ventures to enable same-day rent assessments. Rent assessment AI is a system that uses machine learning to analyze a vast amount of past contract rents, information on the surrounding environment, and property specifications to automatically calculate the appropriate rent for the property in question. AI is enabling highly accurate rent assessments in seconds to minutes, rather than the experience and intuition of the person in charge of setting the rent that was previously relied on.
Highly accurate calculation of appropriate rents: AI learns from millions of past data, and performs assessments that take into account factors that humans tend to overlook. Its accuracy has already reached the practical stage, with one AI service reporting a median error rate of 2.46%. This means that half of all appraisals are within 2.46% of the actual achievable rent, which is by far the smallest margin of error compared to conventional manual appraisals. Because the system is able to present fair rents based on data, it is highly convincing and fair to both owners and tenants. Appropriate rents that are neither excessive nor excessive will contribute to both shortening vacancy periods and maximizing revenues.
Improved Operational Efficiency and Faster Leasing: The introduction of AI valuation also significantly improves operational efficiency. In the past, rent assessment required time-consuming tasks such as collecting similar cases and preparing documents, even for skilled professionals. INA's use of AI not only improved operational efficiency, but alsocontributed toincreased sales for the owner. This is due to the fact that the appropriate rent setting maintains a high occupancy rate and reduces the loss of revenue opportunities by shortening the vacancy period.
Adapting to market trends and proposing strategies: The latest AI valuation systems can now not only calculate current rents, but also predict future rent fluctuations. Some are analyzing big data and making proposals that take into account seasonal fluctuations, development plans in the surrounding area, and other factors, with an eye on the rent market six months or a year from now. For example, in areas where demand is increasing, the system can propose aggressive rent settings, and in areas where there is a risk of decline, it can make strategic leasing decisions, such as making rent adjustments or taking measures for leverage at an early stage. The latest trend is the ability to formulate more precise rental management strategies than ever before by combining objective data presented by AI with human market sense.
What kind of upside effect can be expected from the use of rent assessment AI?
Maximization of income opportunities through appropriate rents: By setting appropriate rents calculated by AI, rents that were previously set too low based on human intuition may be raised. If rents are set too low compared to the market, the rent income can be increased by revising the rent to an appropriate level. On the other hand, if rents are set too high and vacancy is prolonged, the rent can be lowered to encourage early contracting, leading to an increase in the total occupancy rate. In other words, by offering appropriate rents, both maximization of owner income and tenant satisfaction can be expected.
Shorten Vacancy Periods and Increase Occupancy Rates: The introduction of rent assessment AI is expected to help shorten vacancy periods and achieve high occupancy rates, as renters will respond better when rents match the market based on the data provided by AI. AI analysis can also be useful in setting the appropriate recruitment conditions (e.g., key money, free rent, etc.) to meet demand. AI is a powerful weapon in the fight against vacancies, whether in Osaka, Tokyo, or Kanagawa, as higher occupancy rates directly lead to more stable and higher rental income.
Reduced operational costs: Reducing the workload of staff through automated assessments can lead to reduced labor and time costs, especially for owners and managers with a large number of properties. Especially for owners and management companies with a large number of properties, AI can reduce labor costs and maintain service quality by enabling automated assessments 24 hours a day, 365 days a year. By allocating these freed-up resources to other owner service enhancements, AI can also contribute to increased value-added = tenant satisfaction, which in turn can stabilize revenues through long-term occupancy.
In this way, rent assessment AI is the latest technology that provides powerful support for maximizing the profitability of rental management. It is an effective tool for adjusting rents quickly to prepare for the risk of oversupply, as in the case of Osaka, or for finding room to raise rents further in high-priced areas, as in the case of Tokyo and Kanagawa. As AI accuracy continues to improve and becomes more widespread, it is expected to become a standard solution in property management.
Finally, we will summarize the best practices in rental management that are directly related to improving the profitability of investment properties. By referring to the know-how practiced by excellent management companies and incorporating it into property management from the owner's perspective, further profit increases can be expected (* This is a general explanation without naming specific companies).
Optimal rent setting and thorough vacancy countermeasures: We will reduce vacancy rates by combining data-based setting of appropriate rents, such as through the use of rent assessment AI, with leasing strategies that enhance the attractiveness of properties. When recruiting, we will also ensure that advertisements and photos are attractive and appealing to our target audience to increase the number of people who wish to view the property. Since prolonged vacancy means missed profit opportunities, it is important to maintain a high occupancy rate (95% or higher as a general guideline) by taking flexible measures against vacancies, such as reviewing rent settings and implementing campaigns. Maintaining a high and stable occupancy rate will greatly increase the long-term profitability of rental operations.
Reduce management costs and increase efficiency: Monthly management fees and maintenance costs are costs that owners want to optimize as much as possible. In recent years, some companies have begun to offer low-cost, flat-fee management services, and there are efforts to increase the net income of owners by reducing fees to a lower level than the traditional "◯% of rent. In addition, cloud management systems and IT technologies are used to automate contracting and clearing operations and reduce human error and duplication of work, thereby reducing wasteful spending and improving asset management efficiency. Streamlined operations also speed up reporting to the owner and speed up tenant response, which in turn helps to maintain property values and tenant satisfaction.
Transparent information sharing and building trust: A relationship of trust between owners and management companies is the foundation of stable operations. Therefore, it is a best practice to constantly visualize the status of the property by sharing information using the latest cloud systems. All management information, including contract information, repair history, and complaint response status, is stored online and can be viewed by the owner anytime, anywhere in real time. For example, photos taken after periodic cleaning and the results of facility inspections are also shared immediately, so even owners living in remote areas can keep track of what is going on at the site. Highly transparent operations that eliminate the anxiety of "not knowing what is going on" are essential for giving owners a sense of security and winning their trust as a long-term asset-building partner. Once a relationship of trust is established, the owner and management company can smoothly discuss and implement measures to improve profitability, such as proposals for repairs and renovations.
Value-added services and demand expansion measures: A hallmark of good management is not simply managing properties, but also providing value-added services that increase property value and occupancy rates. For example, there are strategies to develop new demand segments by proposing multifaceted utilization of properties, such as capturing corporate corporate housing needs and private accommodation operations. Another effective strategy is to provide a 24-hour call center for existing tenants and unique tenant benefits (e.g., discounts for affiliated services) to increase tenant satisfaction and promote long-term occupancy. Long-term occupancy reduces the risk of vacancy and creates room to increase revenues through periodic rent revision negotiations and other measures. In addition, for older properties, there are methods to increase rents by adding value such as free internet access for all tenants and smart locks. These additional measures can differentiate the property from competing properties and, as a result, increase the owner's revenue.
The best practices described above are common and effective rental management essentials for both Osaka and Tokyo/Kanagawa. While detailed operations may vary depending on regional characteristics, the basic policies of "aiming for full occupancy at reasonable rents," "increasing owner satisfaction through cost control and transparency," and "maintaining the competitiveness of properties by providing added value" can be said to be universal. Management companies with a proven track record are more thorough in these areas, and as a result, they are the preferred choice of owners.
Even in areas with different market characteristics, such as Osaka, Tokyo, and Kanagawa, you can approach successful rental management by taking optimal management measures with a firm grasp of the criteria for selecting investment properties. When selecting a property, carefully examine profitability, location, facilities, and other factors, and make strategic decisions that match the market environment. In addition, understanding the differences in rent markets and demand trends in each area will enable you to set appropriate rents and manage investment risk. Furthermore, by proactively utilizing the latest technology and advanced management techniques, including rent assessment AI, you can pursue upside to maximize income. It is important not to miss income opportunities through highly accurate rent calculations, and to efficiently increase asset value by reducing vacancy rates and costs.
For investors who manage properties, it is also important to select a reliable partner (management company). By working with a management company that uses the latest know-how and technology to maximize owner profits, you will be able to turn complicated rental management into a stress-free and highly profitable business. Whether you are in Osaka, Tokyo, or Kanagawa, you can make wise investment decisions by taking advantage of regional characteristics by selecting and managing properties based on the points discussed in this article. Please take advantage of our practical knowledge and maximize the results of your real estate investment.