Success in real estate investment, especially in rental management, depends largely on "which property you choose" as well as "which property rental management company you choose as your partner.
Many owners spend a great deal of time and effort in selecting a property, but often make the decision to choose a property management company without giving it much thought.
However, the real start of rental management is after the acquisition of the property, and the competence of the management company is what determines stable earnings over the long term and the maintenance and improvement of asset value.
We, INA&Associates, Inc., do not merely act as an agent for management operations, but face real estate as a "human capital investment company" that shares the owner's vision and nurtures assets together.
In this article, we will provide a professional and easy-to-understand explanation of how to choose a real estate rental management company for successful rental management, with specific data and examples of the seven points that owners should really focus on.
What is a property rental management company?
First, let's gain a basic understanding of the role of a real estate rental management company ("management company").
A property management company is a group of professionals that performs all tasks related to the operation and management of rental properties on behalf of the owners.
The work of a management company is diverse, but can be broadly classified into two main categories: tenant-related work and building-related work.
| Business Classification | Specific Services | Value for the owner |
|---|---|---|
| Tenant-related operations | Recruitment of tenants (customer service), conclusion and renewal of lease contracts, collection and remittance of rent, collection and remittance of arrears, handling of complaints and problems, attendance at move-outs, and restoration of the property to its original condition | Securing stable rental income, freeing you from complicated interactions with tenants, and reducing legal and tax risks |
| Building-related services | Daily cleaning, periodic patrols, statutory inspections, maintenance of buildings and facilities, planning and implementation of large-scale repair plans | Maintenance and improvement of property value, promotion of long-term occupancy by improving tenant satisfaction, and prevention of unexpected large-scale expenses |
By outsourcing these tasks to a professional management company, owners can enjoy many benefits.
Especially for those who live in remote areas, own multiple properties, or have a busy day job, a management company is indispensable.
On the other hand, there is the disadvantage of incurring management outsourcing costs.
However, a good management company will bring more value than the cost, i.e., "maximization of revenue" and "minimization of risk.
Seven key points to avoid failure in selecting a rental management company
So, what should you look for in order to find a truly reliable partner among the many management companies available?
Here I will explain what I consider to be the seven most important points.
1. Does the company maintain an occupancy rate of 95% or higher?
Needless to say, the largest source of income in rental management is rent.
Therefore, the ability to maintain a high occupancy rate is the most important indicator in selecting a management company.
Generally, an occupancy rate of 95% or higher is considered to be one of the guidelines.
If the occupancy rate falls below this number, one should suspect that the management company may have some issues with its ability to attract customers and analyze the market.
Some owners tend to focus on the low management fees, but this is not an essential perspective.
Please see the following table. Compare a situation where one room with a rent of 80,000 yen is vacant with a situation where the management fee is 2% higher but the room is fully occupied.
| Comparison items | Case A: Management fee 3%, 1 room vacant | Case B: Management fee 5%, fully occupied | Difference |
|---|---|---|---|
| Total number of units | 10 units | 10 units | -10 units |
| Rent setting | 80,000 yen/unit | 80,000 yen/unit | -Monthly rental income |
| Monthly rental income | 720,000 yen (80,000 yen x 9 units) | 800,000 yen (80,000 yen x 10 units) | +80,000 yen |
| Management fee | 21,600 yen (720,000 yen x 3%) | 40,000 yen (800,000 yen x 5%) | +18,400 yen |
| Owner's monthly take-home pay | 698,400 yen | 760,000 yen | +61,600 yen |
As this comparison clearly shows, filling as many vacancies as possible is by far the most important factor in maximizing the owner's take-home income, rather than focusing on a small difference in commissions.
A good management company will be able to increase revenues beyond the commission fee.
During the interview, be sure to ask them to disclose the occupancy rates of all managed properties and, if possible, the actual occupancy rates of properties in similar areas and of similar age to your property.
2. Ability to attract tenants and propose vacancy countermeasures
The ability to maintain a high occupancy rate is nothing more than the ability to attract customers.
This ability to attract customers does not come from simply posting property information on a real estate portal site.
It is essential to have the marketing ability to constantly analyze the trends of competing properties in the area and propose appropriate rent settings and recruitment conditions.
Another important criterion is what kind of suggestions the management company will make in the unlikely event of a vacancy.
A management company that simply proposes "let's lower the rent" lacks the perspective to maximize the owner's profit.
A truly competent partner will propose multifaceted vacancy countermeasures, such as
- Strategic use of advertising fees (AD): Increase incentives for brokerage firms to give priority to customer placement.
- Review of initial costs: Reduction of security deposits and key money, or introduction of free rent (free rent for a certain period of time).
- Remodeling/renovation: Renovate the interior to meet the needs of the times and tenants.
- Installation of popular facilities: Cost-effective investment in facilities such as free internet, delivery boxes, security cameras, etc.
By hearing specific success stories of how the company has successfully occupied units in the past, it is possible to determine the company's ability to make proposals.
3.Number of units under management and track record
The number of units under management is proof that the company is trusted and chosen by many owners.
Generally speaking, the number of units managed by a company is 1,000 or more, but a company that has managed tens of thousands of units can be expected to have accumulated a wealth of experience and know-how.
The advantage of having a large number of units under management is not only reliability.
The cost reduction effect of economies of scale cannot be overlooked.
For example, in restoration work and equipment replacement, large volume orders make it possible to keep the unit cost per room low.
This, in turn, leads to a reduction in the owner's burden.
4. Trouble-shooting system
Troubles such as tenant complaints and equipment breakdowns are inevitable in rental management.
Having a system in place to respond quickly and accurately to such problems is extremely important in maintaining tenant satisfaction and preventing unexpected evictions.
Specifically, check the following points
- Availability of a 24/7 emergency response desk: A system that can respond immediately to emergencies such as water leaks during the night or on holidays is essential.
- Expertise and experience of the staff in charge: Are they able to handle cases that require legal knowledge and negotiation skills, such as noise problems and problems between tenants?
- Quick response time: Do you have a network of offices and personnel that can be there within an hour of the property?
At INA & Associates, we believe that the true value of a management company is tested when dealing with problems.
It is "people" who respond to problems, and the quality of those people determines the quality of the response.
A sincere and prompt response wins the trust of tenants, which in turn contributes to long-term occupancy and stable earnings for the owner.
5. Highly Transparent Reporting System
When a property is entrusted to a property management company, it is difficult for the owner to directly grasp the local situation.
That is why a regular and transparent reporting system is essential.
Confirm in advance what kind of information will be reported and how often.
| Types of Reports | Main contents | Ideal frequency |
|---|---|---|
| Income and Expenses Report | Breakdown of rental income, management fees, and other expenses | Monthly |
| Remittance statement | Details of amounts remitted to the owner | Monthly |
| Tenant Response Report | Details of complaints and inquiries and response history | Each time it occurs or monthly |
| Inspection Report | Report on building cleanliness, damage, etc. with photos | Monthly or quarterly |
A good management company will not only send out these reports, but will also value communication with the owner to carefully explain any questions or concerns the owner may have.
It is important to determine whether the company is willing to build a relationship of trust with the owner and work together to improve the value of the property.
6. Appropriate management fees
Generally speaking, the market rate for outsourcing management fees is 3% to 7% of the rental income.
Of course, there is nothing wrong with low costs, but as mentioned earlier, it is dangerous to select a company based solely on its low cost.
What is important is the balance between the services provided and the cost.
For example, if the management fee is extremely low compared to the market price, it may be the case that the company only handles collections on behalf of the tenants, and trouble handling and patrols and inspections require additional fees.
Before signing a contract, be sure to ask for a detailed description of services and a list of items that may incur additional costs, so that you can accurately grasp how much the total cost will be.
7. Building a long-term partnership
The last point may be somewhat abstract, but it is the most essential.
It is whether the management company has a philosophy of building a long-term relationship of trust with the owner and nurturing the asset together, rather than pursuing short-term profit.
The essence of corporate management is the pursuit of sustainable growth.
The same is true in rental management.
Rather than just thinking about filling immediate vacancies, they will look five to ten years down the road and propose from the same perspective as the owner what kind of repair plans are needed and what kind of value-enhancing measures are possible.
Such a partner will be the one who can reliably protect and nurture the owner's assets, even in times of rapid change.
INA&Associates' Ideal Rental Management
We at INA&Associates, Inc. position ourselves as a "Human Capital Investment Company".
This is based on our belief that a company's most important asset is its human capital.
The core of our management services is also "human assets" that combine expertise and high ethical standards.
For owners, we provide consulting services that go beyond mere business reports to maximize the value of real estate from the perspective of the entire asset portfolio.
For tenants, we provide a safe, secure, and comfortable living environment to increase satisfaction and promote long-term occupancy.
Owners, tenants, and us. Our ideal rental management is to build a relationship that makes everyone involved happy.
Summary: The key to success is meeting "reliable human resources
In this article, we have explained seven important points in selecting a property rental management company.
- Does the company maintain an occupancy rate of 95% or higher?
- Ability to attract customers and propose measures to prevent vacancies
- Number of units managed and track record
- Enhancement of trouble response system
- Highly transparent reporting system
- Appropriate management fees
- Building a long-term partnership
Examining each of these points and comparing multiple companies is the first step in selecting a management company that will not fail.
Ultimately, however, what is most important is whether or not you can empathize with the "personality" of the person in charge and the "philosophy" of the company, beyond the data and track record.
Rental management can sometimes face unexpected difficulties.
Finding a partner that you can truly trust and work with to overcome such challenges is the key to long-term rental management success.
I am convinced that this is the best secret to long-term rental management success.
If you have any doubts or concerns about your current management company, or if you are considering taking on the challenge of managing a rental property for the first time, please do not hesitate to contact us at INA & Associates.
We promise that we can help you maximize the value of your property through the power of our people.
Frequently Asked Questions
- Q1:Is it possible to change from my current management company?
- A1:Yes, it is possible. First, please check the management agreement with your current management company. Usually, there is a notice period (e.g., 3 months prior to termination). Based on the contents of the contract, the appropriate procedure is to give notice of termination and proceed with the handover to the new management company. Generally, the new management company will also support the handover. We will provide full support for a smooth transition.
- Q2:What is the market rate for outsourced management fees?
- A2:Generally, the market rate is 3% to 7% of the monthly rental income. However, this is only a guideline and will vary depending on the size and age of the property and the scope of work to be outsourced. The important thing is to find a balance between the services provided as well as the low cost.
- Q3:Which is better, a large management company or a community-based management company?
- A3:Each has its own advantages and disadvantages. Large companies are attractive because of their abundant experience, economies of scale, and well-staffed organization. On the other hand, a community-based company is familiar with rental demand and information unique to the area, and may be expected to be flexible and attentive. The best choice depends on the characteristics of your property and what is important to you. We recommend that you talk to both types of companies.
- Q4:How can I check the occupancy rate of a management company?
- A4:The most reliable way is to interview the person in charge of the management company directly. If possible, ask them to disclose not only the average occupancy rate for the company as a whole, but also the occupancy rate data for the area where your property is located or for properties with similar conditions (age, layout, etc.), so that you can determine their ability to attract tenants.
- Q5:What is the most important thing to confirm before signing a contract?
- A5:It is most important to confirm the contents of the "Management Agreement" in every detail. In particular, be sure to check the following four points in detail: (1) the scope of work to be outsourced, (2) management fees, (3) other expenses (advertising fees, renewal administration fees, share of restoration costs, etc.), and (4) the contract period and cancellation conditions.
Daisuke Inazawa
Representative Director of INA&Associates Inc. Based in Osaka, Tokyo, and Kanagawa, he is engaged in real estate sales, leasing, and management. He provides services based on his extensive experience in the real estate industry. Based on the philosophy that “human resources are a company's most important asset,” he places great importance on human resource development. He continues to take on the challenge of creating sustainable corporate value.
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