In this article, we provide a checklist for novice owners on how to choose a rental management company. We will systematically organize the points to be considered in order to avoid making mistakes when selecting a management company, and introduce specific points to be considered and questions to be asked when making comparisons. Please refer to this guide in order to find a partner you can trust with your valuable asset, your property.
The following is a checklist of points to keep in mind when selecting a rental property management company. When comparing management companies, it is important to talk to several companies to determine their services and track record. Use the list below to help you evaluate each company.
First, determine the extent to which you would like to outsource the management of your property to a property management company. Rental management includes a wide range of tasks such astenant recruitment, contract procedures, rent collection, handling of complaints, building cleaning, facility inspections and repairs, restoration of property to its original condition when tenants vacate, and settlement of cancellations. It is difficult for a novice owner to do all of these tasks on his/her own ( self-management), so it is generally practical to outsource the management to a professional property management company.
The scope and services that can be outsourced vary depending on the management company. For example, some companies offer a basic plan that only includes rent collection and tenant services, while cleaning and periodic inspections are charged separately. Check the scope of management services in advance to determine if the company can cover all the services you need. If necessary, ask at the time of the estimate how much they can cover, and compare the services offered by each company.
Key point: If the scope of work is broad, you can entrust the work to the company, but the management fee tends to be high for that scope of work. Conversely, if the management fee is too low, there is a risk of limited services or lower quality.
When selecting a management company, be sure to compare multiple companies. It is difficult to judge the merits or demerits of a single company alone, and it is also difficult to get a sense of the market price. Each company has its own strengths and weaknesses, so it is important to hear from at least two or three companies and compare the balance of management fees and service content. At this time, be careful not to make a decision based solely on the low management fee. It has been pointed out that companies with unreasonably low management fees may not be spending enough on advertising and management. As a result, the company may not put enough effort into recruiting tenants, resulting in a situation where vacancies are not filled, claims handling is neglected, and so on.
Once you have received proposals and estimates from various companies, compare the following items according to the checklist (please also refer to the table below). Points of comparison include not only fees and other costs, but also tenant recruiting ability, management track record, quality of response, and a wide range of other factors. The key to avoiding failure is to make a comprehensive judgment and choose one company you can trust.
There are a variety of rental management companies, ranging from large, nationwide real estate companies to small, local companies with a long track record in the area where the property is located. It is not always true that "big companies are safer," and each has its own advantages and disadvantages. Large companies tend to have a high ability to attract customers due to their name recognition and extensive advertising networks. On the other hand, local management companies are closely tied to the area they are in charge of and often have a good grasp of the movements of government offices and detailed information about the community. In rental management, local companies that are familiar with local conditions are closer to the property and tenants, and are also said to be better suited for long-term management.
Key point: When looking for a management company, it is important to consider both large and smallcompanies, and to choose a company that is familiar with the property area and has areas of expertise that match your needs. For example, if you own a single condominium, choose a company that specializes in condominium management; if you own an apartment building, choose a company that specializes in apartment management.
Management experience is also an indicator of quality. Check what types of properties the candidate company has managed in the past to get a sense of their scale and the types of properties they specialize in. It is a good idea to check the company profile and proposal materials for information such as "number of units managed" and "established in xx years" to determine whether the company is experienced and trustworthy.
The ability of a property management company to attract tenants (tenant recruiting ability) is extremely important because how quickly vacancies are filled is directly related to the profitability of rental management. Specifically, check the following points.
Occupancy rate (vacancy rate):Ask about the average occupancy rate for the group of properties managed by the candidate company. The occupancy rate is the percentage of rooms under lease out of all managed properties and is an indicator of recruiting ability. If the company cannot give you an immediate answer, they may not be focusing on recruiting tenants, and if they give you a number that is extremely high, carefully evaluate whether you can trust them or not. If a company discloses its occupancy rate on its website, you can be sure that it is confident in its management. As a general rule of thumb, a company that maintains an occupancy rate of 95% or higher is considered excellent.
Advertising Media and Internet: Today, most prospective tenants search for properties via the Internet. Therefore, check the status of online advertising efforts, such as whether the management company promptly posts property information on major real estate portals (e.g., SUUMO, At Home, etc.) and whether the company provides a full range of photos and floor plans. The company's ability to disseminate information on its website and social networking sites is also helpful.
Ability to propose measures against vacancies: Compare each company's approach to measures to be taken when vacancies occur. For example, it is reassuring to see a company that offers not only general measures such as "zero deposit and key money" or "rent-free months," but also unique ideas and proposals. A management company that accurately analyzes the causes of vacancies and makes proposals from the owner's perspective, such as remodeling or adding facilities as needed, will be more likely to maintain a high occupancy rate over the long term.
Since the management fee (management consignment fee) paid to the management company affects the income and expenditure, it is necessary to grasp and compare the appropriate level. The market rate for rental management fees is said to be around 5% of the rent. Since there is no legal upper limit and each company is free to set its own fee, the actual rate varies from 3 to 10%. The standard is around 5% for a complete set of general management services, around 3% for a limited contract such as rent collection only, and conversely, it can be as high as 10-20% for a sublease contract with a vacancy guarantee.
The important thing is to make a comprehensive judgment, taking into consideration not only the amount of commission but also the scope and quality of the services provided. A company offering an extremely low commission may be reluctant to recruit tenants, for example, or may charge a lot of extra fees, because they need to secure revenue from somewhere. On the other hand, even if the fees are high, the higher occupancy rate and high quality of service may be enough to pay for themselves.
When comparing costs, be sure to check costs other than the monthly management fee. In some cases, the owner bears the cost of advertising (customer placement) when recruiting new tenants, and in other cases, the owner bears the cost of renewal fees when renewing the contract, settlement administration fees when moving out, 24-hour emergency response service fees, etc. The fee structure varies from company to company. When receiving proposals, it is important to ask specific questions about " how much cost will be incurred annually " and to compare and consider the overall management costs.
Point: Before signing a management contract, obtain a written estimate and a statement of important matters, and check the fee items and amounts in detail. In particular, it is necessary to confirm the extent to which restoration costs will be borne. For example, if the basis for calculating house cleaning and repair expenses at the time of moving out is unclear, you run the risk of being charged a large amount later. It is also effective to ask the prospective company about the approximate cost of restoring the property to its original condition when you vacate. By comparing the answers, you can get a sense of the company's cost and its consideration for the owner's burden.
When you entrust a property to a property management company, you expect the company to not only recruit tenants but also to manage the property to maintain tenant satisfaction. It is difficult to fully understand the quality of the tenant response and building management system until you actually entrust the property to the company, but the following points can help you make a decision in advance.
Criteria for tenant screening: If you let in a tenant of poor quality, it may lead to rent arrears and neighborhood problems, which may ultimately cause other tenants to move out. Therefore, ask prospective management companies about their screening criteria for prospective tenants. For example, by asking what specific criteria they use to screen applicants, such as income requirements, whether or not they have a joint guarantor, and whether or not they use a guarantor company, you can get an idea of the management company's stance on the matter. Screening that is too strict may prolong the vacancy period, while screening that is too lenient is a risk. A company that sets balanced standards and strives to prevent problems is desirable.
Handling of Complaints and Troubles: Another important factor is the company' s ability to handleproblems, such as complaints from tenants about noise, defective equipment, etc., and to respond to demands for repairs when tenants fail to pay their rent. One way to find out is to ask what complaints they have dealt with in the past and how they handled them. A company that can respond quickly and honestly will gain the trust of tenants, which in turn will lead to long-term occupancy.
Building Maintenance: Another point to check is the status of regular building cleaning and statutory inspections (e.g., fire equipment inspections). If common areas are kept clean at all times, it will improve the impression of the property and lead to higher tenant satisfaction and fewer vacancies. If a site visit is possible, it is also effective to ask to see neighboring properties managed by the candidate company to see with your own eyes how well they are being managed. The "cleanliness and facility maintenance of existing properties under management" is a barometer of the quality of the company's management.
Finally, the personality and ability of the person in charge is also an important criterion. Rental management is a long-term project, so if you entrust the management to a company, you will have a long term relationship with the person in charge. It is not unusual for the management situation to change dramatically depending on the person in charge.
During the initial meeting and inquiry stage, check the following
Promptness of communication: Make sure that questions and correspondence are not answered too late, and that the response to e-mails and phone calls is speedy. For example, a good rule of thumb is to have a response to your inquiry by the next business day. If the contact person is difficult to reach, you may have a problem in an emergency.
Explanations are clear and honest: We look for accurate answers to our questions and detailed explanations of points that are unclear. The reliability of the person can be judged by his/her ability to explain technical terms in simple terms and his/her promise to look up ambiguous points and report back to you afterwards.
Business manners: Basic manners such as business cards, document delivery, and language are also important. We also check to see if they take notes when we first meet them, and if they listen carefully to us and try to understand our needs. If the person in charge keeps his/her promise to the owner even after the contract is signed, and does not neglect to report, communicate, and consult with the owner, you can rest assured that you are in good hands.
If you feel uneasy about the person in charge, we recommend that you reconsider the contract even if the company itself has a good reputation. Judging a company by looking at its people is another effective way.
Based on the above points, we have compiled a simple checklist to help you evaluate potential management companies. Make a note of each candidate for each item and make a comprehensive evaluation.
| Checklist Items | Points to check and focus on |
|---|---|
| Scope of work and services | Is the scope of services that can be outsourced sufficient (tenant recruitment, collections, cleaning, repair arrangements, etc.)? |
| Track record and reliability of management | Are the number of units managed and the number of years sufficient (is the company experienced?) Do the types of properties managed and the area match your properties? |
| Local knowledge and areas of expertise | Are you familiar with information on the local area? |
| Ability to recruit tenants (ability to attract customers) | Is the occupancy rate at a high level, and are the media (Internet postings, advertising strategies) available to recruit tenants when vacancies occur? |
| Ability to propose vacancy countermeasures | Do you have any original ideas for vacancy countermeasures other than general measures? |
| Management fee (cost) | Is the commission rate within an appropriate range (○%), and if it is too low, is there a risk of service degradation? Are other fees (at the time of application, at the time of renewal, etc.) clear? |
| Tenant screening and response | Are the tenant screening standards appropriate? Is the policy for handling complaints and delinquencies reliable? |
| Building Management and Repair System | Is the frequency of regular cleaning and inspections sufficient? Is there an emergency contact system and a network of local contractors? |
| Reliability of the person in charge | Are their explanations clear and sincere, and do they make a good impression on you? |
| Contract terms and conditions | Are the terms of the management contract (term, renewal, whether or not it is automatically renewed), and cancellation conditions and procedures (e.g., Fat month's notice before cancellation) appropriate? |
| Registration of rental management company | If the company manages more than 200 units, it must be registered with the Minister of Land, Infrastructure, Transport and Tourism as a rental housing management company. |
Evaluate each item comprehensively and choose the company with the best total balance and trustworthiness. It is important to confirm all questions before signing a contract, and only sign a contract after you are satisfied.
When renting out inherited properties, selecting a rental management company is an important step that will determine the success or failure of your rental management. By following the checklist above and carefully comparing each company, you can avoid major mistakes in selecting a management company. The main point is to make a comprehensive judgment that includes not only differences in business content and costs, but also "hard-to-see" aspects such as the company's track record and the responsiveness of its staff.
Here is a summary of the main points to look back on.
Confirmation of scope of outsourcing: Check the scope of work and cost to see if all the work you need can be entrusted to the company.
Compare multiple firms: Request proposals from multiple candidates and make a comprehensive comparison of service offerings, fees, and track record.
Company Expertise: Select a company that matches your property's expertise and management track record, whether local or large.
Ability to Attract Customers and Occupancy Rate: Determine whether the company has the ability to fill vacancies quickly, using objective figures such as occupancy rates and advertising methods.
Cost and terms of contract: Check not only the low cost but also the service and other costs, based on the market rate of management fees (approximately 5%).
Quality of response: Focus on the system for dealing with tenants and problems, and the response and reliability of the person in charge.
We hope that readers will use the points in this article as a checklist while selecting a management company with confidence. By comparing carefully and without haste, you will find the best partner for your property. The next action is to contact the management company you are interested in and request a specific proposal to see their services and the atmosphere of their staff. By entrusting the management of your property to the right management company, even novice owners can start their rental business with peace of mind.
As the first step toward a stable income in the future, use the checklist in this article to identify a reliable management company and take the first step toward successful rental management.
Q1: Can I manage my own rental property (self-management) without outsourcing to a management company?
A. It is possible for property owners to handle tenant relations and building management themselves. However, the work involved in rental management is diverse and requires specialized knowledge and effort. Specifically, the owner must do everything himself/herself, including placing advertisements to recruit new tenants, handling tenant previews, preparing contracts, collecting and reminding tenants of rent, arranging for contractors in case of equipment problems, and settling accounts when tenants vacate the property. This can be a heavy burden for first-time rental managers, those who are busy with their day jobs, and those who live far from the property. Outsourcing to a management company will cost you a commission, but you can leave the troublesome work to them, resulting in stable management and time savings. One way is to try self-management on a small scale first, and if you find it difficult, consider outsourcing to a professional.
Q2: What is the market rate for the management fee paid to a rental property management company?
A. Generally speaking, the market rate for a management fee is around 5% of the rent. For example, if the monthly rent is 100,000 yen, the standard is about 5,000 yen per month. However, there is no set upper limit by law, and the actual commission rate varies from 3-10%, depending on the company. It is also important to note that the cost varies depending on the scope of work as well as the commission rate. The appropriate commission rate also differs depending on whether the contract is for only basic services or includes 24-hour service and building inspections. If the fee is lower than the market rate, check the scope of services, and if the fee is higher, check the quality and quantity of services provided. In addition, there are often additional costs such as advertising fees (e.g., one month's rent) when attracting new customers, so it is a good idea to ask for a total annual cost estimate before signing a contract.
Q3: What is a sublease contract? What are the advantages and disadvantages?
A. A sublease contract is a so-called "lump-sum lease" in which the sublessor (real estate company) leases the entire property and continues to pay a fixed guaranteed rent to the owner. The owner has the advantage of receiving a fixed monthly rental income regardless of whether the property is vacant or not. Also, since the sublessor handles direct contracts and correspondence with tenants, the management workload is greatly reduced.
On the other hand, the disadvantages are that the rent may be set lower than the market rate and the sublessor may request a review (reduction) of the guaranteed rent even during the contract period. In fact, in the past, there have been many cases where a company claimed "fixed rent for XX years" but later reduced the rent, or where the company did not adequately explain the risks at the time of contract, resulting in troubles. Therefore, the law was revised in 2020, making it mandatory to explain important matters such as the risk of rent reduction before signing a sublease contract. While subleasing can reduce vacancy risk even for beginners, long-term profitability is more likely to decline than normal rental consignment, so it is important to understand the advantages and disadvantages before signing a contract. If you are unsure, you may want to start with a regular management contract and consider subleasing after your performance has stabilized.
Q4: How long is the contract with the rental management company? Can I change the management company in the middle of the contract?
A. The term of the contract with the management company depends on the company and the content of the contract, but in general, the contract is automatically renewed after one to two years. There are various types of contracts, such as those based on standard lease contracts and outsourcing contracts, but in all cases, the term and renewal method are written in the contract. Basically, mid-term termination is possible, but in many cases, there are conditions such as written notice of termination at least X months in advance. Although there are few cases in which a penalty fee is incurred, in the case of sublease contracts, there may be restrictions on mid-term cancellation due to the long-term contract. Before signing a contract, confirm the cancellation conditions (what to do if you want to cancel ), and ask the person in charge if you have any concerns.
If you are dissatisfied with the service after signing the contract, or if problems persist, changing management companies (transferring) is an option. When changing management companies, it is necessary to terminate the contract with the current management company and transfer the contract to the new management company, but the property owner has the right to do so. In fact, it would be an opportunity loss to continue entrusting the property to a management company that is not a good fit, so please consider switching to a reliable company. However, there are practical matters such as informing tenants and transferring security deposits before and after a change, so it is better to move quickly before problems become more serious.
Q5: Which company should I choose, a major management company or a local management company?
A. It is difficult to say which is better. Each has its own merits, and the appropriate choice depends on the property's location and the owner's policies. Large management companies often have a nationwide advertising network and brand power, which is advantageous in terms of attracting customers. They are also well organized, and their contract documents and systems are standardized, providing a sense of security. On the other hand, some say that the huge number of properties limits the amount of time that can be allocated to each case, and the company tends to respond in a one-size-fits-all manner.
On the other hand, a community-based management company is familiar with detailed information about the area it is in charge of, and can be expected to respond flexibly to the needs of local prospective tenants. In many cases, as a company that is close to the property and its owner, they are also able to provide friendly support for long-term management over a span of 20 to 30 years. However, because of their small size, their staff and advertising budgets are limited, and their recruiting ability may be inferior to that of the major companies.
In conclusion, we recommend that you talk to both major and local candidates and make a decision based on the compatibility with the property and the quality of the person in charge. As mentioned in the previous section, it is important to make a broad comparison without sticking to only the major firms. For example, if you want to fill a vacancy quickly in an apartment in the city center, choose a major company; if you want long-term management in a rural area, choose a local company. In the end, you should make a comprehensive judgment based on the balance of services provided, costs, and trustworthiness.