Comprehensive management focusing on the three pillars of "operation," "maintenance," and "finance" is essential for real estate owners to stably operate rental properties and protect asset values. To begin with, property management refers to efforts to maximize the asset value of real estate through rental management and building maintenance. Specifically, it encompasses a wide range of operations, from tenant recruitment, contract and rent management, to maintenance and inspection of building facilities, to realize smooth property management on behalf of the owner. This type of management not only saves time and effort, but is also a pillar that supports long-term stable rental management by providing appropriate support in the areas of operation (tenant relations), maintenance (building management), and finances (income/expense management).
The roles played by each of the three pillars are interrelated, and the results of rental management are maximized when they function in a well-balanced manner. The following is a detailed explanation of the specific roles of each pillar of property management, key practical points, and frequently encountered issues and their solutions, from the owner's perspective.
In the management of rental properties, it is necessary to accurately handle all tasks related to tenants. The main tasks include recruiting new tenants, processing lease contracts (new contracts and renewals), collecting rent and reminding tenants when they fail to pay, handling complaints, attending to tenants when they move out, settling accounts, and arranging for repairs. The objective is to establish a system to increase the profitability of the property through these overall rental management services.
Practical point: The key to management is to build a relationship of trust with tenants and increase their satisfaction. It is important to respond promptly and appropriately to tenant inquiries and complaints, and to resolve problems as quickly as possible. If tenant satisfaction is increased through attentive response, it is expected to lead to long-term occupancy and a reduction in vacancy rates. In addition, by facilitating communication on a daily basis and having a system in place to "consult immediately when in need," it is possible to prevent problems from becoming more serious. If the owner is responsible for dealing with problems on his/her own, it would be effective to secure a 24-hour emergency contact number and prepare a response manual. In addition, from the perspective of risk management, it is important to consider insurance coverage in case of unforeseen accidents such as fire or water leakage, and the use of a rent guarantee company when the tenant signs a lease contract. By using a guarantee company, even if a tenant fails to pay rent on time, the owner can receive subrogation payments and ensure a stable rental income. In Japan, tenants have strong rights under the law and cannot be easily forced to vacate the property even if they are in arrears, so a good reminder and the use of a guarantee system with professional know-how are safe measures. In addition, you must deal appropriately with problems between tenants and neighbors, such as neighborhood noise, foul odors, and violation of garbage disposal rules. Since dealing with such complaints is often urgent and mentally taxing, it is a good idea to decide how to deal with them in advance or to outsource them to a management company.
Common problems and solutions: The following problems are frequently encountered in terms of operations.
Unable to fill vacancies: If tenants are not found and the vacancy period is prolonged, the property may fall into the red, with no rental income during this period and only property tax and maintenance expenses. As a solution to this problem, it is necessary to improve the attractiveness of the property (setting appropriate rent, upgrading facilities, remodeling, etc.), conduct effective recruitment advertising, and utilize a real estate brokerage network to attract more customers. By setting conditions that match the location and market needs, and through accurate PR, we aim to attract prospective tenants and close contracts as quickly as possible. When outsourcing to a management company, it is also important to check indicators such as average vacancy period and occupancy rate, and select a reliable company with a high ability to attract customers. Efforts to reduce vacancy risk will lead to stabilization of income and expenditures.
Responding to rent arrears: Some tenants may be late in making payments. If delinquent payments occur, income, which is the foundation of rental management, will be lost and business continuity will be threatened. First, hedge the risk by joining a guarantee company or setting up a joint guarantor at the contract stage, and promptly send a reminder by phone or in writing when delinquent payments occur. As mentioned above, if you have established a system whereby you can receive replacement payment for delinquent rent through the use of a guarantee company, you can rest assured that the guarantee company will also handle the reminder work itself. What is important is to contact the person in question in the early stages of delinquency to understand the situation and encourage systematic payment. If the delinquency is left unattended for a long period of time, it may lead to legal proceedings and increase the risk of uncollectibility. The key to solving the problem is to minimize the damage through early intervention and the use of specialized agencies.
Tenant problems/complaints: Noise, odors, use of common areas, pet ownership, and other problems between tenants or with neighbors are common in rental management. If left unchecked, these problems can lead to other tenants moving out or damage to the property's reputation, so we can quickly resolve them with a sincere response. For example, in the case of a noise problem, we will carefully confirm the facts and, if necessary, alert the tenant or propose soundproofing measures. In the case of equipment problems such as water leakage, we quickly arrange for emergency repairs and take measures to prevent the spread of damage. Since responding to complaints is mentally taxing, if it is difficult for the owner to do so himself/herself, it is effective to consult with the management company or a specialized third-party organization (e.g., dispute center). As a solution, it is also important to take preventive measures to prevent problems from occurring by informing tenants of the management rules and etiquette on a regular basis.
Emergency Risk Response: You must be prepared for sudden risks such as fire, natural disasters, and equipment breakdowns. Solutions include properly insuring the building with fire and earthquake insurance and having a plan for updating equipment as it ages. Fire insurance will provide coverage in the event of a fire caused by tenant negligence, allowing the owner to continue to operate the property with peace of mind. It is also important to prepare a list of contact information for emergency service providers (water, electricity, gas, etc.) in case of equipment problems to speed up the initial response. Since it is too late to "wait until after the fact" to respond to risks, taking precautions at ordinary times will minimize damage and provide peace of mind to tenants.
As described above, improving operational aspects directly leads to higher tenant satisfaction and reduced risk of vacancy and delinquency. Careful tenant relations and accurate risk management will lay the foundation for stable rental operations.
Maintenance of rental properties is an important pillar to protect the value of the building as an asset and prolong its profitability. It is no exaggeration to say that the value of a building, which is an important asset for the owner, is maintained through routine maintenance. Specific tasks include periodic inspections of the building exterior and common areas, maintenance of infrastructure facilities such as water supply, drainage, and electricity, statutory inspections of firefighting equipment and elevators as required by law, thorough daily cleaning and garbage disposal, site planting management, and security measures, among others. For example, the exterior wall tiles must be checked regularly for peeling, light bulbs in common corridors must be turned off, and the pavement in parking lots must be repaired as soon as possible if any abnormality is found. It is also essential to keep up with inspections and maintenance of various facilities, such as air conditioners and hot water heaters, to avoid overlooking signs of malfunctions.
Practical point: The most important aspects of maintenance and management are systematic repairs andmaintaining a clean environment. Buildings and facilities deteriorate over time, but timely and necessary repairs can prevent functional deterioration and reduce the cost of future major repairs. Therefore, a long-term repair plan should be established to determine in advance which parts of the building will be repaired and when, with an eye to the next 5 or 10 years. For example, in the case of an RC condominium, the plan might include painting the exterior walls and cleaning the drainpipes in the 5th to 10th year, and waterproofing and updating the facilities around the 15th year. By setting aside a reserve for repairs and a budget for each period based on this plan, you can prevent a situation in which you cannot respond due to a lack of funds when an emergency arises. Cleaning is also an important task to maintain aesthetics and hygiene. In addition to the daily cleaning of common areas (sweeping, wiping, etc.), it is advisable to have a professional contractor perform mechanical floor cleaning and glass cleaning on a regular basis. If the building is kept clean at all times, tenants will be more comfortable, and this will help prevent a decline in property values. On the other hand, a property that is not well cleaned gives a bad impression, which can lead to tenant turnover and an increase in vacancies.
In addition, maintenance and inspections of facilities should not be neglected. Statutory inspection items such as fire equipment inspections and water quality inspections of water supply facilities should be carried out in accordance with laws and regulations, and reports should be properly saved. This will prove the owner's fulfillment of responsibility in the event of an accident, and will also fulfill the social responsibility to ensure the safety of tenants. For highly specialized equipment such as elevators and water receiving tanks, it is advisable to contract with a qualified maintenance contractor and have a system in place for regular maintenance and emergency response.
Common problems and solutions: The following problems tend to occur in maintenance
Building deterioration due to postponed repairs: When necessary repairs are postponed due to budgetary constraints, the building deteriorates and defects occur frequently. As a result, the risk of vacancy increases and asset value declines. The solution is to take care of problems as soon as possible. The key is to take a " preventive maintenance " approach, where even small defects are not left unattended but repaired immediately. For example, by taking measures such as partial repair of rooftop waterproofing without overlooking signs of leaks, or systematic replacement of hot water supply equipment when it is nearing the end of its service life, large-scale breakdowns and evictions can be prevented. Periodic repairs will be carried out in accordance with the long-term repair plan to ensure that management is not "fixing things after they break," but rather "taking action before they break. This will reduce sudden increases in repair costs and provide tenants with a safe and secure living environment.
Selection of Repair Contractors and Costs: When ordering repair work, it is often difficult to select a reliable contractor and determine the appropriate cost. One solution is to obtain quotes and carefully select a contractor. If the property is outsourced to a management company, they can introduce you to an affiliated contractor with a proven track record. If you are making the arrangements yourself, it is also a good idea to seek advice from a third party with expertise. Since costs vary greatly depending on the grade and specifications of the repair work, multiple proposals should be considered and a method that balances budget and effectiveness should be adopted. It is also important to determine the timing of repairs. For example, interior renovations can be done at the same time as vacancies, or exterior repairs can be done before the busy season in order to be ready for the rental period.
Lack of thorough daily cleaning: When owners manage their own properties, they are often too busy to keep them clean. Dusty and debris-filled common areas can cause tenants to distrust the property, leading to complaints and evictions. As a solution, cleaning work should be outsourced to a professional cleaning service if possible, or a system should be set up so that cleaning can be performed regularly, at least several times a week. Smaller properties can also reduce the burden by using a janitorial service that patrols the property. Since it is easy to detect abnormalities in equipment and facilities during cleaning, you can kill two birds with one stone by carefully following a "cleaning = inspection" mentality. Maintaining a clean and comfortable common-use environment at all times will directly lead to long-term occupancy and property value maintenance.
Although maintenance may seem unglamorous, it is the foundation of keeping a property competitive and generating income for a long period of time. Proper maintenance extends the life of the building and improves tenant satisfaction, which in turn leads to stable rental management and higher asset values. In other words, investment in maintenance is an important management strategy that generates future returns.
Financial management, the third pillar, is the foundation that underpins rental management. In order to maximize the profitability of a property, it is necessary to accurately grasp the balance of income and expenses, including monthly rental income, management fees, maintenance fees, and loan repayments, and to conduct efficient financial management. Specific tasks include bookkeeping, budgeting, cash management planning, and tax reporting. Prepare a bank account for rentals to centrally manage deposits and withdrawals, and keep track of cash flow by recording monthly income and expenses in ledgers and management software. The goal is to secure stable income while controlling expenditures through proper financial management (optimization of cash flow). Tax compliance is also important to maximize the owner's own residual income. It is required to record depreciation and various expenses without omission to optimize the income tax and inhabitant tax burdens.
Practical tips: The first and most important financial aspect is accurate recording and analysis. The monthly rent income, common service charges, utilities reimbursement, parking lot income, and other income items should be organized, while expenses such as property taxes, insurance premiums, management fees, cleaning fees, repair expenses, and loan interest should also be identified and listed. This allows you to plan your income and expenditures throughout the year and prepare funds by predicting when and how much expenses will be incurred. For example, if property tax payments are concentrated in spring each year, cash flow measures such as setting aside cash for such payments before the season is over can be implemented. In terms of cash management, it is advisable to pool several months' worth of working capital as a reserve, taking into account the risk of loss of rental income (vacancy and delinquency). With sufficient cash flow, necessary repairs can be undertaken in a timely manner, and management stability is increased because of the ability to withstand unexpected expenses.
In addition, from a tax perspective, expense recognition andtax filing procedures are important. If necessary expenses (depreciation, interest on loans, property taxes, fire insurance, repairs, management fees, advertising fees, transportation costs, etc.) incurred in the rental business are properly recorded and profits are reduced, the amount of taxes to be paid will decrease and the owner's earnings will be maximized. Conversely, if expenses are omitted, the final take-home earnings may be reduced, no matter how well the operation is going. Therefore, it is essential to save receipts and invoices, even the smallest ones, and include them in necessary expenses without omission when filing tax returns. If you file a blue tax return, you can carry forward losses and receive various deductions for the year in which you incur a deficit, so if you want to increase your tax savings, seek the advice of a specialist (tax accountant) and take advantage of this system.
Common problems and solutions: The following are common problems faced in financial management and their solutions.
Insufficient understanding and planning of income and expenses: If cash receipts and disbursements are not managed properly, it is difficult to accurately determine whether the company is actually making a profit or a loss, which delays the implementation of countermeasures. For example, if small repairs and miscellaneous expenses are not recorded and profits are overestimated, cash on hand may become insufficient. The solution is regular bookkeeping andreporting. Always close out income and expenses each month and prepare a profit and loss statement, and compare and contrast the actual results with the projected income and expenses for the year. Recently, accounting cloud software and dedicated real estate management software are available, which can automatically import deposit and withdrawal data and create reports. By utilizing such tools, you can manage income and expenditures efficiently and accurately. It is also important to objectively evaluate investment efficiency by calculating the rate of return (ROI) and occupancy rate for each property. By understanding the figures, you can identify issues and make the next management decision (e.g., rent review or cost-cutting measures).
Profit squeeze due to increased costs: Increased repair costs over the years and soaring utility and management costs can lead to higher expenses than initially planned, putting pressure on profits. Even if rental income is generated, the building may fall into the red if maintenance costs are too high. This issue is addressed through periodic budget reviews andcost optimization. Specifically, each expense item is scrutinized for waste, and expenditures that can be reduced through competitive quotations and contract reviews are cut. For example, reviewing maintenance and inspection contract fees and insurance premiums, reducing utility costs by installing energy-efficient equipment, and negotiating management contract fees. On the other hand, if the level of service is lowered due to easy cost-cutting, it will affect tenant satisfaction, so it is important to optimize the balance between expenditure reduction and maintenance of property value. Revisions to rent and common service fees will be considered as necessary, but decisions will be made carefully after surveying the surrounding market and the situation of competing properties.
Cash flow shortfall: Continued vacancies, major repairs, and unexpected equipment breakdowns can cause temporary cash flow shortfalls. In particular, loan repayments and tax payments do not wait, and a lack of cash on hand can lead to delinquencies or, worse, the sale of the property. The solution is to securesufficient working capital anda line of credit. From time to time, a portion of rent income should be set aside in a reserve account and pooled to cover at least several months' worth of expenses. At the same time, you can set up a line of credit (overdraft or loan facility) from a financial institution so that you can meet sudden expenses without running short of funds. The key to cash flow management is to be prudent and not spend all of your cash even in months when income is high, but to be prepared for future payments. Even for company-employed owners with regular income, it is easier to grasp the actual status of the business by considering the rental section as a stand-alone operation and not easily replenishing one's own funds.
Tax mistakes: Failure to report expenses or depreciation on your tax return can result in extra taxes or a tax audit. In addition, there are heavy penalties for failing to file in the first place. The best way to prevent this is to acquire tax knowledge andconsult a specialist. It is also effective to attend tax seminars for rental owners and ask a reliable tax accountant to do the bookkeeping and filing. Especially when the number of properties increases and accounting becomes more complicated, or when you are considering consumption taxation or incorporation, professional support can help you develop the best tax strategy for the long term. Accurate and legal taxation and avoidance of unnecessary tax burdens will directly lead to maximizing the profitability of your rental business.
With proper financial management, rental management becomes more stable and profitable from a numerical standpoint. You will be able to allocate sufficient resources to operate and maintain a balance between income and expenses, and you will also be able to make sound investment decisions for the future (e.g., buying more properties or renovating). Although finance is the backbone of the three pillars, it is extremely important as the keystone that supports the other pillars.
The three pillars of "operation," "maintenance," and "finance" described above are deeply interrelated, although each has an independent role. If any one of them is missing or neglected, the other areas will be adversely affected, which in turn will lead to a decline in the profitability of the entire rental business. Conversely, when the three parties function in a balanced manner and work together, synergies are created that cannot be achieved alone, and business performance can be maximized.
For example, improving the operational aspect (improving tenant service) will increase tenant satisfaction and contribute to maintaining a high occupancy rate, and reducing vacancy losses will lead to financial stability (securing stable rental income). At the same time, if revenues are secured, it will be easier to invest the funds in maintenance and management (repairs and facility renewal), which will further improve the condition of the building. As a result, the property's asset value will increase, and the rent level may be maintained or even increased. This virtuous cycle creates a stable revenue base over the long term. On the other hand, thorough maintenance and management (planned repairs and maintenance of a clean environment) increases the property's attractiveness and directly leads to higher tenant retention rates. If you can provide a comfortable living environment with few defects, you will gain the trust of tenants and increase the contract renewal rate. As a result, the cost of recruitment and vacancy risk will be reduced, which will in turn lead to financial stability.
Furthermore, financial soundness (proper income/expense planning and cash management) will enable necessary investments when needed, and will be a source of funds to improve the quality of both operation and maintenance. With sufficient funds in reserve, the company can take aggressive measures, such as investment in renovation (maintenance) to differentiate itself from competing properties, and expansion of services for tenants (management). These measures will again become positive factors on the financial side in the form of higher occupancy rates and higher rents, and a virtuous cycle will begin to turn.
In short, the three pillars of rental management are "occupancy rate," "building condition," and "income/expenses," each of which is a major factor in rental management, and by managing all three in a balanced manner, stable management and maximization of income can be realized. For example, if vacancies increase and the operation is on a downward trend, rent income will decrease and the financial situation will deteriorate, and if repairs cannot be made due to lack of funds, the building will lose its attractiveness and tenants will leave. On the other hand, if the occupancy rate is high and income is stable, it is possible to make ample investment in repairs, and a positive cycle is created in which building value and tenant satisfaction are maintained and improved. Whether the owner manages the property himself or outsources it to a professional management company, it is essential to keep an eye on each of these three areas while coordinating the entire process. In particular, at a management company, the rental management department, building management department, and accounting and finance department work together within the company to maximize the owner's asset value while sharing information. As an owner, you can maximize the potential of your property by understanding the roles of each department and drawing up a unified management strategy.
In real estate rental management, it is extremely important to manage properties not only for short-term profit, but also from a long-term perspective. The three pillars discussed in this article, "operation," "maintenance," and "finance," are all basic elements that support the profitability and value of a property over the long term. The accumulation of day-to-day tenant service, building maintenance, and meticulous income/expense management will make a big difference over time, and will rebound in asset value and returns in the future.
Especially for older properties, it is possible to develop them into "assets that stand the test of time" by continuing appropriate management. If you keep the building in good condition through regular repairs, you can maintain tenant needs, and tenants who have built a relationship of trust with you tend to stay longer. In addition, if you can maintain a good financial condition, you can respond flexibly to market changes and unexpected risks, and a sense of stability will be created at the helm of management. Even if some costs and effort are required in the short term, it is essential to make strategic decisions, viewing them as upfront investments that will lead to future risk reduction and increased earnings.
Ultimately, property management is a steady process of "protecting and nurturing assets," and the owner's sense of balance among operation, maintenance, and finance is the owner's skill to achieve this. By focusing on all three pillars from a long-term perspective, a solid rental management foundation can be built that is less susceptible to economic fluctuations and property life cycles. In order to maintain and improve asset value while generating stable income in the future, I urge you to value each and every management practice starting today. The above is an explanation of the three pillars and points to keep in mind that will serve as a practical reference for real estate owners. Let's protect and nurture our valuable real estate assets for a long time with a long-term rental management strategy based on the three pillars.