In real estate management, the acquisition of a property is only the beginning. True success depends on the management operations that follow. However, the reality is that many property owners face a variety of troubles in management operations, resulting in deteriorating profitability and a mental burden.
A wide variety of issues exist in management operations, such as rent delinquency, problems among tenants, equipment failure, and settlement of restoration costs. If these problems are handled without proper knowledge and countermeasures, they can become prolonged and ultimately significantly damage the profitability of the entire rental business.
In this article, we will explain in detail 10 management problems that property owners are prone to and how to prevent them, based on our experience with numerous property management cases. By acquiring this knowledge, you will be able to prevent problems before they occur and realize stable rental management.
Rent delinquency is one of the most serious problems in rental management. A situation where tenants do not pay rent on time has a direct impact on the owner's cash flow.
The causes of nonpayment are diverse and can range from simple forgetfulness of payment to various factors such as deterioration of the tenant's financial situation, unemployment, illness, etc. The important thing is that the nonpayment of rent is not a cause for concern. The key is to respond promptly and appropriately when delinquent payments occur.
In the initial stage, it is effective to make phone or written reminders and establish a payment plan through dialogue with the resident. However, if the tenant does not respond to the reminders or if the arrears develop into long-term arrears, it is necessary to consider contacting the joint guarantor, billing the guarantor company, and eventually taking legal action.
Noise problems are one of the most frequent complaints in rental management. In particular, complaints about noise during weekdays have been on the rise since the spread of telecommuting due to the new coronavirus infection.
The causes of noise are diverse. Typical examples include footsteps from upper floors, vibrating washing machines, volume of TVs and audio equipment, talking voices, and the sound of musical instruments being played. Violation of garbage disposal rules, leaving personal belongings in common areas, and the generation of strange odors can also cause problems between tenants.
These problems can easily develop into emotional conflicts between the parties involved, and if left unchecked, may lead to the departure of good tenants. It is important for the manager to confirm the facts from a neutral standpoint, listen to the arguments of both parties, and offer appropriate solutions.
Equipment breakdowns in rental properties directly affect the lives of tenants and require a prompt response. Problems with the water system are particularly urgent, and delays in responding to them can lead to increased damage and tenant dissatisfaction.
Typical equipment breakdowns include the following Air conditioner malfunctions in heating and cooling functions, hot water supply stoppages due to water heater malfunctions, toilets not flushing, clogged drains, leaks from ceilings and water leaks from upper floors, and so on.
These failures can be caused by a variety of factors, including age-related deterioration, problems with tenant usage, lack of periodic inspections, and poor workmanship during equipment installation. The important thing is to accurately identify the cause of the malfunction and clarify where the responsibility lies. Generally, the owner bears responsibility for malfunctions caused by age-related deterioration, while the tenant bears responsibility for malfunctions caused by the tenant's negligence. 4.
Trouble over restoration costs when tenants vacate is one of the most complex and difficult issues to resolve in rental management. The Ministry of Land, Infrastructure, Transport and Tourism's "Troubles and Guidelines Concerning Restoration to the Original Condition" defines restoration to the original condition as "the restoration of wear and tear caused by the lessee's intentional or negligent use, breach of a duty of care, or other use that exceeds normal use.
The important point is that restoration to the original condition does not mean "restoring the property to the condition it was in when the lessee rented it. The cost of repairing wear and tear due to age and normal use is considered to be included in the rent.
| Burden Category | Contents | Specific example |
|---|---|---|
| Owner's burden | Wear and age-related changes due to normal use | Sunburn of tatami mats, natural stains on wallpaper, age-related deterioration of facilities |
| Tenant's burden | Wear and tear due to intentional or negligent use | Cigarette stains, scratches caused by pets, enlarged nail holes |
| Negotiation | Expansion of wear and tear due to lack of management | Expansion due to mold left unattended, peeling wallpaper due to condensation left unattended |
Unauthorized keeping of pets in a property where pets are prohibited is a typical example of breach of contract. If discovered too late, it can cause a variety of problems, including complaints from neighbors, damage to the building, and increased restoration costs after vacating.
When unauthorized keeping of animals is discovered, the action to be taken is step-by-step. First, we will check the contract and investigate the facts, and notify the resident of the breach of contract in writing. We will then ask the tenant to dispose of the pet or move out.
However, it is often difficult to immediately terminate the contract, and it is realistic to seek a solution through discussions with the tenant. In some cases, it is important to consider constructive solutions, such as proposing a change of residence to a pet-friendly property.
Prolonged vacancy is a serious problem that directly affects the profitability of rental operations. During the period of vacancy, rental income is zero, while fixed costs (e.g., loan repayments, management fees, reserve for repairs, and property taxes) continue to accrue.
There are a wide variety of causes of prolonged vacancy. They may include inappropriate rent setting, location of the property, aging of the building, obsolescence of facilities, increase in the number of competing properties, and lack of sales ability of the management company.
Effective vacancy countermeasures require setting appropriate rents based on market research, improving the attractiveness of properties (remodeling, updating facilities), aggressive advertising activities, and building good relationships with brokerage firms. 7.
Aging of buildings is an unavoidable problem, but an appropriate repair plan can prevent major damage. In particular, leaks and rainwater leakage can cause extensive damage and significantly increase repair costs if discovered too late.
For systematic repairs, periodic building inspections, a long-term repair plan, and a reserve fund for repairs are indispensable. Consideration for tenants during repair work and rent reductions due to construction are also important factors.
With the aging of society, the number of solitary deaths in rental properties is on the rise. When a lone death occurs, the property becomes an accidental property with psychological defects, and the tenant is obliged to notify the police when recruiting the next tenant.
Response to the occurrence of a solitary death includes reporting the death to the police, notifying the heirs and guarantors, arranging for a special cleaning company, and carrying out restoration work. Basically, the cost of restoring the property to its original condition can be charged to the heirs or joint guarantors, but may be borne by the owner if the inheritance is renounced.
If the management company with which the sublease contract is concluded goes bankrupt, many problems will occur, including suspension of rent income, inability to collect security deposits and key money, and the selection of a new management company.
When selecting a management company, it is important to check the financial status, investigate their track record, and examine the details of the contract in detail. It is also possible to mitigate risks by diversifying and outsourcing to multiple management companies.
Owners may also be required to deal with problems that occur outside the premises of the rental property. Unauthorized parking, disputes over boundaries, and the impact of noise on the neighborhood are typical examples.
These problems need to be handled carefully because they can affect the relationship with the local community. If necessary, it is also important to consult a lawyer, land and house investigator, or other specialist.
Outsourcing to a management company and self-management each have their advantages and disadvantages. In order to make the appropriate choice, it is important to understand the characteristics of both.
| Item | Outsourced Management | Self-management |
|---|---|---|
| Management fee | Approx. 5% of rent | Personnel cost only |
| Expertise | Utilize expertise of management company | Self-study required |
| Response time | Available 24 hours a day | Dependent on own time |
| Legal risk | Supported by management company | Self-responsibility |
| Tenant Recruitment | Utilize management company's network | Sales activities by yourself |
Key factors in identifying a good management company include the occupancy rate of managed properties (95% or more is a rough estimate), the size of the number of units managed (10,000 units or more is desirable), promptness in responding to problems, sound financial condition, and the expertise and responsiveness of the staff in charge.
Many troubles are caused by lack of explanation or understanding at the time of contract. It is important to include in the contract specific descriptions of prohibited items, special clauses regarding restoration to the original condition, how to respond to equipment failure, considerations for the neighborhood, and so on.
In particular, when conducting an IT explanation (online explanation of important matters), it is difficult to ascertain the level of understanding of the other party, so it is necessary to provide sufficient time for a question and answer session and to confirm important matters multiple times. 3.
Tenant screening is the most important process to prevent future problems. It is necessary to make a comprehensive judgment not only in terms of income, but also in terms of character and attitude toward life.
Screening points include stable income (at least three times the monthly rent), stability of the employer, past rental history, the financial resources of the guarantor, and the impression and attitude of the tenant during the interview. In addition, for foreign tenants, it is especially important to provide an explanation that takes into account cultural and customary differences.
Early detection of building deterioration and appropriate maintenance can avoid major repairs. Periodic inspections will check for cracks on exterior walls, the condition of the roof, the operation of water supply and drainage systems, and the cleanliness of common areas.
The formulation of a long-term repair plan enables the timing and cost of future necessary repair work to be predicted, and allows for systematic financial preparations.
Regular communication with tenants leads to early detection of problems and amicable solutions. It is important to maintain a good relationship with tenants by conducting tenant surveys about once a year, sending seasonal greeting cards, and establishing an emergency contact system.
In addition, by responding promptly and sincerely to requests and complaints from tenants, a relationship of trust can be built, leading to long-term tenancy.
The key to success in real estate management lies in proper management practices. The 10 trouble cases described in this article are problems that many property owners may face, but with proper knowledge and measures, many of them can be prevented.
The important thing is not to be afraid of problems, but to anticipate possible problems in advance and take appropriate preparations and measures. If you have problems that are difficult to solve on your own, consulting a specialist or a reliable management company is also an important option.
At INA&Associates, we support the success of property owners by placing "human resources" and "trust" at the core of our management. Please feel free to contact us if you have any questions or concerns about our management services. Our expertise and experience will contribute to your real estate management success.
Q1: When should I start demanding rent arrears?
A1: It is important to start demanding rent payments as soon as they become past due. Start with an initial phone call to confirm that the tenant has paid the rent, and since it is possible that the tenant may have forgotten to pay, please be courteous first; if payment is not received within one week, a formal written demand should be made. Early action will prevent prolonged delinquency.
Q2: What should I do if it is difficult to determine the difference between age-related deterioration and tenant's negligence in restoring the property to its original condition?
A2: The basic rule is to make a judgment based on the Ministry of Land, Infrastructure, Transport and Tourism's "Troubles and Guidelines Concerning Restoration to the Original Condition. If it is difficult to make a judgment, we will comprehensively review the photographic records at the time of occupancy, the number of years of use, and precedents in similar cases. If necessary, we recommend consulting a real estate expert or attorney.
Q3: I would like to change the management company.
A3: When changing management companies, it is necessary to confirm the contents of the current contract, notify tenants in advance, take over deposits such as security deposits and key money, and transfer past repair history and tenant information. In addition, the timing of the change should be considered to minimize the impact on tenants, and the details of the contract with the new management company should be thoroughly reviewed before implementing the change.
Q4: I would like to try self-management.
A4: Before starting independent management, it is important to learn legal knowledge about rental housing management, how to recruit tenants, and know-how on how to handle problems. It is also necessary to establish a 24-hour response system, build relationships with repair companies, and introduce appropriate management tools. We recommend that you transition operations in stages and expand the scope of management as you gain experience.
Q5: We have a noise complaint. Can we let the parties involved resolve it among themselves?
A5: We do not recommend that noise problems be resolved by the parties concerned alone. It may lead to an emotional confrontation, which may aggravate the problem. It is important for the manager to confirm the facts from a neutral standpoint, listen to the arguments of both parties, and then offer an appropriate solution. If necessary, consider consulting a specialist.