Are you an owner of a rental property worried about dealing with sudden troubles? A dog is kept in the apartment even though pets are not allowed," "Complaints about noise at night," "Equipment failure reported on a holiday..." In self-management, these unexpected problems can fall on the shoulders of the owners themselves. In our experience of solving many owners' problems, it is important to understand that there are definite limitations to self-management.
In particular, the case discussed in this article, "A tenant kept a dog in a property where pets are not allowed", is a typical problem faced by self-managed owners. This kind of trouble requires specialized legal knowledge and a calm response, and it is often difficult for owners, who tend to be emotional, to deal with it on their own.
This article details the risks faced by self-managed owners and the benefits of outsourcing to a management company. We hope you will find it useful as an option to make your rental management more stable as an "investment.
Mr. Yamada (pseudonym) is an owner of four apartments in Tokyo, all of which he manages independently. One day, he received a report from a tenant that a dog was making noises in the room next door. All of Mr. Yamada's apartments have a "no pets allowed" policy specified in the contract.
Mr. Yamada thought that he should be forced to move out of the apartment because the contract stipulated that pets were not allowed. However, he did not know that the "doctrine of breach of trust" applies to the termination of a lease contract. It was difficult to immediately terminate the contract simply based on the fact that the tenant kept a pet, and it was necessary to prove specific damage and nuisance, as well as appropriate notice procedures.
As a result, multiple tenants had to move out due to delays in responding to the situation, and secondary damage was caused by an increase in vacancy rates. This case is a typical example of the limitations of self-management.
Self-management has the following risks and limitations. These are summarized in the table to better clarify the challenges faced by self-managed owners.
| Risk Items | Problems with self-management | Advantages of outsourcing to a management company |
|---|---|---|
| Lack of legal knowledge | Lack of knowledge of appropriate responses to contract violations and legal procedures | Appropriate response is possible while consulting with legal experts contracted by the management company |
| Delayed response | Difficult to respond quickly due to conflicts with core business | Able to respond quickly and appropriately 24 hours a day |
| Emotional response | Personal feelings can easily get in the way and cause problems to worsen | Responds calmly and objectively as a third party |
| Lack of expertise | Lack of expertise in building management and tenant relations | Able to respond with a wealth of experience and expertise. |
| Time constraints | Difficult to respond to problems on holidays and at night | 24-hour response system for emergencies |
| Trouble prevention | Lack of knowledge and time to take preventive measures | Early detection of problems through regular patrols and reports |
One of the most difficult issues for self-managed owners is the complexity of legal responses to breach of contract. For example, even if there is a violation of a special agreement prohibiting pets, it is not possible to immediately terminate the contract or demand that the tenants vacate the premises.
In court precedents, the "doctrine of breach of trust" is applied, and the emphasis is placed not only on the mere breach of the contract, but also on whether the act has reached a level that destroys the relationship of trust between the lessor and the lessee. This judgment requires specialized knowledge and experience.
The benefits of outsourcing to a management company are many and varied. In particular, the following points can be mentioned as solutions to problems faced by self-management. 1.
Management companies have a wealth of experience and expertise in managing rental properties. In addition, by hiring a legal advisor, the company can provide appropriate advice based on past cases and judicial precedents.
For example, in the pet-owning case mentioned earlier, the following professional responses can be expected:
One of the major advantages of a management company is its 24-hour response system for emergencies. Homes often have emergency calls from tenants and equipment problems that occur during the night or on holidays.
With a management company, owners can enjoy the following peace of mind
A good management company takes preventive measures before problems occur. Through regular patrols and inspections and communication with tenants, small signs can be overlooked and addressed before they develop into major problems.
Examples of preventive management include:
Generally, the outsourced management fee is around 5% of the rent, but it is well worth the cost. Considering the time and effort required to deal with problems that occur with self-management and the risk of vacancy, outsourcing to a management company is a rather cost-effective option.
Cost reduction effect by outsourcing management:
A good management company will not only provide management services, but will also contribute to improving the profitability of the property. By receiving professional advice on rent setting and tenant recruitment strategies based on market trends, you can expect to maintain and improve the long-term value of your property .
Specific revenue enhancement measures:
Not all management companies offer the same services. In order to select a quality management company, pay attention to the following points. 1.
The most important factor in choosing a management company is the speed and quality of its response to tenant inquiries and problems. In particular, whether the company has an emergency response system is an important point to check.
Points to check:
A management company's track record and experience are important indicators of the quality of its services. In particular, it is a good idea to check whether the company has experience in managing properties of similar size and characteristics to your property.
Items to check:
A good management company has a transparent reporting system. You can expect regular income and expense reports, sharing of property status, and detailed progress reports when problems occur.
Points to focus on:
The market rate for outsourced management fees is around 5% of rent, but simply being inexpensive is not necessarily a good thing. It is important to make a comprehensive judgment of the balance between the services provided and the cost smaity.
Items to be compared:
| Item | Approximate management fee | Services included |
|---|---|---|
| Basic management | 3-4% of rent | Rent collection, tenant relations, simple inspections |
| Standard management | 5-6% of rent | Basic management + periodic patrols, facility management, renewal support |
In rental management, outsourcing to a management company is not just a "cost," but should be considered an "investment" to increase asset value and profitability. In particular, legal knowledge and a calm response are required when dealing with breach of contract, as in the case of a tenant owning a dog in a property where pets are not allowed.
Self-management involves the following risks
On the other hand, the advantages of outsourcing to a management company are:
In order to maintain long-term and stable rental management, it is a wise choice to seek professional help. Outsourcing to a management company will not only create more time and mental flexibility for the owner, but also help maintain and improve asset value.
A: This is not true. A good management company will regularly confirm the owner's intentions and manage the property in accordance with their requests. Rather, the important role of the management company is to act as an advisor with expertise and make proposals to maximize the owner's assets.
A: Yes , small properties are the ones where outsourcing to a management company is effective. Because the number of properties is small, the impact of a single problem on the overall management can be significant. In addition, for owners who are also working at the same time, it is often difficult to respond appropriately due to time constraints, so the support of a professional management company is effective.
A: Generally , monthly reports are the standard, but some management companies also offer online portals that allow you to check real-time occupancy status and income/expenses. Also, it is possible to receive reports on troubles and important matters on a case-by-case basis. We recommend that you confirm the details of the frequency and method of reporting at the time of contract.
A: Changing the management company is based on the terms of the contract with the current management company. Generally, you need to make a written request with a notice period (1-3 months) for termination. Thereafter, a handover to the new management company will occur. Cooperation from both the old and new management companies is necessary to ensure a smooth transition.
A: Basically , a management company can handle many tenant problems, but in cases that require the involvement of specialists, such as particularly serious legal disputes or structural problems with the building, the company will work with lawyers, architects, and other specialists. A good management company will also have a system in place to introduce and collaborate with appropriate specialists in such situations.
Would you like to consult with a rental management professional?
INA&Associates, Inc. offers free consultation for owners who have problems with self-management. Our experienced staff will carefully guide you through everything from how to deal with tenant problems, including pet-ownership issues, to support for transitioning to outsourced management.