Mastering Rental Management Leasing: Strategies for Property Owners

Basic Concepts of Rental Management Leasing

Definition and Meaning of Leasing

In a broad sense, the term " leasing operations" refers to all operations related to leases and rentals. In the real estate industry, however, it has a more specific and strategic meaning. It refers to a series of activities to support tenants in finding tenants for leased properties from various aspects and to mediate leasing contracts.

Leasing as rental management, especially for residential rental properties such as condominiums and apartments, encompasses not only recruiting new tenants for units that tenants have decided to move out of or vacant units that have already been vacated, but also all the related services for stabilizing revenues that are performed.

The word "leasing" originates from the English word "Leasing," a term originally used in the commercial real estate field. In commercial and office buildings, it referred to the process of attracting companies and stores to become tenants and concluding lease agreements. In recent years, the same concept has been applied to residential rental properties and is now recognized as a more strategic and comprehensive approach.

Unlike simple traditional tenant solicitation, leasing is a sophisticated operation that involves detailed analysis of property characteristics and location conditions, setting the optimal target demographic, and then planning and executing an effective recruitment strategy. It also includes maintaining ongoing relationships after a contract is concluded and proposing improvements for the next round of recruitment, with the aim of improving occupancy rates from a long-term perspective.

Specifics of Leasing Operations

Leasing operations proceed in three major phases. Each stage requires specialized knowledge and experience, and a comprehensive approach.

The first stage is the "survey. In this phase, a detailed survey of the subject property is conducted. Basic information on the property's structure, facilities, location, surrounding environment, transportation access, etc. is collected and analyzed. At the same time, research of competing properties is also an important element. We objectively evaluate the competitiveness of your property by examining in detail the rent setting, occupancy status, facilities and services offered, and other factors of similar properties in the same area.

Based on the results of this research, we will consider which target demographic will be most effective to approach. For example, if the property is located close to a station, we will set the most appropriate targets according to the property's characteristics, such as singles and married couples who seek convenience in commuting to work or school; for family-oriented floor plans, those raising children; for properties with high-end specifications, those with high income brackets; and so on.

The second stage is "sales. Based on the data obtained in the research phase and the policies established, actual recruiting activities are developed. In this stage, the creation of effective recruitment advertisements is an important element. We strategically take photographs to maximize the appeal of the property, create catchphrases that resonate with the target audience, and place advertisements in appropriate media.

Cooperation with real estate brokerage firms is another important sales activity. We provide property information to many brokerage firms and build relationships with them so that they will proactively introduce us to their clients. Creating materials that convey the features and appeal of properties in an easy-to-understand manner, updating information on a regular basis, and setting incentives for brokerage firms are also effective methods.

The third stage is "contracting. When a prospective tenant makes an inquiry or requests a viewing, a prompt and courteous response is required. During the preview, it is important to maximize the appeal of the property and resolve any doubts or concerns the prospective tenant may have.

Coordinating contract terms is another important task. We coordinate the owner's intentions and the prospective tenant's needs regarding rent, security deposit, key money, contract period, renewal terms, etc., to find mutually agreeable terms. We also carefully screen tenants and select reliable tenants who can ensure stable rental income.

Differences from Similar Services

To properly understand leasing operations, it is important to clearly understand how they differ from other similar operations. The real estate industry has a variety of terminology, each with different roles and responsibilities. Here is a detailed explanation of the differences between these operations, which are especially easy to confuse.

Differences from Tenant Recruitment

Tenant recruitment is an activity whose main purpose is to find new tenants for vacant properties. Generally, advertising activities such as posting property information on real estate portals, distributing flyers, and placing signboards are the main activities. These activities are conducted from a relatively short-term perspective and focus on the IMMEDIATE goal of "filling vacancies.

Leasing operations, on the other hand, are strategic efforts to increase the long-term profitability of a property, including securing tenants. It is not just about filling vacancies, but also about selecting appropriate tenants and creating an environment in which they can continue to live there stably for a long period of time.

For example, in tenant recruitment, the priority tends to be "just finding tenants quickly," but in leasing, the emphasis is on "finding suitable, high-quality tenants for the property. This is because tenants who move out in a short period of time will ultimately reduce the profitability of the owner.

Another important aspect of leasing is to follow up with tenants after they move in. This includes efforts to increase tenant satisfaction and promote long-term occupancy, as well as gathering information to develop more effective strategies for the next time the property is advertised.

Differences from Rental Brokerage

The main task of a rental brokerage is to match prospective tenants with property owners and to conclude a lease contract. Specifically, the agency consults with prospective tenants, introduces properties that match their requirements, arranges for viewing, and assists with the contract process. Rental brokers provide services mainly from the perspective of prospective tenants, and receive a commission when a contract is concluded.

A characteristic of rental brokerage is that it focuses on the process up to the conclusion of a contract. They are generally not involved in the management and follow-up of the property after the contract is completed. In addition, since multiple properties are handled, in-depth understanding of specific properties and long-term strategic planning are limited.

In contrast, leasing operations provide more comprehensive and ongoing services for a specific property. The conclusion of a contract is not the goal, but is positioned as a step toward long-term profitability. This is a more comprehensive service that includes maintaining relationships with tenants after the contract is signed, proposing rent reviews, and proposing renovations to increase the value of the property.

Difference from Property Management (PM)

Property management (PM) is the comprehensive management and operation of a property, and mainly plays the role of "principal" who manages the property on behalf of the owner. PMs are responsible for almost all aspects of rental management, including property maintenance, repairs, tenant relations, rent collection, and planning renovation and remodeling to prevent vacancies.

PM acts as a "practical agent for rental management" for owners, aiming to ensure stable operation of properties and increase profitability. Maintaining and improving property values from a long-term perspective and making strategic proposals based on market trends are also important tasks.

Leasing operations are the part of PM operations that specializes in "customer placement," whereas PM is responsible for the overall management and operation of the property, and leasing focuses on tenant recruitment and contracting operations to fill vacancies. In reality, however, in many cases, the PM company is also responsible for leasing operations, and the two generally work closely together.

Difference from Building Management (BM)

Building management (BM ) mainly refers to the physical management of the property itself. The purpose of BM is to keep the property safe and comfortable, and to maintain a safe living environment for the tenants.

The work of BMs is highly technical in nature and requires expertise in construction and equipment. Examples include periodic elevator inspections, maintenance of water supply and drainage systems, operation of air conditioning systems, and management of disaster prevention equipment. These tasks are essential to maintaining the basic functionality of the property and must be performed on an ongoing basis.

Leasing operations, on the other hand, focus on the rental management of the property and are primarily concerned with recruiting tenants to fill vacancies, setting rents, and signing contracts. It differs significantly from BM in that it aims to increase the value of the property and maximize revenue, and focuses on the "operational aspects" of the property.

Importance of Leasing Operations and Market Trends

Positioning in the Rental Market

Japan's rental housing market is undergoing a period of significant change due to social factors such as the declining birthrate, aging population, changing household structures, and diversifying work styles. According to a survey by the Japan Rental Housing Management Association, business conditions in the rental housing market vary greatly by region and property type, making effective vacancy countermeasures increasingly important.

Particularly in the Tokyo metropolitan area, the supply of new properties continues to increase, while the competitiveness of older properties is declining noticeably. In this environment, it is difficult to achieve satisfactory results by simply recruiting tenants, and a more strategic and specialized approach is required.

Leasing operations are positioned as an important means of responding to such changes in the market environment. By analyzing the characteristics of a property in detail, clearly defining the target group, and then planning and executing an effective recruitment strategy, it is possible to differentiate the property from competing properties and secure a stable occupancy rate.

In addition, in recent years, the needs of tenants have become increasingly diverse, making it difficult to respond to them using the conventional one-size-fits-all approach. For example, with the spread of remote work, an increasing number of tenants are placing more emphasis on the quality of their living environment than on commuting convenience. In order to respond to such changes, it is essential to have leasing expertise that can accurately grasp market trends and flexibly formulate strategies.

Legal Aspects and Regulations

It is extremely important to properly understand and comply with relevant laws and regulations when conducting leasing management operations. In particular, the "Law Concerning the Proper Management of Rental Housing" (Rental Housing Management Business Law), which came into effect in June 2021, has had a significant impact on the rental management industry.

Under this law, businesses managing 200 or more rental housing units are required to register with the Minister of Land, Infrastructure, Transport and Tourism, and are legally obligated to appoint a business manager and explain important matters when concluding a management contract. These regulations are intended to improve the transparency and reliability of rental management operations, and appropriate responses are required in leasing operations as well.

Another important factor is the relationship with the Building Lots and Buildings Transaction Business Law (Building Lots and Buildings Transaction Business Law). When brokering lease contracts as part of leasing operations, a license as a real estate agent is required, and legal obligations such as explanation of important matters and delivery of contract documents by a real estate agent must be complied with.

In order to meet these legal requirements, it is important to outsource the work to a business operator with professional knowledge and experience. Violations of laws and regulations can lead to serious problems and represent a significant risk to the owner. By selecting a business operator with appropriate qualifications and a legal compliance system in place, you can outsource leasing operations with peace of mind.

The importance of compliance is not only to avoid legal risks, but is also directly related to gaining the trust of tenants. Contracts are concluded through appropriate procedures, and highly transparent management will lead to higher tenant satisfaction and encourage long-term occupancy.

Advantages and disadvantages of hiring a professional

Advantages

Utilization of expertise and network

The greatest advantage of outsourcing leasing operations to a professional operator is the abundant expertise and powerful network that can be utilized. Professional leasing management companies possess market data and best practices accumulated through years of experience, and can use this knowledge to develop effective recruitment strategies.

For example, it is difficult without specialized knowledge and experience to properly determine the optimal timing of recruitment in consideration of regional characteristics and seasonal factors, the selection of effective advertising media according to target demographics, and the clarification of points of differentiation from competing properties. In addition, we have established strong relationships with real estate brokers and are ready to proactively introduce properties to many brokers.

Furthermore, we are highly sensitive to changes in market trends and are able to quickly identify new trends and changes in tenant needs and reflect them in our recruitment strategies. For example, we are able to respond flexibly to changes in the times, such as changes in awareness of the living environment due to the recent spread of remote work and the growing interest in environmentally friendly facilities.

Efficient Profit Enhancement

Professional operators are well versed in various methods to maximize the profitability of their properties. Setting appropriate rents is a particularly important factor. After accurately grasping the market rate, we set the optimal price, taking into account the property's characteristics and the competitive situation. A fine sense of balance is required, as setting rents too high will prevent tenants from moving in, while setting rents too low will reduce profitability.

Shortening vacancy periods is also an important revenue-enhancing factor. Professional operators can minimize vacancy periods through efficient recruitment activities. In general, a one-month reduction in vacancy period will increase annual revenues by approximately 8.3%. This effect can make a significant difference in the long run.

In addition, the quality of tenants also has a significant impact on profitability. By selecting tenants who have a stable income and are long-term residents, it is possible to reduce the risk of rent delinquency and the costs associated with frequent move-ins and move-outs. Professional operators can identify such quality tenants through proper tenant screening.

Reduced Burden on Owners

Leasing operations in rental management involve a wide variety of specialized tasks, and it is extremely difficult for individual owners to properly perform all of them. Market research, competitive analysis, advertisement creation, viewing correspondence, contract procedures, tenant screening, etc., each requires specialized knowledge and experience, as well as a considerable amount of time and effort.

By outsourcing to a professional operator, owners are freed from these complicated tasks and can concentrate on their core business and other investment activities. This burden reduction effect is especially significant for owners of multiple properties or those who own properties in remote areas.

In addition, the owner does not need to respond directly to inquiries and complaints from tenants, as the professional service provider handles these on their behalf. This greatly reduces the mental burden and allows the owner to manage the rental property with more peace of mind.

Risk Management and Legal Compliance

Rental management operations involve a variety of risks. Legal troubles due to inadequate contracts, rent arrears due to inadequate tenant screening, troubles with tenants due to inappropriate responses, etc. These risks can have a significant impact on the profitability of rental management.

Professional operators have extensive experience and expertise in minimizing these risks. They provide comprehensive support from a risk management perspective, including the drafting of appropriate contracts, rigorous tenant screening, and prompt response to any problems that may arise.

We also keep abreast of relevant laws and regulations, such as the aforementioned Rental Housing Management Business Law and Building Lots and Buildings Transaction Business Law, to ensure that our operations are in proper compliance. Since violations of laws and regulations can lead to serious problems, proper response by a professional operator is extremely important.

Disadvantages

Outsourcing fees

When leasing services are requested from a professional operator, a consignment fee is naturally incurred. Generally, a commission of about one month's rent is paid when a contract is concluded, which is not an inexpensive cost considering the property's rate of return.

Especially in the case of properties with relatively low rents, the burden of the consignment fee can be significant. For example, a property with a monthly rent of 50,000 yen would incur a consignment fee of 50,000 yen, and a property with a monthly rent of 150,000 yen would incur a consignment fee of 150,000 yen. Considering the ratio of the consignment fee to the annual revenue, the cost-effectiveness of the fee should be carefully considered.

However, it is important to view the consignment fee as an investment in professional services, not simply a cost. If vacancy periods are shortened and quality tenants are secured through appropriate leasing services, the long-term effect of increased revenues can be expected to exceed the outsourcing fee.

The Importance of Selecting an Outsourcing Provider

There are many leasing service providers in existence, and their quality, characteristics, and areas of expertise vary widely. Not all providers offer the same level of service, and some do not specialize in leasing residential rental properties.

For example, operators whose primary focus is commercial real estate may not have a thorough understanding of the market trends and tenant needs for residential properties. Also, if a business operator specializes in a particular region, it may have limited experience or knowledge in other regions.

In order to select an appropriate outsourcing partner, you should receive detailed proposals from multiple providers and carefully compare their track record, expertise, and service offerings. Compatibility with the person in charge and the quality of communication are also important factors, and it is important to select a partner with whom you can build a long-term relationship.

Control Constraints on Property Management

Outsourcing leasing operations to an external party reduces the opportunity for the owner to be directly involved in the management of the property. Since important decisions such as setting rents and selecting tenants are left to the operator, control over property management and operations may be constrained.

In particular, owners who have their own unique leasing strategies and preferences may not be satisfied with the standard approach of the operator. For example, if an owner has individual requirements, such as a preference for tenants with a particular lifestyle, an emphasis on environmentally friendly amenities, or a desire to maintain close ties with the local community, it is important to have a thorough discussion and share policies well in advance.

Variation in service quality

The outcome of leasing operations is greatly affected by the quality of the response of the outsourced service provider. If an excellent operator can be selected, the results will exceed expectations, but if the operator is not responsive enough, the expected results may not be achieved.

For example, the market research may be inadequate and rents may be set inappropriately, advertisements may be of low quality and fail to sufficiently convey the attractiveness of the property, inappropriate handling of previews may give a bad impression to prospective tenants, and opportunities may be missed due to time-consuming contracting procedures.

To avoid such risks, prior research and selection is extremely important. Past performance, customer satisfaction, and the expertise of the person in charge must be comprehensively evaluated to select a reliable provider.

Concept of Cost-Effectiveness

When considering outsourcing leasing operations, it is important to comprehensively evaluate not only short-term costs but also long-term cost-effectiveness. The table below provides an example of how self-management and professional outsourcing compare.

In this example, an annual effect of 100,000 yen is obtained for a commission of 50,000 yen, resulting in an investment effect of 200%. The actual effect will vary depending on the property and market conditions, but if the right operator can be selected, it is possible to obtain a value that exceeds the consignment fee.

Successful Leasing Strategies

Effective Leasing Methods

A strategic approach is essential to a successful leasing operation. The first and most important step is precise targeting. Detailed analysis of the property's location, layout, facilities, surrounding environment, and other characteristics will clearly define the most suitable tenant demographic.

For example, for a 1K apartment within a 3-minute walk from a station, the main target would be singles who seek convenience in commuting to work or school. In this case, effective strategies would include offering previews on weekday evenings and weekends, creating advertisements that emphasize convenience during commuting hours, and enhancing facilities for singles (delivery boxes, security systems, etc.).

On the other hand, for a family-oriented 3LDK condominium, the main target would be the child-rearing generation. In this case, providing information on the surrounding educational environment (schools, cram schools, parks, etc.), promoting family-friendly facilities (storage, kitchen, balcony, etc.), and providing viewing services on weekends are important factors.

Setting appropriate rents is another key to success. We will accurately grasp the market rate and set a price that takes into account the characteristics of the property and the competitive situation. A perfect sense of balance is required, as setting rents too high will not attract tenants, and setting rents too low will reduce profitability. Flexible price adjustments in response to market fluctuations through regular market surveys are also important.

It is also essential to develop an effective advertising strategy. We select the media used by the target audience and create advertisements that convey the property's appeal to the maximum extent possible. The quality of photographs, the appeal of catchphrases, and the quality of property information are all important factors in attracting the interest of prospective tenants.

Key Points for Vacancy Countermeasures

To effectively implement vacancy countermeasures, it is important to improve the attractiveness of the property and differentiate it from the competition. First, objectively evaluate the current condition of the property and identify areas that need improvement. Aging facilities, deteriorated interiors, and inadequate cleanliness are factors that give a bad impression to prospective tenants.

If necessary, we will consider improving the property value through remodeling or renovation. However, it is important to carefully compare the investment amount and the expected effect of improved profitability, and select cost-effective improvement measures. For example, it is effective to start with relatively small investments such as replacing wallpaper or updating facilities, which can be expected to have a large effect.

Differentiation from competing properties is another important strategy. Compare your property with similar properties in the same area and clarify the advantages of your property. Evaluate the convenience of the location, the quality of facilities, the quality of management, the competitiveness of rents, and other factors in a comprehensive manner to create appealing points that other properties do not have.

Responding to changes in tenant needs is also essential. In recent years, new needs have emerged, such as remote work support, environmental friendliness, health consciousness, and enhanced security. By accurately grasping these trends and reflecting them in our properties to the extent possible, we can differentiate ourselves from the competition.

Improving post-occupancy satisfaction is another important vacancy countermeasure. By providing high quality management services, prompt trouble-shooting, and regular communication, we can increase tenant satisfaction and encourage long-term occupancy. This will prevent frequent move-ins and move-outs and ensure stable income.

Conclusion

Rental management leasing is a strategic and comprehensive operation that goes beyond mere tenant recruitment. By analyzing property characteristics in detail, establishing the optimal target demographic, and then planning and executing effective recruitment strategies, it is possible to achieve stable occupancy rates and maximize revenues.

Today's rental market is undergoing significant change due to a variety of factors, including the declining birthrate, aging population, changing work styles, and diversifying tenant needs. In such an environment, it is difficult to achieve satisfactory results with the conventional one-size-fits-all approach, and more professional and strategic leasing operations are becoming increasingly important.

Outsourcing leasing operations to professional operators offers many advantages, including the use of specialized knowledge and networks, efficient revenue growth, reduced burden on owners, and enhanced risk management. On the other hand, there are also points that require attention, such as the incurrence of outsourcing fees and the importance of selecting the right outsourcing partner. It is important to consider these factors comprehensively and carefully evaluate cost-effectiveness before making the best choice.

If you are having trouble with your rental management or are considering more effective vacancy countermeasures, please contact us for a consultation. We will do our best to support you in maximizing the value of your valuable assets and securing stable income.