The choice of a management company directly affects asset value and profitability. For property owners in Osaka, working with the right management company is the key to stable rental management. In fact, many owners are dissatisfied with poor management quality and slow response times, but choose to maintain the status quo because "the process of changing is troublesome. However, changing management companies at the right time is an important decision that can improve the profitability of your property and preserve its asset value. This article explains the clear signs that a change of management company should be considered, the specific procedures for a smooth transition in Osaka, and legal considerations.
Ten Definitive Signs to Consider Changing Management Companies
1. the quality of tenant service has deteriorated significantly
If it takes more than 48 hours to respond to resident inquiries or repair requests, you should be wary. If it takes more than a week to respond to a request for repair of a malfunctioning facility, or if tenants are complaining directly to the owner, this is a clear sign that the quality of service provided by the management company is declining.
This is not simply a matter of dissatisfaction. Declining tenant satisfaction leads to a shorter average length of stay, and the vacancy period and restoration costs incurred with each turnover directly puts pressure on the owner's bottom line. According to industry surveys, the number one reason for changing management companies is "slow or poor response to tenants.
An excellent management company should have a system in place to maintain the quality of its staff's response at a consistently high level. Especially for management companies that mainly serve wealthy tenants, meticulous attention to detail is the standard.
2. long-term vacancies left unattended
Be wary of cases where vacancies have continued for more than three months without any proposals for vacancy countermeasures or without effective countermeasures being implemented. The average vacancy period for rental housing in Japan is estimated to be 4-5 months, but this period could be significantly reduced with proactive measures taken by the management company.
Especially in the popular areas of Osaka City, such as Kita-ku (Umeda and Osaka Station area), Chuo-ku (Hommachi and Shinsaibashi), and Nishi-ku (Horie and Amerika-mura), the vacancy period can be minimized through proper management and aggressive recruitment activities. If more than 20% of the total number of units remain vacant, you should question the ability of the management company.
A good management company will have a deep understanding of the market characteristics of each area, and will develop and implement effective recruitment strategies tailored to the target demographic. For example, it is important to take an area-specific approach, for example, corporate demand in the Kita-ku, or a well-designed proposal for the younger generation in the Nishi-ku.
Inadequate response to rent arrears
Rent arrears are a more serious problem than vacancies. Signs such as slow or no reporting of the occurrence of arrears, sending demand letters, or moving slowly to legal proceedings indicate that there is a problem with the attitude of the management company.
Without early action, there is a risk that the amount of delinquent payments will snowball and eventually become uncollectible. While many delinquencies can be resolved through appropriate initial response by the management company, if left unattended, legal proceedings and forced evictions will be necessary, resulting in extra costs and time loss for the owner.
A management company with multiple locations and a wealth of experience in dealing with a diverse range of tenants will have accumulated know-how in dealing with delinquent payments, and should be able to deal with them quickly and effectively.
4. unclear accounting reports
Monthly reports that are unclear and lacking in detail, do not provide detailed breakdowns and estimates of repair expenses and other expenditures, and are late in submitting reports are serious problems that affect the credibility of the management company.
Behind opaque accounting reports, there is a possibility that fraudulent activities such as padding of repair expenses and unnecessary construction orders are hidden. The transparency of the Japanese real estate market has room for improvement from an international perspective, and owners themselves need to keep a close eye on the accounting details.
A management company that manages a reasonable number of units (say, 200 units) should be able to provide detailed reports and careful explanations to each and every owner. A size that is neither too large nor too small has the advantage of providing a certain level of efficiency and stability while maintaining the quality of personalized service.
5. high or unclear repair costs
Situations such as ordering expensive repair work without obtaining multiple estimates, excessive charges for minor repairs, and lack of detailed explanations of repair details and costs suggest that the management company may be intentionally placing expensive orders to affiliated companies.
Inappropriate repair costs can significantly damage the owner's earnings over the long term. In particular, many of the properties in Osaka are older, and proper maintenance and control of repair costs are essential to maintaining asset value.
It is important to choose a management company with high transparency in ordering repairs and construction work. Ideally, the management company should have the owner's best interest at heart and obtain multiple estimates to propose the best option.
6. frequent staff turnover
Situations such as multiple staff changes within a year, the new staff member not being aware of the property's status or past history, and no formal communication or proper handover when a staff member is changed indicate a problem with the management company's internal system.
Frequent personnel changes make it difficult to accurately assess property conditions and build a relationship of trust with owners, resulting in poor quality tenant relations and vacancy management. Inadequate handover results in the loss of important information, which undermines the continuity of management.
7. lack of communication
Signs of little or no property status reporting other than monthly reports, vague or delayed responses to questions, and reluctance to offer suggestions or request improvements from the owner are key factors that undermine the trust relationship between the owner and the management company.
For owners, especially those living far away, regular and clear reporting from the management company is the only way to understand the status of their properties, and the quality of information shared is directly related to the quality of management.
A good management company will go beyond mere reporting to provide valuable information, including analysis of market trends and future recommendations. A management company with multiple locations can also be expected to provide multifaceted advice on market comparisons and investment opportunities in each region.
8. increase in tenant complaints
An increase in complaints about insufficient cleaning of common areas, problems with noise or other tenants not being properly handled, or similar complaints from multiple tenants about faulty or broken equipment are clear signs that the service quality of the management company is declining.
An increase in complaints means a decline in tenant satisfaction, leading to an increase in the eviction rate. In markets such as Osaka where there are many competing properties, properties with low satisfaction levels will have difficulty securing tenants, leading to higher vacancy rates and lower rents.
9. inadequate legal obligations and procedures
Situations such as failure to notify tenants of the renewal of fixed-term lease contracts at the appropriate time, failure to comply with reporting obligations under the Rental Housing Management Business Law, and improper management of tenants' personal information can create major problems and risks in the future.
For example, a delay in the renewal notice of a fixed-term lease contract may affect the validity of the contract and make it difficult for the owner to exercise his/her rights. the Rental Housing Management Business Law, which came into effect in June 2021, created a registration system for management companies, further increasing the importance of legal compliance.
A management company that is legally knowledgeable and always up-to-date with the latest legal changes can minimize these risks. In particular, a management company that has offices in multiple regions, such as Tokyo, Osaka, and Yokohama, can utilize its extensive network to gather and respond to the latest information.
10. lack of adaptation to market trends
Failure to propose rent setting in line with changes in the surrounding rent market, failure to respond to changing tenant needs (e.g., Internet environment, delivery boxes, etc.), and continuing to use only old methods to address vacancies indicate that the management company is unable to adapt to changes in the market environment.
Japan's rental market is rapidly changing due to the declining birthrate, aging population, and changing work styles. In the Osaka market, in particular, there is a need to respond to diverse needs, such as inbound demand and accommodating foreign residents. A management company that cannot adapt to these changes will have difficulty maintaining occupancy rates and rent levels, leading to a decline in the competitiveness and profitability of properties.
A management company that responds flexibly to the changing times and keeps abreast of the latest market trends will always be able to make effective proposals and maintain or improve the competitiveness of the property.
Specific procedures for changing management companies in Osaka
1. confirmation of current contract and selection of new management company
The first step in changing management companies is to confirm the current contract. Particular attention should be paid to the following points
- Termination conditions (notice period, whether or not there is a penalty fee, etc.)
- Contract term and whether or not it is automatically renewed
- Special terms and conditions
After confirming the details of the contract, select a new management company by considering the following points
- Market rate of management fees: Generally around 5% of rent income, but can vary from 3-8% depending on the services provided
- Service contents: Rent collection, tenant relations, building management, complaint handling, etc.
- Additional costs: tenant recruitment fees, contract renewal fees, repair/replacement costs, cleaning costs, etc.
- Speed of response: Speed of response from inquiry to reply
- Track record and reputation: Management track record in the same size and area
It is important to consider not only low fees, but also the balance of services provided. Compare the total cost of the services, and select a company based on its ability to address vacancies, speed of response, and other factors. 2.
2. notice of termination and preparation for succession
Cancellation notice to the current management company must be given in writing within the time frame specified in the contract (generally 3 months in advance). The notice of termination should include the following information
- Date the contract was signed
- Applicable terms of termination (the relevant clause in the contract)
- Desired date of termination
- Owner's contact information
It is advisable to avoid the busy season (October to March) and to choose a relatively comfortable time for the handover, such as June to August. The handover period generally requires about 3 months.
There are three cancellation methods
- Agreed Termination: Termination in accordance with the conditions stipulated in the contract (common method)
- Agreed Termination: Termination by mutual agreement with the management company
- Immediate cancellation: When the management company is in default of its obligations (e.g., when there is a lot of trouble)
3. necessary documents and key transfer
The following documents and keys will be transferred between the new and old management companies:
Contract documents:
- Lease agreement (original kept by owner, copy provided to management company)
- Rent guarantee agreement
- Rent roll (list of tenants)
- Tenant screening application form (useful source of information in case of problems)
Documents related to rental management:
- Building management operation report
- Remodeling history report
- Statutory periodic inspection reports
Documents related to rent management:
- Rent income and expenditure reports
- Delinquency history management chart
Keys and fixtures:
- Keys to all rooms and common areas (including spare keys)
- Confirmation of the location and number of keys used
- Confirmation of key operation (possible deterioration over time)
- Inventory check of management equipment (e.g. light bulbs in common areas)
It is recommended that the owner himself/herself be present during the handover to ensure that all documents and keys are properly transferred. 4.
4. notification to tenants
Tenants must be notified in writing at least one month in advance of any change in management company. The notice should include the following information
- The fact and date of the change of management company
- Name, address, and contact information for the new management company
- Details of any change in rent payment address, if any
- Emergency contact information
In particular, if there is a change in the rent payee, it is advisable to notify the new management company and the owner jointly in order to prevent fraud. In addition, tenants should be advised to check with the old management company in case of any suspicious activity. Notification should be made in writing, and only correspondence by phone or e-mail should be avoided.
5. procedures related to guarantee companies and fire insurance
If you are using a rent guarantee company, you may not be able to take over the responsibility when the management company is changed. Contact the guarantee company in advance to confirm whether or not you can continue to use the company and the procedures to be followed.
Similarly, fire insurance may not be transferred due to a change in the management company, which may leave tenants without coverage. In cooperation with the new management company, check the status of fire insurance coverage for the tenants, and if necessary, promote its subscription.
Legal Considerations for Changing Management Companies in Osaka
Risk of breach of contract and response
If there is a penalty clause in the contract, it must be obeyed. If there is no clause in the contract, in principle there is no penalty. However, Article 651, Paragraph 2 of the Civil Code states that if the contract is terminated "at an unfavorable time," the company is obligated to compensate the other party for damages.
The scope of damages is limited to direct damages caused by the termination at an unfavorable time, and does not include lost income. For example, if a tenant cancels immediately after the management company has spent money on advertising to recruit tenants, it may be required to pay compensation for the amount equivalent to the advertising costs.
Precautions to Prevent Fraud
Frauds disguised as a change of management company are on the rise. For the owner's own protection and that of the tenants, the following measures should be taken:
Measures for tenants:
- Notification of a change of payee should be made jointly by the old and new management companies and the owner.
- Inform tenants to check with the old management company if they are suspicious.
- Notification should be made in writing, and not by phone or e-mail only.
Measures for owners:
- Confirm the reliability of the new management company in advance (track record, word of mouth, license number, etc.)
- Check the contents of the contract thoroughly before signing it.
- Periodically check the status of the handover and do not terminate the contract with the current management company until it is completely completed
Five Factors to Consider When Selecting a Management Company
When changing management companies, it is recommended that the following five factors be emphasized in the selection process. 1:
1. appropriate size and quality of personalized service
A management company of the right size, neither too large nor too small, will provide a certain level of efficiency and stability while maintaining the quality of individualized service. With a large company, the owner is just "one of the clients," but a company of the right size can carefully respond to each owner's individual situation and needs.
2. quality and expertise of human resources
Property management is a service performed by "people. Companies that view their human resources as their most important asset and provide ongoing education and training tend to offer higher quality services. By checking staff retention rates, professional certification rates, and the availability of ongoing training programs, you can judge the degree of investment in human resources by a management company. 3.
3. understanding of the local market
Even within Osaka City, each ward has different characteristics, so it is important to have a management strategy that understands the characteristics of each area. For example, it is necessary to differentiate services based on regional characteristics, for example, services that meet business demand in the Kita and Chuo wards, and emphasis on facilities and design for young people in the Nishi and Fukushima wards. A management company that is familiar with the area should be able to propose the best strategy for that area.
4. responsiveness to the needs of affluent owners
Wealthy owners expect attentive service tailored to their needs, not standardized services. Ideally, the management company should be meticulous in its handling of assets and personal information, and have a commitment to building trusting relationships. Choose a company that provides consistent quality of service and emphasizes privacy and security.
5. commitment to long-term partnerships
Property management is more about maintaining and enhancing long-term asset value than short-term results. It is important to choose a management company that has an attitude that emphasizes a long-term partnership with the owner rather than short-term profits. For example, a company that pursues the growth and enrichment of all those involved will value its relationship with owners equally.
In summary, changing to the best management company protects property values.
Changing property management companies can be a one-time hassle and costly, but if implemented at the right time, it can stabilize revenues and maintain or increase asset values. If you see more than one of the 10 signs described in this article, it is time to seriously consider changing management companies. In particular, the quality of tenant response and the effectiveness of vacancy countermeasures are the most important indicators of a management company's ability, and if there are problems with these, immediate consideration is necessary.
Osaka's real estate market is expected to develop further in the lead-up to the 2025 Expo. To make the most of this opportunity, it is essential to work with a management company that puts the owner's interests first and understands the local characteristics. By building a cooperative relationship with the right management company, you will be able to maximize the appeal of your real estate investment in Osaka.
