The most important part of your investment property is the tenant. They are the only source of revenue from the venture; rent revenue that, if the property was chosen well, will keep your ownership in the black.
In Japan, disputes favor the tenant over the landlord. This is why it is imperative that the screening process be carried out with the most due diligence possible.
The worst case scenario you can have is a deadbeat tenant. The eviction process is costly, time consuming and will take at least 6 months to 1 year to carry out legally; all the while the deadbeat tenant is living in your unit for free.Hence the lease application process has evolved to look more like a bank loan application with applicants needing to provide the following documents with their application:
Enter in what is called a guarantor company. A guarantor company is a third party insurance that acts in lieu of a personal guarantor. The guarantor company is a tenant borne expense with costs of coverage added to the fees needed to secure the contract.
Guarantor companies usually cover lost rent and restoration of the property to the original condition. In next week’s article I will go into more detail about the different guarantor companies’ coverage but for now it is important to know that the guarantor company is what makes the tenancy as risk free as possible.
They do their own screening, but they also rely heavily on the guarantor company’s screening too. Their screening as an insurance company is more comprehensive than what they have access to as property managers.
They screen the tenant for stable employment and whether they can afford the apartment or not but guarantor company screenings look further into whether the tenant has existing unpaid debt as well as criminal history of the applicant.
Despite the tenancy laws being heavily in favor of the tenant, due to the guarantor system Japan is actually one of the safest and most reliable rental markets in the world. That isn’t to say you won’t have problems with renters but no matter what happens, requiring tenants to apply for use of a guarantor company coupled with the Japanese tendency to save face in all financial transactions means you’ll have a safe and sound investment for years to come.
Ask me for any real estate investment in Japan
Koji Kitada Licensed real estate agent