How to Succeed in Apartment Management

Apartment management remains a popular form of real estate investment because it offers the potential for stable rental income. However, success depends on building solid foundational knowledge and preparing a disciplined plan.

In this article, we provide a comprehensive overview of the advantages and disadvantages of apartment management, the knowledge required for success, the management process, and the available management methods.

What is apartment management?

Apartment management is a form of real estate investment in which you own an apartment building and earn rental income. Compared with condominium investment, it is easier to begin with limited capital, which makes it suitable for first-time real estate investors as well. If you do not manage the property full time, it is common to outsource operations to a property management company.

What are the advantages of successful apartment management?

The six primary benefits of success are outlined below.

Securing a stable source of income

If full occupancy is achieved, monthly rental income can be generated, and once the loan is fully repaid, it can become a substantial source of profit. If management is outsourced, it is also possible to balance ownership with your main profession.

An alternative life insurance function

By enrolling in group credit life insurance, the apartment building and its rental income can remain with your family even in the event of an emergency.

Tax benefits

In addition to reductions in fixed asset tax and city planning tax, you may also benefit from income tax savings through depreciation expenses.

Inheritance tax planning

Because rental properties are generally assessed at a lower value for inheritance tax purposes than owner-occupied properties, converting cash assets into an apartment building can help reduce inheritance tax.

Financing at relatively low interest rates

Because newly built apartment buildings have a long remaining useful life, lenders can often offer longer loan terms, which helps reduce the monthly repayment burden.

Diversification of vacancy risk

Unlike investing in a single studio condominium, owning one entire apartment building means having multiple units, so the risk of every unit being vacant at the same time is extremely low and risk can be diversified efficiently.

What disadvantages should you understand in apartment management?

In addition to the benefits, it is important to understand the following risks.

Risk of rent delinquency

To address situations in which tenants fall behind on rent, it is important to select a management company that provides comprehensive rent delinquency guarantees.

Risk of declining rents and vacancy

Your revenue plan should account for possible rent declines, and you should carry out repairs and upgrades that keep the property attractive even as it ages so that its value can be maintained.

Risk of management company insolvency

Although uncommon, the insolvency of a management company can lead to more vacancies and interruptions in rental income. Choosing a management company with a stable business foundation is therefore essential.

Risk of natural disasters

You can minimize risk by reviewing hazard maps and obtaining appropriate insurance coverage.

What are the seven keys to successful apartment management?

1. Research the location：Thoroughly assess the surrounding area and the needs of your target tenants
2. Select the management company carefully：Confirm responsiveness and problem-solving capability in advance
3. Prepare sufficient equity capital：As a guideline, plan for a 10% down payment for new construction and 20% for existing properties
4. Gather information thoroughly：Understand the property condition and local characteristics firsthand
5. Optimize the initial investment：Strategically introduce popular amenities such as high-speed internet and parcel lockers
6. Make use of professional expertise：Seek advice from builders and real estate firms on layouts and equipment
7. Build a long-term financial plan：Factor in major repair costs and rent fluctuations over a 10 to 15 year horizon

What is the process and cost structure of apartment management?

Steps before operations begin

1. Select a construction company and develop the design plan
2. Submit the building confirmation application and begin construction
3. Start tenant recruitment (3 to 6 months before completion)
4. Screen tenants, sign contracts, and hand over the units

Estimated costs

• Main construction cost（70 to 80% of the total）：wooden structure JPY 760,000 to 980,000 per tsubo, steel structure JPY 830,000 to 1,050,000 per tsubo, reinforced concrete JPY 900,000 to 1,200,000 per tsubo
• Additional construction costs：approximately 20% of the main construction cost
• Miscellaneous expenses：approximately 5% of the main construction cost (for 8 units, a rough guide is JPY 1 million to 2 million)

What types of apartment management methods are available?

Outsourced management

This is the most common approach, and the typical management fee is about 5% of rent. It allows owners to delegate a wide range of responsibilities, from tenant recruitment to complaint handling.

Self-management

While it can reduce management costs, it requires the owner to handle all issues and repair arrangements personally, which demands both time and expertise.

Master lease (sublease)

This method provides fixed income regardless of vacancy, but fees are high, and the guaranteed amount is typically reviewed every two years.

Frequently Asked Questions (FAQ)

How much does it cost to get started with apartment management?

The amount depends on the structure and scale, but in addition to the main construction cost, you should expect additional construction costs (about 20% of the main construction cost) and miscellaneous expenses (about 5%). For 8 units, miscellaneous expenses alone are generally estimated at JPY 1 million to 2 million.

Can apartment management be done as a side business?

If management is outsourced to a professional company, it is entirely possible to balance it with your primary job. Because everything from tenant recruitment to complaint handling can be delegated, the owner’s burden can be kept to a minimum.

What is the most important point when choosing a management company?

Fast response capability when problems occur and the availability of rent delinquency guarantees are especially important. Compare several companies carefully and review their track record and service scope.