Pros and Cons of Renting Out Your Home | Process and Key Precautions

If you will be away from your home for an extended period due to a job transfer or an overseas assignment, renting it out instead of selling it is one option to consider. Turning your home into a rental property allows you to earn rental income while keeping the option to return in the future. In this article, we explain the advantages and disadvantages of renting out your home, the practical steps involved, and the key points to keep in mind.

When should you consider renting out your home?

The best time to rent out your home is when you or your family will be living elsewhere temporarily. This option is often considered in cases like the following.

When you are assigned to a distant location or posted overseas

If you are transferred to a distant location or assigned overseas and expect to return in the future, renting out your home is often a better option than selling it. It allows you to keep the property while earning rental income, protecting your asset and providing financial benefits at the same time.

When your family circumstances change due to caregiving or raising children

If you temporarily move in with family because of caregiving responsibilities or childbirth, renting out your vacant home may help reduce the burden of your home loan payments. If there is a possibility that you will return in the future, renting is often a more rational choice than selling.

When you inherit your family home

If you inherit your family home after the passing of your parents or their move into a care facility and do not plan to live there right away, you can make use of it as a rental property. This lets you preserve a home filled with memories while generating income and expanding your options for future use.

When you want to live somewhere else for only a limited time

Temporary moves such as a long stay overseas or rural living can also be a good time to rent out your home. Rental income can help cover living costs during that period, while giving you peace of mind that you can eventually return to the home you know well.

What are the benefits of turning your home into a rental property?

The biggest advantage of renting out your home is that it allows you to combine ongoing rental income with the preservation of your asset.

You can earn ongoing rental income

The biggest advantage of renting out your home is the ability to receive stable rental income every month. Even if you still have home loan payments remaining, the rental income may help offset them.

You do not have to give up your asset

If you sell your home, you give it up. If you rent it out, you can continue to own it. You may also be able to move back in later or pass it on to your children.

It can help prevent the building from deteriorating

If a house is left vacant, it can deteriorate quickly. With tenants in place, regular ventilation and cleaning are more likely to take place, which helps maintain the condition of the building.

Certain expenses may provide tax benefits

Repair costs, property management fees, andhome loan interestmay be recorded as expenses, which can help reduce income tax.

You may be able to live in it again after your transfer ends

If you use a fixed-term lease, you can reliably regain possession of your home once the contract period ends. This is an effective approach when your return date is already known.

What are the drawbacks of turning your home into a rental property?

While there are advantages, renting out your home also involves risks and administrative effort. It is important to understand them in advance and prepare appropriate measures.

Initial costs are required

To offer your home as a rental property, you will need upfront costs for cleaning, renovation, and equipment repairs. These costs tend to be higher for older properties.

There is a risk of tenant-related problems

Risks related to tenants, such as late rent payments, noise issues, and disputes over restoring the property to its original condition at move-out, cannot be completely avoided. Choosing a reliablerental property management companyis important.

There is a vacancy risk

Depending on the location and condition of the property, it may take time to find a tenant. During any vacancy period, you will need to cover loan repayments and maintenance costs yourself.

You may lose eligibility for the home loan tax deduction

If you rent out your home, it may no longer qualify for the home loan tax deduction. Check with your lender or tax adviser in advance.

You will need to file a tax return

Once rental income is generated, you will need to file a tax return as real estate income. The additional work involved in recording expenses and maintaining books is also a drawback.

What is the process for turning your home into a rental property?

When you actually rent out your home, it is common to proceed through the following steps. Prepare in a planned and orderly way.

Step 1: Consult a real estate company and request an appraisal

Start by consulting a real estate company and requesting a rental appraisal for your property. It is advisable to ask multiple companies and compare their proposals.

Step 2: Decide on the management method

Decide whether you will manage the property yourself or outsource management. If it will be difficult to handle matters during your transfer, consider professional management or a sublease agreement.

Step 3: Renovation and cleaning

To make a good impression on prospective tenants, carry out any necessary renovation work and house cleaning. The scope should be appropriate and based on cost-effectiveness.

Step 4: Find tenants and sign the contract

Recruit tenants through a real estate company, complete the screening process, and then sign the lease agreement. Be sure to choose after understanding the difference between a fixed-term lease and a standard lease.

What should you keep in mind when renting out your home?

To prevent problems and manage the property smoothly, pay attention to the following points.

Check the terms of your home loan agreement

A home loan is generally intended for owner-occupied housing. If you plan to rent out the property, prior consultation with your lender is essential. Renting it out without notice may constitute a breach of contract.

Choose the contract type carefully

Under a standard lease, tenant rights are strong, and it can be difficult to terminate the contract for the owner's convenience. If you expect to return, choosing a fixed-term lease can help ensure the property is returned to you at the end of the term.

Review your fire and liability insurance

Fire insurance for owner-occupied homes may not cover rental properties. Consider switching to insurance designed for rental use and also review whether to take outfacility liability insurance.

Frequently Asked Questions (FAQ)

Q. What happens to my home loan if I rent out my house?

Because a home loan is generally intended for owner occupancy, you need to consult your lender in advance if you plan to rent out the property. Depending on the situation, you may be asked to refinance into an investment loan.

Q. What is the difference between a fixed-term lease and a standard lease?

A fixed-term lease ends definitively when the lease period expires. Under a standard lease, the tenant has renewal rights, and termination for the owner's convenience requires valid grounds.

Q. How should rental management be handled during a job transfer?

It is common to outsource the work to a management company. They can handle tenant communication and maintenance arrangements on your behalf, allowing you to manage the property with peace of mind even from a distance.

Q. How much are the initial costs when renting out a home?

The amount depends on the condition of the property, but as a guideline, cleaning costs are typically around 50,000 to 100,000 yen, and minor renovations may cost roughly 200,000 to 500,000 yen. Older properties may require even more.