Did you know that you can set up store for 100 yen per hour in a prime location in Ginza, which is renowned as an upscale location?
In real estate, it is common practice to lease a certain area to a single tenant. However, by reducing the size of the area leased and by popularizing a new method of leasing space on an hourly basis, it has become possible to have a store in a prime Ginza location for 100 yen per hour.
In this way, the real estate industry is constantly updating what is considered common sense, and investors are now able to invest in real estate in ways never before possible.
In this issue, we will provide detailed information on new real estate investments that are attracting attention.
We will also explain what real estate investment is in the first place, so please refer to this article even if you are not very knowledgeable about real estate investment.
What is real estate investment? Summary of basic information
How does real estate investment work?
First, we will provide basic information on real estate for those who are new to real estate investment.
What is real estate investment in the first place?
Speaking of investment, there are methods such as stocks, FX, and recently, virtual currency. And besides that, there is real estate investment, which has been a popular investment method for a long time.
The purpose of real estate investment is to earn profits by purchasing apartments, condominiums, buildings, etc., for rent income (income gain) or sale (capital gain).
Among these objectives, the most common is to generate investment income through rental income (income gain).
Real estate investment is largely backed by actual demand, and is said to be characterized by more stable profits over the long term than financial investments.
For this reason, more and more people are now starting to invest in real estate while working as company employees.
Definition of the word "investment
Many people may have a negative image when they hear the word "investment.
Of course, there are many people who have succeeded in investing, but there are also those who have failed.
The gambling element, which does not always guarantee success, is one of the reasons for the negative image of investing.
So what is investment in the first place?
The dictionary explains it as "to put out capital in order to increase one's wealth or to seek profit," or "to buy stocks and bonds with an eye to long-term market fluctuations and yields.
In other words, the ultimate goal is to invest funds to generate profits and increase capital.
And investing funds in real estate is what real estate investment is all about.
Profitability of Real Estate Investment
The mainstream of real estate investment is to earn investment profit from rental income from condominiums, apartments, and buildings. Although it depends on the location and area where the property is located, in areas with high residential demand, such as Tokyo, future profitability can be expected. It is important to note that this mainstream approach is based on renting out a fixed space (room) to a specific person for a specific contract period.
On the other hand, an idea that is becoming important when considering new real estate investment is the concept that "the shorter you rent out real estate, the smaller the rental, the more profitable it will be.
In fact, this concept is universal from the perspective of those who work in the real estate industry. Generally speaking, the more products (rooms/space) that can be rented out, the more profit opportunities and earning power there are.
In real estate investment, as with other products, it is easier to generate profit if you can rent out a property for an unlimited period of time or space.
What is the New Real Estate Investment?
So what are the new real estate investments that are now attracting attention?
Here are three typical examples of new real estate investment based on the traditional concept of real estate investment.
Conventional real estate investment concept
Profit from real estate investment comes from rental income (income gain). In other words, real estate investment is based on apartment, condominium, and building management.
For this reason, we will use real estate investment in rental income (income gain) as an example to explain why new real estate investment (short-term, small-lot rental) was thought to be difficult to realize from two perspectives.
Two-year rental contracts
In order to earn rental income (income gain) from real estate investment, one must first purchase or own an apartment, condominium, or building.
Then, most property owners sign a management contract with a rental management company, which coordinates and enters into a lease agreement between the property owner and the actual tenant. Since the rental management company usually handles the coordination of this contract exchange, the property owner usually does not have to deal with any particular complications.
However, most of the lease contracts that are concluded by the rental management company have a two-year contract term.
This has a considerable impact on the rental management company in terms of move-ins, move-outs, and administrative costs. The move-in/out administrative costs account for a significant portion of the corresponding costs (labor costs) within the rental management company.
For many rental management companies, the administrative costs incurred at move-ins and move-outs, which were designed to occur once every two years , will become more frequent as the contract term is shortened, and the management fees received from investors will no longer be sufficient to cover the costs. Therefore, the lease contract term was generally set at two years.
However, this contract term limit is not favorable to clients who only want to rent a room for a short period of time. This is because they are obligated to use the room for a minimum of two years.
In a high-demand location, the needs of tenants are not likely to cease, and there are many tenants who can afford to pay high rent for a short period of time, so it is more profitable to set the contract period shorter than two years in order to expand the range of demand.
Dealing with irregularities is difficult to systematize.
When investing in real estate, it is common to hire a rental management company to manage the property. The rental management company is responsible not only for collecting customers, collecting rent and reminding tenants of unpaid rent, patrolling and cleaning the property, but also for attending to tenants when they move out and proposing and implementing repairs.
Many rental management companies have systematized their internal processes so that they can meet the needs of as many clients as possible.
However, systemization also has its downsides, and there are not a few cases where it is difficult to respond flexibly because the system is optimized for a two-year lease contract, for example.
In common cases, it is known which department is in charge of general customer service, but when unsystematized service occurs, it is often unclear which department is in charge, which leads to a lengthy confirmation and approval process, or even difficulty in responding to the problem in the first place. As a result of the above, the borrower is often left with a short term loan.
As a result of the above, rental management companies are often unable to respond flexibly to irregular requests, such as a tenant wanting to rent for a short period of time, leading to lost opportunities for property owners to acquire customers.
Three Examples of New Real Estate Investment
In the past, real estate investment was generally conducted by setting a contract period of two years and recruiting fixed tenants.
It would not be an exaggeration to say that the new real estate investment scheme is the exact opposite of the conventional method, and the major common denominator is the business scheme of "renting out properties to an unspecified number of people only when necessary.
Here are three examples of new real estate investment.
(1) Rental Conference Rooms
The first example is renting out meeting rooms.
In recent years, the demand for rental meeting rooms has been increasing due to the movement to reform the way people work and the increase in the number of freelance workers. The most common examples of recent use of meeting rooms are conferences (use of outside meeting rooms due to the decrease in the number of internal meeting rooms), training, study sessions, and seminars. In addition, demand for rental meeting rooms is also increasing for purposes other than business as described above.
With the development of social networking services, the use of rental meeting rooms for private purposes such as workshops and off-site meetings is also increasing.
On the other hand, since rental meeting rooms are not rented out to a fixed number of people, there is no guarantee of a fixed income like rental income. However, it is said that if the location and facility conditions are right for having a rental meeting room, demand will not cease and reservations will continue to come in. In addition, if you attract customers mainly for the purpose of corporate use or regular workshops, you can expect repeat business and secure a steady stream of users.
(2) Private Residences and Monthly Apartments
The second example is private accommodations and monthly condominiums (short-term rental properties).
Homestay accommodations are used as lodging facilities for tourists, while monthly condominiums are used as living facilities.
Homestays have attracted particular attention in the past few years, so much so that illegal homestays operating without application have been caught. Private accommodations do not require a large amount of labor costs like hotels do, and it is said that profits can be expected as long as the room occupancy rate is 60% or higher.
In addition, the value of a house does not necessarily equal the value of a short-term rental property, and even properties that are inconvenient and not popular as houses can have value as short-term rental properties.
Although it is becoming less common these days, many foreign tourists do not mind inconvenient locations, such as being far from sightseeing spots or supermarkets, so it is said that they can easily select properties for private accommodations without worrying about the location of the property.
In addition, the Japanese market for monthly rental condominiums is not yet large, and compared to other markets, it is said to be a blue ocean.
The advantage for tenants is that they can rent an apartment for the length of time they wish to live in it, without being bound by penalties.
There are no contract term restrictions, no initial costs, and all the necessary furnishings are available.
(3) Rental space rental
The third example is space rental.
Rental space rental is a business model similar to that of rental meeting rooms.
A rental meeting room is just a meeting room, so it is a space with all the equipment necessary for business, but a rental space is said to be a highly flexible space that can be used for multiple purposes. Therefore, it is used not only for purposes such as workshops and off-site meetings, but also for limited-time stores and individual exhibitions.
Furthermore, instead of renting out the entire space, it is possible to rent out the amount of space used on an hourly basis.
Therefore, space can be provided for as little as several hundred to several thousand yen per hour.
This is a win-win business model where the renter does not waste money by renting as much space as needed by the hour, and the lessor can make a profit without wasting space.
Why is this new real estate investment possible?
The general trend in real estate investment has been to generate rental income through apartment and condominium management.
Why, then, have flexible real estate investments such as renting out meeting rooms, private accommodations, and event space become possible?
Behind this are the "development of ICT technology" and the "development of the sharing economy.
Here, we will explain each of them in detail.
Development of ICT Technology
ICT stands for information and communication technology.
The development of ICT technology has made it possible to obtain necessary information quickly and to lead a convenient life.
Here we will tell you about the development of ICT technology related to new real estate investment from three perspectives.
Evolution of Smartphones
The first is the evolution of smartphones.
Before smartphones, the main function of cell phones was as a means of communication. However, with the recent spread of smartphones, search functions that were previously only available on PCs are now available, and information can be easily obtained.
In the case of real estate, most people used to search for properties offline, and the general method was to visit the real estate office in person to select a property.
However, with the spread of smartphones, search platforms such as Google and Yahoo!
Furthermore, the appearance of apps has made it even easier to gather information. This has helped people who want to buy or rent property to make decisions faster.
This was not possible in the previous cell phone era.
The evolution of smartphones has made it easier for the real estate rental industry to match the demand of users with the supply of lenders, as everyone now has instant access to the information they want.
Expanding Awareness and Usage of Portal Sites
The second is the expansion of awareness and usage of portal sites.
This is due to the evolution of smartphones, which have made it easier to attract tenants and tenants through search functions and applications such as Google and Yahoo!
In real estate, there are many portal sites and apps for properties such as "Sumo," "Homes," and "At Home.
In addition, "Airbnb" is a portal site that boasts overwhelming recognition and usage rates for private accommodations, and with the growing demand for rental meeting rooms and rental spaces, portal sites specializing in these areas have also appeared.
These portal sites are so-called "matching" sites, acting as intermediaries to find properties and spaces that match the criteria.
As portal sites automatically attract customers, a hassle-free customer attraction mechanism is now in place.
The Evolution of Smart Locks
Third is the evolution of smart locks.
Smart locks are locks that do not require a key, but can be opened and closed via a smartphone app. In the case of a rental system, there is no benefit to giving out actual keys from a security point of view.
This is because there are many concerns such as the cost of lost keys, key management methods, and security.
Smart locks are a solution to these problems.
This facilitates key management and ensures security safety.
The property owner can also check the history of keys being opened and closed, so he or she can check the locks without going to the trouble of going to the site. This alone saves a great deal of time and effort in management, and allows the property to be rented out to an unspecified number of people.
Development of the Sharing Economy
The new real estate investment concept is categorized as the "sharing economy.
The sharing economy, also known as the "sharing economy," refers to the sharing of goods, services, and places owned by individuals and corporations via the Internet.
In real estate that offers space, the lessor can profit by offering a large number of goods (rooms and space), and the lessee can rent space only when needed, creating a win-win situation for both parties.
For example, "Airbnb" is an example of a highly successful sharing economy business for private accommodations and lodging.
Airbnb is a platform that matches hosts (property owners) and guests.
Launched in the United States in 2008, the service is now available in 191 countries around the world, including Japan.
Not only houses, but also apartments and condominiums are available for rent. The price per night is low, and even a luxurious house is quite affordable if divided among several people.
This service is popular among tourists because it is cheaper and more fully furnished than staying in a hotel.
Matching services such as "Airbnb" are now appearing in other areas besides lodging, including rental conference rooms and rental spaces.
As mentioned earlier in the development of ICT technology, the background to the development of the sharing economy is the growing awareness and use of smartphones and portal sites.
Three Advantages of Investing in Rental Meeting Rooms, Private Overnight Stay, and Rental Space
Investments in rental meeting rooms, private accommodations, and rental space, so-called sharing economy investments in real estate, have attracted particular attention in recent years.
What are the advantages of these real estate investments?
Here, we would like to explain the advantages from three perspectives.
(1) Low-cost investment
The first advantage is that investments can be made at low cost.
In the case of real estate investment in apartments, condominiums, and building management, it is common to purchase properties. This means that the initial cost is quite high, which is a hurdle to starting a real estate investment.
However, in the case of rental conference rooms and rental spaces, you can start by simply renting a room in an apartment or a floor of a tenant's building.
Therefore, the cost is considerably lower than the purchase price.
Another advantage is that since the space is not a fixed asset, you can simply terminate the rental contract if it should become unprofitable.
Furthermore, in the case of rental meeting rooms and rental space, the necessary equipment does not cost that much, so expenses and maintenance costs can also be kept low.
This is an advantage for those who have wanted to invest in real estate but were concerned about the costs involved.
(2) Age of the building does not matter
The second advantage is that the age of the building does not matter.
Age is the number of years that have passed since the building was constructed.
In a normal real estate investment, the age of the building is an important condition from the tenant's point of view, since the building is rented out for residential purposes.
Not only do tenants tend to prefer younger properties, but the value of the building itself is also affected by the age of the building.
Therefore, if the building is old, not only will the rent be lower than the market price, but even if you try to sell the property, it will be difficult to make enough profit to recover the initial cost.
In other words, there are many cases in which properties that are too old become negative assets that "cannot be sold," "tenants cannot be found," and "rent income is insufficient.
On the other hand, rental meeting rooms and rental spaces are said to be for temporary use, not for residential purposes. Therefore, the age of the building is not a factor.
Even in the case of private accommodations, even if the building is old, there is no problem if it is beautifully renovated like an old private house.
In other words, for real estate as a sharing economy investment, conditions such as location, facilities, and cleanliness are more important than the age of the property.
For example, if you already own an old property and have no use for it as a rental, you can expect the possibility of profit by adding facilities or renovating it.
(iii) High profitability
High profitability is the third advantage.
As we have already told you, real estate investment is "the more you rent in a short period of time, the more profit you can make. The smaller you lend, the more profitable." This is a universal concept that matches the idea that "the smaller you lend, the more profitable it is.
However, until now, it has been difficult to realize such investment methods in terms of attracting and managing customers, and the development of ICT technology has made it possible.
The reason for the high profitability is simply that the space can be rented out as needed to those who have a need.
Furthermore, by reducing the size of the space, it is now possible to offer space to customers who would otherwise have lost the opportunity to acquire it.
In other words, more products (rooms and spaces) to rent out simply means higher yields.
By renting out space on a short-term and smaller basis, it is easier to generate profit by renting out to a larger number of people through smooth rotation.
Three Disadvantages of Investing in Rental Meeting Rooms, Private Residences, and Rental Space
While these are attractive advantages that make it easy to enter the real estate investment market, there are also disadvantages.
Here we will discuss three disadvantages.
Since disadvantages are always present in investment, please be aware of the disadvantages so that you do not make the mistake of looking only at the positive aspects.
(1) Location conditions are severe.
The first disadvantage is that the location conditions are severe.
In the case of normal real estate investment, tenants tend to be easy to find if the conditions of the property are better than the location. Of course, there is nothing better than a good location, but even so, it can be said that location is not the primary consideration.
However, in the case of a rental meeting room, a location near a station with good access is required, and similarly for a rental space, a location near a station that can easily attract customers, etc. is ideal.
In the case of private accommodations, one must pay more attention to the surrounding location than to accessibility.
For example, if it is located in a quiet residential area, it is important to be aware that noise and other disturbances could disturb neighbors, and in the worst case, could even result in the suspension of operations.
Therefore, once you have decided on the purpose of your real estate investment, the first step is to find a property in a good location.
(2) It is time-consuming to operate.
The second disadvantage is that it is time-consuming to operate.
Daily cleaning, customer service, sales management, and other details are time-consuming.
While it is common for apartment and condominium owners to hire a management company to manage their properties, for rental meeting rooms and rental spaces, leaving the work to an agency may result in little or no profit.
On the other hand, if you neglect day-to-day management and complaints are made about dirty rooms and poor service, you will lose repeat customers and your profits will be affected.
First of all, while doing everything you can yourself, try to make it as hassle-free as possible by introducing a management system.
(iii) Unstable earnings
The third disadvantage is that earnings are not stable.
In the case of real estate investment based on rent income, as long as there are tenants, stable monthly income can be earned.
On the other hand, rental conference rooms are a business model whereby rooms are rented on an hourly basis to an unspecified number of people, so unless you attract a large number of customers, you will not be able to make a profit.
In the same way, private accommodations cannot always secure guests, so it is necessary to raise accommodation fees during periods when demand is high, and other creative ways to manage the business.
In other words, attracting guests is the most important factor in stabilizing revenue.
If you fail to attract guests, you will end up in a cycle of "no guests = more empty rooms/space = no revenue.
Renting out a large number of products (rooms/spaces) does not lead to stable earnings unless you can secure that many customers.
Therefore, it is important to operate the space in a variety of creative ways, such as utilizing platforms to attract customers, preparing facilities to ensure repeat customers, and improving services.
Conclusion
In this issue, we reported on "rental meeting rooms," "private accommodations," and "rental space" with sharing economy schemes as new real estate investments.
Until now, real estate investment has generally been based on rental income from apartment, condominium, and building management, followed by the sale of properties.
However, with the development of ICT technology and the background of the sharing economy attracting attention, a new real estate investment method has emerged, which is to "rent a small space to many people for a short period of time.
And there are many investors who actually embody the scheme of "the more you rent in a short period of time and the smaller you rent, the more profitable it is.
At present, the demand for rental meeting rooms and rental spaces tends to be on the rise, as remote work is now being introduced. Therefore, we can expect the market to expand in size in the future.
In addition, even those who have been reluctant to invest in real estate due to the high initial cost can start with a new real estate investment method with less risk due to the initial cost.
However, real estate investment is always risky. Therefore, it is important to understand the advantages and disadvantages.
Please refer to the information presented in this article to understand the new real estate investment concept and the advantages and disadvantages of the sharing economy.
