The interior finishes of rental properties become dated as buildings age, and when they no longer match tenant needs, occupancy rates decline. In this article, we explain in detail the key points for interior renovation costs, timelines, and contractor selection.
Why are interior renovation works necessary for rental properties?
There are two main reasons interior renovation works become necessary: “repairing worn facilities” and “responding to tenant needs.”
To repair deterioration in the rental property
Even minor damage can require large-scale work if it is left unattended, leading to significant expense. Carrying out interior renovation work as soon as an issue is found is a basic principle of rental property management. Interior renovation work is also effective for attracting new tenants.
To align with tenant needs
Floor plan and interior design trends change over time. Today, 1LDK is the mainstream layout, and properties with strong design appeal are popular. If there is no difference in the interior, the property will be compared on rent or location and can be drawn into price competition. Improve the design quality and differentiate the property from competing listings.
How are “useful life” and depreciation related in interior renovation work?
Interior renovation costs can be recorded as depreciable assets. It is important to understand the correct accounting treatment.
What is useful life?
Useful life refers to the standard period during which a depreciable asset can generally be used. The accounting treatment of recognizing the cost as an expense each year over that period is called “depreciation.”
Points to note about depreciation
Interior renovation work is divided into two types: “improvement work” and “restoration work.”
- Improvement work: Work that increases asset value. Capital expenditures are recorded as “fixed assets,” while repair costs are recorded as “necessary expenses”
- Restoration work: Work that returns the property to its original condition. In principle, this is recorded as “repair expense” under necessary expenses
If the classification is unclear, the cost may be recorded as a necessary expense if the amount is under 600,000 yen or about 10% or less of the acquisition price.
How should you decide on a floor plan to increase occupancy rates?
Here are the key points when changing a floor plan as part of interior renovation work.
Start with the target tenant segment
For single occupants, studio units of 25㎡ or more are popular. Since the COVID-19 period, more single occupants have also placed greater emphasis on design quality. For families, 2LDK units with an open kitchen are popular.
Start with the location
If the property is close to a station, layouts for single occupants who value commuting convenience are a good fit. In suburban areas, layouts for family households are more suitable.
Examples of popular floor plans
- Smooth household traffic flow: Shorten the path from the entrance to the kitchen and from the washing machine to the drying area
- Separate bathroom and toilet: Combined units tend to be avoided, and investment in water-related facilities has high priority
- Adequate storage space: It is important to have the right amount of storage in the right locations
What are the typical costs and timelines for interior renovation work?
Replacing wallpaper
The typical lifespan is about 5 to 10 years. The cost is around 50,000 to 100,000 yen for a 6-tatami studio, and the work can be completed in one day.
| Wallpaper type | Unit price (per 1㎡) | Features |
|---|---|---|
| Mass-production wallpaper | 650 to 1,200 yen | Affordable and widely used |
| 1000-grade wallpaper | 1,000 to 1,700 yen | Wide range of designs, high functionality |
Flooring and tatami
Flooring typically lasts 10 to 15 years, while tatami lasts 10 to 20 years.
- Replacement method: 90,000 to 180,000 yen (6 tatami). This also allows the condition of the subfloor to be checked
- Overlay method: 60,000 to 140,000 yen (6 tatami). Effective for shortening the construction period and reducing costs
- Replacing tatami: 70,000 to 200,000 yen. Re-facing only costs 30,000 to 120,000 yen
Typical renovation period
A standard interior renovation usually takes about 1 to 3 weeks. As soon as the move-out date is known, preparations should begin immediately to shorten the construction period.
What is the ABC classification for interior renovation work?
The ABC classification divides, by type of work, who bears the cost and who has the authority to designate the contractor.
| Classification | Applicable work | Contractor designation | Cost burden |
|---|---|---|---|
| Type A work | Common areas (elevators, fire protection equipment, etc.) | Landlord | Landlord |
| Type B work | Work inside a tenant space that affects the building | Landlord | Tenant |
| Type C work | Interior finishes, wiring, etc. in exclusive-use areas | Tenant | Tenant |
What points should you keep in mind when choosing a renovation contractor?
Set a budget in advance
Clarify the purpose of the renovation, set priorities and a budget, and proceed in a planned manner.
Choose a contractor experienced in apartment and condominium renovations
Choosing a contractor with extensive experience renovating rental properties makes it more likely that you will receive proposals that match tenant needs.
Get quotes from multiple companies
Even for the same scope, quoted amounts vary by company. If a quote is unusually low, check whether there is a risk of additional work later.
Confirm the thoroughness of the site inspection
If the inspection is superficial, repair points may be missed and additional work may arise later.
Frequently Asked Questions (FAQ)
Which interior renovation work offers the best cost performance?
Replacing wallpaper is one of the most cost-effective options because it is relatively affordable and significantly changes the impression of the room.
Can interior renovation work be done while a tenant is still living there?
Replacing wallpaper, flooring, and water-related fixtures is generally done after move-out. Work in common areas can be carried out while tenants are still in residence.
How much does a full renovation cost?
A full renovation including floor plan changes typically costs around 2 to 4 million yen for a studio unit and 4 to 8 million yen for a family-type unit.
How long is the depreciation period for interior renovation work?
If the interior is integrated with the building, it follows the building’s useful life. Equipment-related items have their own useful lives, so it is best to confirm with the property management company or a tax accountant.
