For owners struggling to fill vacancies in aging rental properties, renovation is a strong solution. By fully refreshing the living space, a property can become more attractive to tenants, helping reduce vacancy risk and secure stable income. In this article, we explain the advantages and disadvantages of renovated rental properties from an owner's perspective, along with the key points to consider when selecting a property and carrying out renovations.
What is a renovated rental property, and why is it attracting attention now?
A renovated rental property is a rental unit whose living value has been enhanced through large-scale improvements to an existing building. Its key feature is that it can deliver high added value while keeping costs under control, because it makes use of the existing structure instead of rebuilding from scratch.
As construction costs continue to rise, the price of newly built properties keeps increasing. For tenants, the appeal of renovated rentals is growing because they can "rent interiors and facilities comparable to a new build at a lower rent than a new property." For owners as well, renovation is drawing attention as a differentiation strategy that can maximize returns.
What are the benefits for owners?
Renovated rental properties offer many advantages to owners.
Lower vacancy risk
When a property's appeal improves, it becomes easier to secure tenants. The ability to lower vacancy rates even as a building ages is directly tied to stable cash flow.
Maintaining or increasing rent levels
Compared with unrenovated properties of the same age, renovated units can often command higher rents. This helps prevent rent declines associated with aging and protects income.
Preserving asset value
Regular renovation helps restrain both physical and functional deterioration of a building, supporting the long-term preservation of asset value. It may also work in the owner's favor at the time of a future sale.
Expanding the target tenant base
Renovated properties with strong design appeal are more likely to attract design-conscious singles and DINKS households, allowing owners to reach different tenant segments than before.
What are the disadvantages and points of caution with renovated rentals?
While the benefits are substantial, there are also risks that owners should understand.
Issues related to earthquake-resistance standards
Buildings completed before June 1981 may not meet the current earthquake-resistance standards, which are designed for seismic intensity levels of 6 to 7. Before renovating, it is important to conduct a seismic assessment and carry out reinforcement work where necessary in order to protect tenant safety and preserve asset value.
Risk of reduced sound insulation
Depending on the scope of the renovation, such as changing to wood flooring or removing walls and built-in storage, sound insulation may decline. In multifamily housing, noise issues involving upstairs, downstairs, or neighboring units can significantly reduce tenant satisfaction, so designs should incorporate appropriate soundproofing measures.
Risk of aging pipes and wet-area systems
If pipes run through structural walls or foundation sections, there are cases where they cannot be replaced during renovation. If only the interior finishes are renewed while old piping remains, problems such as odors or water leaks may arise later. Owners should therefore confirm the condition of the water supply and drainage pipes before renovating.
What points should owners focus on when evaluating a property and its renovation scope?
Check earthquake-resistance standards based on the completion year
The current Building Standards Act came into force in June 1981. If a property was completed in or after that month, it complies with the current seismic standards. Even for older properties, there is no issue if records show that seismic reinforcement work has already been completed. Be sure to review construction certificates and inspection records.
Inspect the condition of kitchens, bathrooms, and plumbing in detail during viewings
Water pressure, drainage flow, humidity, mold, and the material and age of the piping should all be checked carefully. Avoid focusing only on attractive finishes. Giving proper weight to the condition of the unseen parts is what helps prevent long-term problems.
Estimate the balance between renovation cost and rent-uplift effect
It is important to quantify both the investment required for renovation and the expected effects on rent increases and vacancy-rate improvement. This is especially true when planning renovation together with major repair costs such as waterproofing work. Decisions should be made only after estimating the total investment and the payback period.
Related reading
- Rethinking the conventional wisdom of rental management: Three differentiation strategies to move beyond a "single-brand" approach and maximize returns
- What is "leasing management" that determines success or failure in rental management? Strategies for vacancy control and revenue maximization
- How to choose a rental property management company | Seven points owners should prioritize
Frequently Asked Questions (FAQ)
What is a typical renovation budget?
As a general benchmark, a full renovation of an entire unit typically costs around JPY 2 million to JPY 5 million per unit, while a partial renovation focused only on kitchens, bathrooms, and other wet areas often ranges from JPY 500,000 to JPY 1.5 million. Actual costs vary widely depending on the building's age, size, and scope of work.
How much can rent be increased after renovation?
In many cases, a premium of roughly 10% to 20% over unrenovated properties of the same age in the same area is achievable. For properties with stronger design appeal or higher-grade facilities, even greater differentiation may be possible.
How should owners handle the vacancy period during renovation?
Because rental income stops during the construction period, it is important to prepare a realistic construction schedule and a sound financing plan. It is effective to work backward from the peak leasing season of January through March so that construction is completed at the right time.
Is renovation still worthwhile for older properties?
If the location is strong, older properties can still generate sufficient demand after renovation. However, owners should first confirm the condition of the seismic structure and the piping. If large-scale reinforcement is required, the cost-effectiveness should be assessed carefully.
Is it possible to renovate while a tenant is still occupying the property?
As a general rule, renovation is carried out after the tenant has moved out. "Turnover renovation," meaning renovation performed immediately after vacancy, is generally recommended because it is easier to plan and easier to control from a cost perspective.
