More owners are renting out the condominiums they purchased because of job transfers, overseas relocation, or similar circumstances. While this allows them to earn rental income without selling, starting a rental business requires accurate knowledge of taxes, management, and costs. This article explains the benefits of renting out a condominium and four key points owners should understand.
What are the benefits of renting out a condominium?
The main benefits of putting your condominium up for rent are the following four points.
- You can earn rental income: If expected rental income exceeds maintenance costs such as fixed asset tax and fire insurance premiums, the property can function as an asset. Condominiums for sale are often high in quality, and in some cases a higher rent can be set.
- Preservation of asset value: If a unit remains vacant, poor ventilation and evaporated trap water can cause bad odors and mold, leading to building deterioration. Having tenants in place naturally supports ongoing upkeep and management.
- No repurchase costs: When you return after a job transfer, you can move back into your home without incurring costs such as brokerage fees or registration and license tax.
- Tax advantages: Rental income is treated as real estate income, and expenses such as fixed asset tax, loan interest, and management fees can be recorded as deductible costs. If you choose a blue tax return, you may also qualify for a deduction of up to 650,000 yen.
What four points should you keep in mind when renting out a condominium?
1. Understand the types of taxes and how they are calculated
Rental income is subject to real estate income tax (income tax and resident tax). However, the taxable amount is only the difference between “gross income minus necessary expenses.” Necessary expenses include management fees, repair costs, depreciation, loan interest, and fixed asset tax. Because this income is taxed comprehensively together with salary income, owners should be careful in cases where the tax rate may rise.
2. Prepare for upfront costs before renting out the unit
The following costs arise before welcoming a tenant.
- Restoration costs such as house cleaning and wallpaper replacement
- Equipment inspection and repair costs (such as air conditioners and water heaters)
- Management company outsourcing fees (around 3% to 5% of rent)
By choosing appropriate procurement routes, you can manage upfront costs properly.
3. Filing a tax return is required every year
Even if you are a salaried employee, filing a tax return is mandatory when your real estate income exceeds 200,000 yen per year. The filing period runs from February 16 to March 15 of the following year. Because a blue tax return allows a special deduction of up to 650,000 yen, we recommend applying early.
4. Choose a reliable management company
When selecting a management company, focus closely on the management fee (as a guide, 3% to 5% of rent) and its ability to respond to problems. Even if the fee is low, poor service reduces tenant satisfaction and increases vacancy risk. Compare several companies and choose based on the balance between service quality and cost.
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Frequently Asked Questions (FAQ)
- Q. Can I rent out my condominium while I still have a home loan?
- A. In principle, a home loan is intended for owner occupancy, so you need to consult your financial institution and obtain approval before renting out the property. If you rent it out without permission, you may be asked to repay the loan in full immediately.
- Q. Can I handle management myself?
- A. Yes, it is possible. However, the scope of work is broad, including tenant communication, rent collection, and arranging repairs, and it becomes especially difficult when you live far away. We strongly recommend outsourcing to a professional management company.
- Q. Do I need to file a tax return if I rent out the property?
- A. If your real estate income exceeds 200,000 yen per year, you need to file a tax return. This also applies to salaried employees.
- Q. What should I do if a problem arises with a tenant during the rental period?
- A. The management company will handle the initial response. Issues such as rent arrears and restoration disputes are addressed through the management company and an attorney.
