the Inns and Hotels Act, the National Strategic Special Zones Act, and the Private Lodging Business Act
What is "Private Lodging"?
Following yesterday, we will explain about Private Lodging in Japan. Below is a comparison table, so please check what is different according to each act.
Although "Private Lodging" is not defined clearly in the laws and regulations, it refers to the provision of accommodation service to travelers and other users by utilizing all or part of housing (condominiums, including detached housing and apartments) is generally called "Private Lodging." In recent years, there has been a rapid development of businesses matching those who want to lend a vacant room for a short period via the Internet with those who hope to find accommodation.
Expectations for Private Lodging are also rising in Japan as well, from the viewpoint of community activation, such as responding to the various lodging needs of the rapidly increasing numbers of international visitors to Japan, and effectively utilizing the increasing number of vacant houses due to an aging society with fewer children.
On the other hand, since there are people conducting Private Lodging without approval, though they fall under the hotel business that requires approval under the Inns and Hotels Act, it is necessary to handle these situations by setting rules, giving consideration to the securement of public health, such as to prevent the spread of infectious diseases, and to prevent trouble with community residents.
Based on these issues, the Private Lodging Business Act (Act No. 65 of 2017) has become effective in June 2017 for disseminating proper Private Lodging services under certain rules.
Starting with the enforcement of the Private Lodging Business Act from June 2018, those who conduct Private Lodging in Japan need to select a method from the following.
1.Obtain permission in respect to the Inns and Hotels Act (Act No. 138 of 1948)
2.Obtain authorization in respect to the National Strategic Special Zones Act (Act No. 107 of 2013) (Special Zone Private Lodging)
3.Register in respect to the Private Lodging Business Act
Comparison of the overview on these systems is as follows.
Inns and Hotels Act
The Inns and Hotels Act is a law set forth for the purpose of contributing to improve public health and people's lives through promoting the provision of services that cope with enhancement and diversification of the user's demands in the hotel business field, while planning to develop sound hotel businesses by securing appropriate operation in the hotel business.
The Hotel Business is defined as "a business that lodges a person for a fee" and "lodging" is stipulated as "to use a facility by using bedding" in this law. In order to operate this hotel business, it is stipulated that obtaining permission in accordance with the Inns and Hotels Act is required.
In addition,the hotel business differs from the room renting business, including apartments, concerning the following points. (1) Responsibility on maintaining and managing the cleanliness of the facility, including the rooms for lodgers, is universally accepted to be on the operator, considering from point of facility management and operation form in general, and (2) the room of the facility that the lodger uses is not the principal place of residence for that person.
Even if housing are used for lodging, obtaining permission in accordance with the Inns and Hotels Act is required, since conducting a "Private Lodging Business" that provides lodging repeatedly for a fee basically falls under the hotel business. There are several types of permission in accordance with the Inns and Hotels Act, however, obtaining permission for operating simple lodging is common if conducting a private lodging business without registration.
(Hotel Business Classification)
1. Hotel Operation (*)
Operation, where a facility mainly consisting of western style structure and equipment is established, and accommodates it to a person for a fee.
2. Inn Operation (*)
Operation, where a facility mainly consisting of Japanese style structure and equipment is established, and accommodates it to a person for a fee.
3. Common Lodging House Operation
Operation, where a facility consisting of structure and equipment is established for several persons to share, and accommodates it to a person for a fee. (pension, youth hotel, etc.)
4. Boarding House Operation
Operation, where a facility is established, and accommodates it to a person for a fee on a monthly basis.
(*) Hotel operation and inn operation will be integrated as "inn and hotel operation" from June 15, 2018 as "operation, where a facility is established, and accommodates it to a person for a fee excluding simple lodging operation and boarding house operation".
The structure equipment of the facility to be used needs to meet the standard upon obtaining permission. In addition, application to the prefectural (including the city that establishes a health center and special zone) health center, where the facility (housing) expected to conduct the Private Lodging service is located, is required.
Permission standard for simple lodging (standard on minimum floor area) was relieved in April, 2016 and obtaining its permission has become easier than before.
Cases Not Applicable to the Inns and Hotels Act
There are some cases that do not apply to the Inns and Hotels Act, even if they are providing lodging services using housing. Some examples are as follows.
■In case of providing one's house in accordance with a local government's request when an event is held
(Government Notification in July 2015)
⇒ To solve the shortage of lodging facilities in an area, when lodging facilities run short for an event that is expected to attract many customers, event-private-lodging enables travelers to stay in facilities which are originally not lodging facilities. The event-private-lodging is expected to be effective from the viewpoint of local creation through tourism, as it leads to promoting interaction between the people of the area and travelers, as well as expanding tourism consumption in the area.
■Short-term residence to vacant house properties with the purpose of buying and selling or leasing to a person wishing to move
(Government Notification in March 2016)
The Inns and Hotels Act will not apply to a short-term residence to a vacant house property from the assumption that it will be bought, sold or leased to a person wishing to move, if all of the following measures are taken.
(1) The activity of using and utilizing the vacant property is placed in accordance with the Act on Special Measures on Promoting Countermeasures on Vacant Houses, etc. (Act No. 127 of 2014), and the subject of the facility is specified in a local public entity, such as when the local public entity that is to conduct such activity has registered the vacant property.
(2) A person who is to purchase or lease the subject of the facility can be confirmed by the local public entity that such person truly has the will to purchase or lease such facility for long term.
(3) It can be confirmed that the actual condition of the facility is secured from many and unspecified persons using it repeatedly and continuously, through taking the measures written in (1) and (2).
■In cases where a regional council and other entities commissioned from a local public entity does not receive value equivalent to the lodging fee from the lodger, but only receives value equivalent to counseling related to such hands-on experience
(Government Notification in March 2016)
In a case where a regional council or other entities commissioned from a local public entity does not receive value equivalent to lodging fee from the lodger, but only receives value equivalent to guidance related to hands-on experiences, expenses paid by a regional council or other entities to farmers and other persons that provide hands-on experience services for educational trips that are accompanied by hands-on experiences does not come under the Inns and Hotels Act, as such fees do not apply to lodging fees.
Please contact your nearest health center to ask whether any matter comes under the Inns and Hotels Act.
Is real estate management properly done?
When managing real estate, it is necessary to confirm that the rent has been properly paid. Many lessees pay rent by the deadline, but some of them leave it until reminder. Even in the real estate managed by our company, one or two properties are delinquent every month, and we notify the lessee at the beginning of the month.
Normally, when they receive the reminder, lessees will be paid the rent within a few days. However, there are cases where payment is not made until waiting for half a month, so the competence of the management company is questioned. If there is a guarantor company, we will remind them via the guarantor company. In some cases, it may be more effective for lessees to reminder through the property management company than to contact the landlord or management company.
As a method to prevent rent delinquency, if there is even one delinquency, it is necessary to check the payment frequently from the next time and create an environment where the reminder is notified without delay when the next delinquency occurs. If the rent still get delinquency often, or if we think lessee isn't capable for the payment, we'll ask their joint guarantor to ask the rent payment instead of lessee.
After three months of delinquency, we will proceed with the story of leaving. Under Japan's Leased Land and House Lease Law, it is not possible to cancel a lease contract by simply not paying the rent, but we can start the procedure. We will notify lessee by registered mail and explore the direction of exit from all angles.
Leasing is based on an agreement between the lessor and the lessee, and payment of rent is the fulfillment of the contract. The management company manages properly, receives rent, manages the building, and manages the tenants appropriately. Let's eliminate arrears in rent with proper management.
You can still do DIY in a Rental. What is the Key to Actually Doing DIY?
DIY stands for "Do It Yourself," which means to make your own furniture and decorations. DIY is popular among women as well as men because it allows you to change a room into a space of your choice on a low budget, but many people may have the image that DIY is difficult to do in a rental house. However, with a little ingenuity, it is possible to do DIY in a rental property. In this article, we will introduce in detail the points to keep in mind when doing a do-it-yourself project in a rental house, and actual DIY examples, with explanations.
You can DIY in a rental house.
It is possible to enjoy DIY in a rental home with some creativity. For example, if the furniture is already in use, it belongs to you, so you can do whatever you want with it without damaging the room. Just remaking the furniture you have on hand can change the atmosphere of the room, and one of the appealing aspects of DIY is that you can change it to make it more user-friendly for you.
If you want to change the wallpaper, there are easy to use wall stickers that you can put up and peel off, easy to try out such as masking tape, or even peel-off wallpaper that can be used on the entire wall. There are also wallpaper sheets that can be painted over. These products can be restored to their original state without damaging the wallpaper when they are removed, so they can be used in a rental house without any worries.
In addition, if you have an inset floor mat, it has an absorbent backing and can change the look of your floor simply by placing it without the use of glue. Cushioned floor mats are convenient for protecting the floor at the same time. They come in a variety of patterns and materials and can be changed to suit your taste and mood.
In addition, there are also tile sheets that can be used around the water, glass film for windows, and many other products on the market depending on the purpose and location.
What to Look for When Doing a DIY Project in a Rental House
There are a few things to keep in mind when it comes to actually doing a DIY project. The first thing you want to pay attention to in order to do a DIY project in a rental house is that the work should be done to the extent that it can be restored to its original condition. Restoration means that the property must be returned to its original condition when you move out. If you damage a wall or floor in the process of DIY, you may have to pay for the repair, so please be careful.
It is also important to abide by the management rules of the apartment or condominium and carry out the work.
Be sure to check with your landlord before doing any DIY work, including the matter of restoration of the original condition. During DIY construction, you may end up causing problems for neighbors with noise and other disturbances. If you are in a housing complex, one way to avoid this problem is to use a material cutting service at a home improvement center or a workshop for buyers. You can also rent tools and equipment here, and you can work without worrying about dust and noise. If you work at home, make sure you do it at a sensible time.
So what are some of the actual DIY's you can do in your rental home? Here are a few examples to get you started.
If you want to make a big change in the atmosphere of a room, you can redecorate the walls. If you don't use strong adhesives, you can redecorate your walls without damaging them. As we touched on a little earlier, decorating your walls with peel-off wall stickers or masking tape is an easy way to redecorate. There are many different types of stickers available for use on a point instead of the whole wall, so you can make a big difference in the impression you make.
If you want to redecorate an entire wall, use peel-off wallpaper. It can change the entire wall, which can significantly change the atmosphere of the room. If you want to apply paint directly, you can achieve this by using peel-off wallpaper sheets for paint. Other popular options are to put up styrofoam walling like bricks or to install thin boards as temporary walls to create your own arrangement.
Floor and Balcony
One of the most popular floor redecorating solutions is a built-in floor mat. There are many different types of floor mats available, including flooring mats and carpet mats, which you can easily redecorate simply by placing them on the floor. Many of them have a non-slip surface on the back of the floor mat, which prevents them from sliding around in your daily life and is easy to remove. Some of those floor mats are washable, so they are clean and easy to use. Another type of floor mat is the sheet type, which can be cut into any size and placed on the floor without any gaps.
There are also balcony floor coverings that can be placed on balconies for easy redecoration. There are many different types of floor coverings available, with natural wood and artificial grass being the most popular. There are also fences that you can simply assemble, and some of them can be used to decorate with pots for gardening and other purposes.
The kitchen area is a popular DIY project, especially when it comes to efficiency and functionality. When doing a DIY project, be sure to plan ahead to improve the usability of your kitchen. You can also use propped-up shelves or propping rods to provide more storage or a workbench. Water-resistant, peel-off stickers and wallpaper are great for redecorating kitchen walls and shelves. Not only do they change the look and feel of your kitchen, but they also prevent grease splatters and stains from sticking to your walls.
Rental properties for DIY
With more and more people doing DIY, a new type of rental property called a do-it-yourself lease has begun to emerge. These properties are based on the premise that the tenant is free to do their own DIY, and in exchange for the tenant paying for the work, the rent is cheaper than usual, among other advantages. Whether the work is done by a contractor or by the tenant themselves, you can rent the property without any problems. This is a great option for those who want to do some serious DIY work without having to worry about damaging the walls and floors.
Choose a property that matches your level of DIY.
It is possible to do some DIY in a rental property with some creativity, but it has to be done within a set scope. If you want to make a big change in the image of a room or if you want to try a real DIY project, you have the option of choosing a DIY-ready property. To get the home of your dreams, you can choose a property that suits your level of motivation and DIY skills.
With more of these properties on the market, there are more options for investment properties from the investor's side. For example, it is possible to keep costs down on the side of investors by renting out properties on a do-it-yourself basis with minimal infrastructure such as water, electricity, gas, and leaks necessary for life, and other repairs and replacements.
It is no longer necessary to rent out the property in a clean condition, and at rents slightly lower than the market rate, you can invest in real estate with a large investment cost down.
This type of investment should be quoted separately from the investment to be made to rent out as a regular rental and as a minimum investment for a do-it-yourself property. If you are interested in this type of investment, please contact us for more information.
What should be notified to tenants after purchasing a property under lease?
In purchasing real estate, you may purchase real estate that is already leased as an investment property. The real estate purchase and sale is called sales with the burden of a lease, and an existing lease contract is taken over as it is. In the explanation of important matters received when real estate is purchased, it becomes "exclusive use by a third party - yes" and "relation of right - tenant (lease)". Here, after purchasing real estate, we will explain what kind of notice is made to a tenant.
What is the purpose of the notice?
First, the purpose of notifying the lessee of a change of ownership is to notify the lessee of a change of title and a change in the person to whom rent is to be paid.
The lease is a contract between the original lessor and the current lessee. Therefore, a notice is required that the new owner has succeeded to the lessor's position. Normally, it is sufficient to make a notice of the change of lessor signed and sealed by all three parties, without making a new lease contract again.
Also, when the owner changes, the account to which rent is to be paid will change. The lessee pays monthly rent to the lessor, but if the management company is the same as the existing company, the rent will be paid to the same company. In many cases, the management company will also change and will notify the tenant of the change in the account to which rent is to be paid.
To prepare a notice signed and sealed by the new lessor and the old lessor.
The lessee is notified of the change of ownership immediately after the property transaction is completed. The notice of change should be stamped by both the old lessor and the new lessor, and the lessee should be notified.
If you receive a notice from another party pretending to be the lessor, it may be a fraud. The management company or lessor will contact the lessee in advance. Giving legitimate notice after the transaction is complete is the safest way to eliminate the tenant's concerns.
In the notice of change, we will prepare an informational letter with the address, name and seal of the old and new lessor, the date of the assignment of rights, and a statement that we would like the lessee to sign and seal the lease.
The letter will include an indication of the subject property and a description of the terms of the lease agreement. By indicating the real estate, you can confirm that the real estate to be notified is correct.
In addition, it can be confirmed whether there is a difference in the interpretation of both parties by stating the terms and conditions of the lease contract that we had a copy of beforehand. In this way, trouble later on can be avoided. It is the following details.
Real Estate Indications
- Housing number
- Total floor area
The Lease Agreement
- Property Name
- Contract Period
- Common Service Fee
- Water payment
- Security Deposit, Deposit / Deduction amount and Refund
- Contract Renewal fees, Renewal procedures fees, etc.
The trouble at the time of the contract renewal and the leaving can be prevented by having the above contents described and the tenant confirm it. Since it leads to the trouble afterwards if these small points are neglected, let's prepare the document firmly at the time of a real estate transaction.
Once the real estate transaction is complete, notify the tenant as soon as possible and have them sign and seal the confirmation. Be sure to date these documents so that you can look back and check them later when you need to confirm them. If you use a guarantor company, the procedure of the change of the lessor is carried out to the guarantor company, too. Check the necessary documents in advance and be prepared to get the old lessor's signature at the completion of the transaction.
These procedures are designed to avoid problems later on, in order to buy an investment property and definitely get the rent. If you are considering the purchase of investment property, please contact us for more information.
What is the risk of lessee and market?
We explained that the rent income from real estate involves four risks: vacancy, early cancellation, rent decline, and delinquency. This time, we will explain what kind of risks are involved in terms of the lessee's attributes, type, and market.
Relationship between lessee attributes and risk
The tenant attributes of real estate for rent can be broadly classified into three categories: “residential”, “office”, and “store”. In real estate investment, the magnitude of risk varies depending on the lessee's attributes. We will explain the risks associated with attributes from the perspective of stable income.
The above is a general comparison that does not take individual circumstances into consideration. Stores and offices are subject to the risks of withdrawal and relocation, depending on location conditions and economic conditions. In addition, if there are vacancies, we must search for a store or company that meets the conditions, taking into consideration the location and other factors. Therefore, it can generally take some time to secure a new tenant. Naturally, residences are affected by location and economy, and there is a risk of vacancy, but since it is essential as a home of life, new lessee can be found unless rent conditions such as rent are set unreasonably. The cycle of finding new tenant is generally shorter than in offices and stores. From this point of view, by the stability of rent income, it can be said that the risk of residential is lower than stores and offices.
Relationship between type of lessee and risk
As mentioned above, the risk of income differs depending on the lessee's attributes, but in addition, the risk level also changes depending on the “business type”, “scale” and “quality” of the lessee in each attribute.
Again, this is just a general idea, and of course it depends on the individual case. As for offices, it is important to consider how the company is generating stable income and the occupation where stable income can be obtained. In terms of stores, restaurants are generally said to be at higher risk from the perspective of fire risk. In this way, the risk varies depending on the attributes and quality of the lessee. In other words, cultivate a sense of risk by imagining the possibility of obtaining stable income and the different probabilities.
Supply and demand and risk of real estate for rent (Condominiums for sale also become competitors)
If the rent obtained from the investment target real estate is higher than the market price in the neighborhood, there is a high possibility that the rent will have to be reduced at the same level as the market price at the timing of contract renewal or replacement of the borrower. Therefore, even if the yield at the time of property purchase is high, the rent may be reduced in the future due to replacement of the lessee or negotiations for rent reduction, etc., and as a result, the yield may decrease.
Number of rental units and risk (the more rental units, the smaller the risk)
The degree of risk also changes depending on the number of real estate units you invest. If the number of rented units is large, the ratio of one rent to the total rent is small, so even if one vacant unit is vacant, the impact on rent income will be small. Conversely, if the number of rented units is small, the ratio of one rent to the total rent will be large, so if vacant, the impact on rent income will be large. In other words, the impact of vacancy per unit increases as the number of rental units decreases, and the impact decreases as the number of units increases. As shown in the table below, even if the investment amount and the yield are both the same, the income and yield when there are vacant rooms will differ due to the difference in the number of rental units.
We explained the risk related to income in two times, the last time and this time, but it does not mean that the risk is bad because it is high or low. If the risk is high, you can buy cheaply and get a high yield accordingly. In addition, if the risk is low, the yield will inevitably be low, so you may not be able to expect high profits, but stable operation may be possible. First of all, it is important to understand the risks and develop a sense and image that you can make an investment commensurate with the risks.
When investing in real estate, it is important to understand the intuition of the land, the unique circumstances of the real estate, demand, and major trends. However, starting with a small investment and gradually increasing it, you will be able to accumulate know-how and select the appropriate property from various investment targets. We also accept questions related to investment, so please feel free to contact us.
Arrows International Realty Corp.