A list of expenses related to renting a property

A list of expenses related to renting a property | Be prepared for initial costs

When you make a contract to rent a property, you will have various expenses to pay. In some cases, you may be charged for a few months’ worths of rent in advance. It is a good idea to prepare for these expenses in advance because it is possible that the property gets taken by someone else during the time you take to prepare for them. In this article, we will discuss the kinds of initial costs you should expect to pay when you make a rent contract.

Deposit

A deposit is paid to the renter when you sign a contract with them. The aim of a deposit are as follows.

・Compensation for overdue rent
・Restoration expenses upon departure of renter

A deposit is not an expense that you must pay, so the unused amount will be returned to you. For example, if you pay a deposit of 300,000 yen out of which 100,000 yen is used for restoration, and 100,00 yen is used for overdue rent, you will be reimbursed 100,000 yen upon departure of the property.

The market price for deposits is 1 to 3 months’ worth of rent. Some properties do not require a deposit to rent, but you will be charged for restoration expenses when you move out. In addition to moving expenses, the cost can be substantial.

Key money

Key money is also paid to the renter when signing a contract with them. Different from a deposit, key money is not reimbursed. The market price is typically 1 to 2 months’ worth of rent.

The lower the price of key money, the lower the initial cost. But you must be careful of how old the property is, how accessible it is by public transport and so on. Some properties set their key money price to zero because it is an unpopular property.

Pre-rent

Pre-rent is a system that requires you to pay rent for the month you are moving in. For example, if you sign the contract in October and move into the property in November, you will have to pay for November’s rent in advance. If you move in in the middle of the month, such as on November 10th, you will be charged for the number of days left in that month.

For example, if the rent is 60,000 yen and that month has 30 days, 60,000÷30days=2,000yen/day. If you move in on the 10th, you will pay 2,000yen×10days=20,000yen.

Brokerage fee

If you made a contract using a real estate agent, you must pay them a brokerage fee. The upper limit of a brokerage fee is determined by law to be half of one month’s rent. However, if the renter agrees, it can be brought up to one month’s rent.

Brokerage fee is usually one month’s worth of rent. So it is important to keep that in mind when you prepare for initial costs.

Disaster insurance

Disaster insurance compensates for damages caused to the property or your belongings by fire, lightning, wind, or rain. When you rent a property, you will also be required to sign a contact for fire insurance. The market price for fire insurance is 15,000 yen for a one-person household and 20,000 yen for a 2 to 4 person household.

You may look for an insurance company on your own instead of signing with one that is provided by the real estate agent or the property lender. However, you might be required to show paperwork to prove your contract with them.

Rent insurance

Rent insurance is paid to a rent insurance company. A rent insurance company compensates for overdue rent in the place of the renter. It also serves as a guarantor for the renter and makes it easier for renters to find properties.

Rent insurance fee is typically rent plus half a month’s worth of common service expenses (expenses used to manage common areas within an apartment building). Some properties require you to sign with a rent insurance company in order to move in, so it is important to check beforehand. In some cases, if you have a guarantor, you may not be required to use a rent insurance company.

Key exchange fee

In most cases, the renter must cover the cost of key exchange, but you should check your contract to make sure. The market price is 10,000 to 25,000 yen. However, some keys may cost more.

An example of initial costs

Pre-rent: 100,000 yen
Key money: 100,000 yen
Deposit: 100,000 yen
Fire insurance: 20,000 yen
Rent insurance: 50,000 yen
Key exchange: 20,000 yen

In the above example, the total of the initial cost of moving into a rented property is 390,000 yen. In addition to that, you may need to pay a moving company or buy new furniture and electronics. In which case, you may need anywhere between 500,000 to 700,000 yen as the initial cost. The lower the rent, the lower the key money, deposit, and insurance.

Some properties do not require a deposit or key money, but some of those properties may be so because they are unpopular. It is important to go check the property for yourself before signing the contract.

Conclusion

When you sign a contract to rent a property, you will need to pay for various things such as a deposit, key money, pre-rent, rent insurance, and fire insurance. It is important to prepare for these expenses in advance. When you choose a property that is low in initial cost, be aware of how old the property is, its access to public transport, surrounding environment, and safety.