What is key money and how does it differ from deposits?

What is key money and how does it differ from deposits? The characteristics of key money- free properties. 

In Japan, you are often asked to pay “key money” when you first rent real estate. However, this is not a requirement depending on the property. Some properties require you to pay a “deposit” in addition to key money. In this article, we will discuss the difference between key money, deposits and key money-free properties. 

What is “key money”?

Key money is money you pay to the landlord of the property you are trying to rent, as a gesture of “gratitude”. You may wonder why you are required to pay this, given that you are also going to pay the rent. 

Originally, key money was paid by the parent of a child who is going to start living on their own, to ask the landlord to take care of them if anything should happen. In recent years, it has become the norm for anyone to pay a certain amount upon moving in. 

The difference between key money and deposits 

When you rent property, you may be required to pay a deposit in addition to, or separate from, key money. The difference being that deposits are usually reimbursed when you move out. Deposits are used as compensation in case rent is unpaid or to restore the site to its original state once you leave the property. The leftover amount is returned after that. 

On the other hand, key money is not reimbursed. If you are looking to lower your initial cost of moving into a property, you can choose a key money-free property. 

The market price of key money

The market price of key money is one month’s worth of rent. However, in some cases, key money can be half or two to three month’s worth of rent. For example, if rent is 60,000 yen and key money is one month’s worth of rent, you will pay 120,000 yen as the initial cost. In addition, you may be charged for brokerage fee, deposit and the cost of moving. 
How the price of key money is determined
Let’s look at the factors that influence the price of key money. 

The age of the property 

Properties that are new attract more residents, so key money tends to be set at a higher price. On the other hand, old properties do not attract as many residents so key money is set at a lower price. However, if the property is old, but has been renovated and is predicted to attract many residents, the price of key money tends to be set at one month’s worth of rent. 

The surrounding environment

Properties that have good access to public transport and are surrounded by good living environments attract more residents, and therefore have higher key money prices. On the other hand, properties that can only be accessed if you have a vehicle attract less residents, and therefore tend to set the price lower. 

Properties that do no require key money 

Some properties do not require you to pay key money. You may be worried that there might be an issue with the property. 

In some cases, old properties and properties that have issues in location or environment have low key money prices. However, just because a property does not charge key money, it does not mean that the property is undesirable. 

Usually, landlords will try their best to avoid vacancies. If vacancies prolonge, they lose income. In order to prevent this, the first solution landlords take is to take away key money all together. 

If the landlord wants to prevent the vacancy of their property, even popular properties can be key money-free. In this way, the landlord’s intention is reflected on key money. 

How to pay key money

If you are renting through a real estate agent, you will pay your key money through them. Otherwise, you will pay the landlord directly. Some agents accept credit card payment, but cash and bank transfer are also common methods. 

If you are unable to pay key money upfront, consider credit card payment. Choosing credit card payment allows more time to prepare the amount. 

Conclusion

The price of key money reflects the popularity of the property. You should be mindful that some properties set key money at a high price despite the age of the building or bad living conditions. In addition, if you are hesitating to rent a property because of the price of key money, you can try negotiating with the agency or the landlord.
It is important to take into account these factors when choosing a property to rent.