Real estate management involves risks. In order to conduct stable real estate management, it is necessary to know in advance how to control risks and what methods are available to avoid risks.

This time, we will introduce risks in real estate management and how to avoid them.

Concept of risk in real estate management

When faced with risks in real estate management, there are limits to what can be done as countermeasures after the fact.
Especially when a disaster causes major damage, the future business situation will greatly change depending on how well you take precautions.
The first step to stable management is to take proactive measures as much as possible, rather than thinking about countermeasures after something happens.

Now, let's take a closer look at what risks there are.

Vacancy risk

The biggest risk in real estate management is vacancy risk. This is a risk that is directly linked to monthly income, and when the vacancy rate increases, countermeasures must be considered immediately.
The countermeasures you take will depend on the cause of the increase in vacancies. The vacancy rate will almost never improve if left unchecked, so first consider the following causes.

Changes in rent market

The market rent in the surrounding area may drop before you know it, and you may not be able to re-recruit at the same rent after you move out. You can check the market rent of the property you are looking for on search sites, etc., so it is necessary to check whether there is a discrepancy between the rent of the property you own and the market price.

Changes in the flow of people due to redevelopment, etc.

The flow of people may change due to reasons such as the redevelopment of a neighboring station or a change to an express train stop due to timetable revisions.
The popularity of the area where your property is located will decrease relatively, and the oversupply of properties will become noticeable. Competition to lower rents begins, and as a result, asking rents no longer match the market price.
There is little hope that the flow of people will return, so it is necessary to detect changes in the environment as soon as possible and take measures such as reducing rents and renovating.

aging of buildings

It is undeniable that as buildings age, vacancies become more likely to occur.
However, it is possible to fill vacancies through proper management, cleaning, and renovation. By planning your finances in advance, you will be able to respond flexibly by saving extra funds so that you can update or renovate equipment as it ages.

Tenant trouble risk

Tenant trouble is also one of the typical real estate management risks. Problems will be resolved primarily with the support of the management company, but if resolution is prolonged, the vacancy rate will increase.

It is important to agree with the management company in advance on how to deal with the situation.

Risk of rent arrears

The risk of rent arrears due to a decline in the tenant's creditworthiness is a risk that can occur in any property.
Ultimately, you will be asked to cancel the contract and move out, but there remains a risk that you will not be able to collect rent during that time.
Risks can be avoided through rent guarantees and sublease from guarantee companies, but it is necessary to carefully examine whether the amount of the guarantee fee is appropriate.

Noise trouble risk

Typical noise problems include noise caused by gatherings in the middle of the night in student apartments and condominiums, and floor noise from children running around in families.

If you live in an apartment complex, this is not that rare, so it would be a good idea to consider how to deal with it, such as creating a response manual in advance. Management companies may have different views on the extent to which owners and management companies should be involved. This should also be mutually confirmed in advance.

Accident property risk

We cannot deny the risk of the property becoming an accident property due to the suicide of a tenant, etc.
Since it is necessary to explain in the important matter that the property is an accident property, it may be difficult to fill the vacancies. Sometimes you may have to reduce your rent.

Building repair risk

Risks related to building repairs tend to result in large expenses and can sometimes become a risk that affects the survival of the business.
If a building needs to be repaired due to sudden reasons such as a large-scale disaster, immediate action is required as it affects the safety of the residents.

In addition, by factoring in the costs of updating equipment and periodic building repairs into your financial plan and conducting repairs and updates in a planned manner, you can avoid increasing repair risks.

Disaster risks

Recently, damage has been occurring not only due to earthquakes but also due to heavy rain and floods.
Even in urban areas far from rivers, a certain level of vigilance is necessary as there is a risk of inland flooding.

Avoiding risks from large-scale disasters starts with researching whether a location is susceptible to disasters before investing. Hazard maps, past flood damage, and information on the risk of ground subsidence and ground liquefaction should be collected to analyze disaster risk and use this information to make investment decisions.
However, you still need to be prepared for disasters, so consider taking out property insurance just in case.

Equipment renewal risk

Especially when purchasing a used property, it may be necessary to update attached equipment within a short period of time.

Additionally, equipment may break down unexpectedly. If the cost of updating equipment significantly exceeds the plan, your cash flow will be in the red.
By making a plan according to the standard equipment renewal period, you can predict future expenditures and deal with sudden renewals without panic.

How to avoid and deal with real estate management risks

There are both predictable and unpredictable real estate management risks. The extent of losses can be predicted to a certain extent regarding vacancy risk and building deterioration risk, so these should be factored into your financial plan.

On the other hand, it is difficult to predict when and how much damage will occur due to wind and flood damage such as typhoons, large-scale fires, and large earthquakes. It would be a good idea to consider dealing with such risks through insurance and guarantees.

A generous financial plan

In real estate management, a generous financial plan and management that emphasizes cash flow are the most important risk countermeasures.
Make a financial plan based on the premise that there are certain risks, such as vacancy risk and repair risk.

It is important to set aside funds that may be spent in the future and avoid spending them unnecessarily.

Insurance/guarantee participation

Residents themselves take out fire insurance for damage to their property due to fire or natural disasters, but owners themselves take out fire insurance for damage to owner-owned parts such as damage to the building frame, roof, or water leakage.

Additional special provisions include liability insurance that compensates for injuries to third parties caused by the building, compensation insurance for rent reduction in the event of an accident, and insurance for the period during which the building must be repaired due to fire or storm/flood damage. There are various types of compensation available, such as rent guarantee insurance, so you may want to consider these as well.

Carry out real estate management with a reliable partner

For stable real estate management, advice from experts who have experience in many cases is necessary.
It is a good idea to take measures before risks materialize, such as consulting with a financial planner or tax accountant about cash flow and tax-related matters, or having your building regularly inspected and repairing damage while it is still small. It is important.

Managing real estate with the support of experts is a shortcut to success.