Rental Business in Japan
Common Misconceptions and the Actual Structure
Many overseas buyers become interested in rental businesses in Japan, particularly short-term rentals such as Airbnb, commonly known as minpaku.
However, the structure and practical operation of rental businesses in Japan often differ from what many overseas investors initially expect.
These differences are not limited to legal systems or administrative procedures. They also involve business practices, market structures, and cultural expectations that influence how projects actually operate.
Because of this, projects that appear simple at first can become far more complex in practice.
This article explains the basic structure of rental businesses in Japan and highlights common misunderstandings frequently observed among overseas investors.
1. Misconceptions Commonly Held by Overseas Investors
Overseas investors who consider starting a rental business in Japan often hold assumptions such as the following.The assumptions below are frequently seen among overseas buyers considering rental businesses in Japan.
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The basic system is simply divided into short-term rentals and long-term rentals based on the length of stay.
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As long as you check the zoning regulations, everything should be fine.
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Minpaku is easy to start and highly profitable.
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Consulting specialists such as administrative scriveners or architects can wait until after purchasing the property.
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Choosing a location near tourist attractions or train stations guarantees success.
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Once the property is purchased and renovated, the rest will work out somehow.
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If you ask a real estate broker, they will find a property suitable for minpaku or hotel operations.
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Real estate in Japan is inexpensive, making it possible to achieve high returns with low initial investment.
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As long as language barriers, such as English support, are addressed, there will be no major problems.
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If similar businesses exist nearby, you can simply do the same thing.
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Methods or experience from your own country will work the same way in Japan.
Many overseas buyers attempt to enter the Japanese rental market based on assumptions like these. In reality, however, rental businesses in Japan are complex and far less straightforward than they may appear.
Note: In practice, every project requires individual investigation and professional judgment. The content of this article is intended as a general overview. For an actual project, individual consultation and professional investigation are essential.
2. Rental Businesses in Japan Are Defined by Use
In Japan, rental businesses are not primarily categorized by the length of stay, such as short-term or long-term rentals. Instead, the system is fundamentally based on use and operational reality.
The first major distinction is whether the property is used as a residential base for daily living or for other purposes. From this point, further classifications are defined by use.
For each category, regulations determine the permitted zoning area, the registered building use, the contract structure, licensing or registration requirements, and facility conditions.
“Building use” refers to the classification defined under the Building Standards Act. Zoning regulations apply to land under the City Planning Act, but restrictions on the use of buildings themselves are defined by the Building Standards Act.
In principle, the registered building use must match the actual use. Therefore, in some cases a formal change of building use is required. Depending on factors such as building size, the procedure may not always be necessary, but this must be confirmed for each property and intended use.
Examples of major rental business categories include the following.
3. Residential Base Rentals
Examples:
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Standard long-term rental (one year or more)
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Fixed-term lease contracts between one month and one year (often called monthly rentals)
Characteristics:
These are residential lease contracts governed by the Land and Building Lease Act, and the intended use is residential living.
The property is expected to function as a base for everyday life, not as accommodation for travelers.
Even when a rental contract is longer than one month, if authorities determine that the property is not being used as a residential base, the operation may violate the Ryokan Business Act.
4. Lodging Use (Accommodation-Based Use)
Examples:
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Accommodation businesses such as hotels and ryokan (licensed under the Ryokan Business Act)
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Minpaku (short-term accommodation), including:
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Simple lodging facilities licensed under the Ryokan Business Act
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Private lodging businesses under the Private Lodging Business Act (limited to 180 operating days per year)
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Special Zone private lodging under the National Strategic Special Zones Act
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Boarding houses (lodging with meals)
Characteristics:
These are treated as accommodation services and are regulated under the Ryokan Business Act or the Private Lodging Business Act(commonly known as the minpaku law).
These laws define numerous requirements regarding health regulations, fire safety systems, building compliance, operational management obligations, and permitted operating days.
Local governments may also impose additional rules and restrictions.
Under the Ryokan Business Act, accommodation businesses are further divided into categories such as hotel/ryokan operations, simple lodging, and boarding houses, each with its own standards and review requirements.
5. Non-Accommodation Rental Uses
Examples:
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Coworking spaces
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Event spaces
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Photo studios
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Pop-up retail spaces
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Restaurants and food businesses
Characteristics:
This category can be broadly described as space rental businesses. In recent years, markets such as coworking spaces and other rental space businesses have grown significantly.
In many cases, formal licensing is not required. However, depending on the intended use, building use changes under the Building Standards Act and fire safety equipment requirements may become important considerations.
A business registration notification is also required when starting operations.
Because these uses are considered commercial utilization of the building, they generally cannot be combined with minpaku operations.
6. Specialists Involved in Rental Businesses
When operating a rental business using buildings in Japan, multiple specialists are typically involved.
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Administrative scrivener
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Real estate broker
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Architect
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Renovation contractor or construction company
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Property management company
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Registered minpaku management company
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Judicial scrivener
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Tax accountant
Depending on the situation, additional professionals may also be involved.
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Bilingual lawyer
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Consultants, project managers, or liaisons
The roles of these professionals are outlined below.
Administrative Scrivener
Administrative scriveners handle administrative procedures and licensing applications. Their work includes minpaku registration under the Private Lodging Business Act, applications for Ryokan Business Act licenses for accommodation businesses such as hotels, ryokan, and guesthouses, and confirmation of local government ordinances and operational rules.
Because accommodation businesses require careful regulatory review in advance, early consultation with an administrative scrivener is strongly recommended.
Real Estate Broker
A broker is a professional who manages the real estate transaction process. Their work includes introducing properties, coordinating the purchase contract, explaining important matters, and guiding the transaction through to closing.
However, brokers typically do not conduct market research for business planning, regulatory investigations for specific business models, building use change analysis under the Building Standards Act, or renovation cost estimates.
The scope of a broker’s role is one of the most common misunderstandings among overseas buyers.
Architect
Architects specialize in the legal compliance, renovation, and modification of buildings. They evaluate compliance with the Building Standards Act, consider potential changes in building use, and provide guidance on renovation methods and estimated costs.
Architects are also essential when dealing with fire safety equipment requirements, structural considerations, and long-term maintenance planning.
In particular, kominka (traditional houses) often require early involvement from an architect due to their unique structure and the fact that many were built before the modern Building Standards Act.
Renovation Contractors and Builders
Renovation contractors and construction companies carry out repair and renovation work.
However, renovation companies do not always employ licensed architects. Since many real estate projects require an architect for building use changes or building confirmation procedures, confirming the presence of an architect within the team is highly important from both a quality and risk management perspective.
Judicial Scrivener
Judicial scriveners handle property registration procedures, including ownership transfer registration and mortgage registration at the Legal Affairs Bureau.
Tax Accountant
Tax accountants manage tax compliance.
Income generated from business activities in Japan requires tax reporting and payment in Japan regardless of the owner’s country of residence. Property owners must also pay fixed asset tax and potentially other taxes.
For overseas owners who do not speak Japanese and live abroad, handling Japanese tax administration independently is generally unrealistic, making tax accountant support almost essential.
Property Management Company
Property management companies manage rental properties and tenant operations under the Land and Building Lease Act.
There are many types of management companies handling apartments, houses, commercial buildings, and other properties. Large apartment buildings and commercial properties are often managed by specialized management firms.
For smaller rental businesses involving houses or small apartment buildings, some brokers also provide property management services, including property supervision during the owner’s absence.
Private Lodging Management Company
This is not a typical property management company but a government-registered operator under the Ministry of Land, Infrastructure, Transport and Tourism.
When operating a non-resident minpaku (where the owner does not live in the same property), outsourcing management to a registered minpaku management company is mandatory.
Some municipalities also require the management company to be located within a certain distance of the property, making pre-purchase verification essential.
Additional Specialists (When Needed)
Bilingual Lawyer
Handles legal disputes, contract issues, and legal risk management.
Consultants, Project Managers, or Liaisons
Provide consulting services, market research, coordination between specialists, and overall project management.
Other services such as interpreters, translators, and administrative support providers may also be involved depending on the project
7. Key Considerations for Rental Businesses in Japan
Rental businesses in Japan involve a complex combination of multiple laws and local government regulations.
It is not a business that succeeds simply through intuition or general assumptions.
As with any real estate project, preliminary research, regulatory investigation, and strategic planning before entering the purchase phase are extremely important.
This is particularly true when operating rental businesses using existing houses or kominka, where the scope of investigation and analysis expands significantly. Market research, risk evaluation, long-term renovation planning, and exit strategy considerations all become essential.
Business-oriented analysis such as revenue projections and operational planning is also necessary, meaning that many tasks must be completed before purchasing a property.
For overseas buyers, additional challenges arise beyond language barriers. These include unfamiliar Japanese cultural expectations, administrative systems, communication styles, and business practices, all of which can affect the success of a project.
I provide support for overseas clients involved in real estate projects in Japan, including rental businesses, such as preliminary research, coordination with specialists, project oversight, and consulting services, depending on the needs of each project.
For more details, please refer to the Services and Pricing and Liaison pages.