“What`s the deal, with key money?”

Read in Jerry Seinfeld stand up comedian voice.

Key money – or reikin 礼金 is better translated as a gratuity, or as one of my clients once remarked “So, it`s like a cover charge, at a bar, with a twelve drink minimum?”

Paying money, in order to pay more money at regular intervals. It sounds like a pretty terrible deal. Something to be avoided like a plague.

There are a couple of schools of thought about the origins of key money. Post-war housing shortages, urbanization, and population growth. The sugar-coated story goes, the house hunters were so happy to be able to live in the landlords property that they gave a gift of a couple of months worth of rent, to say thanks. I will go ahead and call BS on that. Post war landowners knew there was plenty of money to be made off people who needed a roof over their heads, so they price gauged. There was no shortage of prospective renters*. in fact the land owners were happy to have a high turnover of lump sum donating tenants. Why settle for 12 months rent per year from one person when you can get 3 or 4 times that from a succession of desperate and essentially homeless people?

*Real estate agents know that this is not exactly the case these days, but still operate in this way. Japanese real estate is a buyers market, but the sellers will never admit it.

This nastiness was brought to a halt by the government who installed laws protecting the legal rights of the tenant as resident. Making it very difficult for them to be removed from the property. Unfortunately, this had a negative effect too. Landlords who can`t legally remove tenants, either responsible, truant or just plain terrible, tend to charge more key money.  The landlord uses the upfront payment as – for want of a better term – an a##hole filter. If you as a prospective tenant can`t come up with 3 months rent as a gift, what makes the owner think you can afford to pay for 12 months rent, or 24, or 48? One could argue that after paying key money, you could just live in the landlord`s property for 6 months without paying rent while the landlord goes through the correct channels and legal proceedings, and you know what? one would be right. One of the reasons the initial costs of moving house in  Japan is so preventatively high, is because there are people who do just that – move in and never pay rent, until they are legally evicted, safe in the knowledge that their legal right to a place of residence represents a stronger argument than the property owner`s right to his rental income.

So, how does one avoid paying an arbitrary “Thanks for the house, guy!” down-payment on your new landlord`s boat? That is the real question.

First, let your agent know that you are trying to keep your initial costs as low as possible, but also understand that about 3 month`s rent up front is what you will need to cover all the required fees. Sounds steep, I know, but this includes essentials, like insurance (need that), and guarantor company fees, (see our last post) and an agent fee, (again if it`s a trustworthy agent you are working with, they can negotiate here) and your first months rent.

Second, look at apartments that are advertised without key money, or Zero/Zero. AND also look for properties with 1 month of key money as an option. If you are only looking at No key money property, you seriously limit your options. A lot of people think of it as a sum of money that they are never going to see again, which is basically what rent is anyway, yes? For further justification, divide the key money by 12 and add it to your monthly rent, if the total is still within your budget, then what`s the problem? At least in Osaka, key money is a one time thing.

Third, UR property. These properties are operated, advertised and managed by the Japanese Department of housing. UR property can be rented by anyone living legally in Japan, provided you earn enough or have savings of a certain amount. The only payment required when you move in is the first month`s rent and a fully refundable  security deposit equal to 2 months rent.*

* 3 months security deposit required on some properties.

Fourth, Leopalace. The ubiquitous, single person, everything for everyman, self-contained “Honey, I shrank the house” apartment. Leopalace apartments are like what I imagine living in the international space station would be like. Or Bruce Willis` apartment in The Fifth Element.

Fifth element apartment rendering

and finally D. The “gaijin” apartment. Generally privately owned, often furnished, convenient and hassle free. These properties make great first apartments. But in my experience, everyone who lives in a “Gaijin” wants to move out within a year, if not sooner.

So, there is a fairly un-comprehensive wrap up on key money.

No-one really wants to pay it.


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