If you’re involved in real estate investment, you may have come across the term “owner-change property.”
However, many people may not clearly understand what it means.
Owner-change properties have both advantages and disadvantages, so it’s important to understand them thoroughly before considering investment.
This article explains the concept of owner-change properties in a simple and clear manner, along with their pros and cons.
■ What Is an Owner-Change Property? ■
An owner-change property is one that is sold while the tenant is still living there. In other words, the property is transferred to a new owner while the lease with the current tenant remains in effect.
■ What Is Inherited in an Owner-Change Property? ■
Like a standard real estate sale, ownership is transferred.
However, if the tenant has already signed a lease, the lease remains valid even after the ownership changes.
According to Article 31 of the Act on Land and Building Leases (Japan):
[Even without registration, a lease takes effect against the new owner once the property is handed ove]
This means the lease contract made with the previous owner is still valid for the new owner. The following rights are inherited:
- Right to receive rent
- Right to reclaim the property
- Right to demand restoration to original condition
Also, obligations to the tenant are inherited:
- Duty to allow use of the property
- Duty to perform maintenance
- Duty to return the security deposit
You cannot terminate or change the lease just because the ownership has changed. A valid legal reason outside of the owner-change is required.
■ Security Deposits and Restoration ■
Revisions to the law clarified the following:
- 敷金・礼金 Upon lease termination, any unpaid rent must be deducted and the remaining amount returned (Article 622-2)
- Restoration: Tenants are not liable for normal wear and tear or age-related deterioration (Article 621)
These rules have been codified into law, although they reflect previous practices.
■ Advantages of Owner-Change Properties ■
1.Immediate Rental Income After Purchase
Since a tenant is already living in the property, rental income starts immediately, which is a major advantage.
In real estate investing, income depends on occupancy, and vacancies can lead to ongoing expenses without revenue.
You can also create more accurate financial projections since rental income is already established.
2.Potential to Buy the Property at a Lower Price
Owner-change properties are often priced using the income approach, which is based on the income the property generates.
If the rent is low, the property value is also lower. This allows investors to buy properties below market price—especially if the rent can later be increased after tenant turnover.
3. Lower Effort and Cost for Tenant Acquisition
With tenants already in place, there’s no need to spend time or money advertising and screening new tenants.
This reduces vacancy risk and the associated holding costs.
■ Disadvantages of Owner-Change Properties ■
1.Limited Ability to Inspect the Interior Before Purchase
Since the property is occupied, full inspections are often not possible.
Damage, wear, or tenant behavior might only be discovered after the tenant leaves.
You also can’t re-evaluate the tenant’s background, which poses risk if the tenant has a history of late payments or conflict.
2.Lease Terms Cannot Be Changed
The lease continues under the same terms, even if they are unfavorable to the new owner.
Tenants generally have strong legal protections, making it difficult to renegotiate or cancel the lease.
Problems may arise if the lease terms lead to disputes after ownership changes.
3.The Tenant May Leave Soon After the Purchase
There is no guarantee the current tenant will stay long after the sale.
If they leave, you will need to find a new tenant, and the rent may need to be reduced due to property age or market changes.
■ Conclusion: Understand the Pros and Cons Before Investing ■
Owner-change properties allow you to start earning rent right away and can sometimes be purchased below market value.
However, risks such as inability to inspect the interior and the challenge of modifying lease terms must be considered.
Be cautious of shady deals involving fake tenants. This type of investment is not always ideal for beginners.
Use this article as a guide to make well-informed investment decisions.
At SeaHome, we offer full support in finding and purchasing owner-change properties. You can trust us to guide you with care and confidence. Feel free to reach out anytime.
