Leave Your Minpaku Operations to the Experts
Completely Free Online ConsultationEssential Knowledge for Simple Lodging Profit Simulations
When considering opening a simple lodging facility (kan’i shukusho), the first thing you need to grasp is the overall picture of your revenue structure. To run an accurate profit simulation for a simple lodging facility, you need to organize four key elements into concrete figures: initial investment amount, running costs, projected occupancy rate, and room rates. If even one of these elements remains vague, you run a significantly higher risk of facing unexpected losses after opening.
A simple lodging facility is a category of business license under the Hotel Business Act (Ryokan Gyo Ho), covering capsule hotels, guesthouses, and whole-building rental accommodations. Compared to ryokan and hotels, the equipment and facility standards are less demanding, making it possible to open even with a small property. As a result, more individual investors and real estate owners are entering this field as a new source of income.
That said, precisely because the barrier to entry is low, competition is fierce, and profitability varies significantly depending on location and management quality. This article walks through concrete figures and numbers, covering the breakdown of initial investment, running costs, revenue projections by occupancy rate, and a general timeline for reaching profitability.
Breakdown of Initial Investment and Typical Costs
The initial investment required to open a simple lodging facility varies significantly depending on how the property is acquired (purchase or lease), its size, and its location. For a small whole-building rental property (roughly 50-80 square meters of floor space) opened through a lease, the total initial cost typically ranges from 3 million to 8 million yen. If you purchase the property to open your facility, the total—including the property acquisition cost—can easily reach 20 million to 50 million yen or more.
Costs of Acquiring or Leasing a Property
When opening with a leased property, you’ll need to cover deposits, key money, agent fees, and advance rent, which together typically amount to 6-10 months’ worth of rent upfront. For example, with a property renting at 150,000 yen per month, the initial lease contract alone would cost 900,000 to 1.5 million yen. For purchases, a used detached house in a suburban area near a city center typically runs 15 million to 30 million yen. A common approach is to acquire an older property at a low price and then renovate it.
Interior Renovation and Equipment Investment
To obtain an operating license as a simple lodging facility, you must meet legally mandated standards, including fire safety equipment, emergency lighting, and room ventilation systems. Renovation costs vary depending on the property’s condition, but for a small whole-building rental property, 1.5 million to 4 million yen is a typical range. Installing an automatic fire alarm system alone can cost 300,000 to 600,000 yen, so be sure to confirm fire-safety-related costs carefully at the estimate stage.
Licensing and Permit-Related Costs
Applying for a Hotel Business Act operating license requires an application fee of roughly 20,000 to 30,000 yen. However, if you hire a licensed administrative scrivener (gyoseishoshi) to handle the application on your behalf, expect an additional fee of 150,000 to 300,000 yen. If a change of building use is required, you may also need to budget 200,000 to 500,000 yen for an architect’s services. Handling the application yourself can save money, but there’s a risk that document errors could result in resubmissions and delay your opening—so weigh the cost-benefit trade-off carefully.
Furniture, Amenities, and Opening Preparation Costs
For a whole-building rental property, a full set of furnishings—beds, bedding, towels, amenities, cooking equipment, a TV, and a Wi-Fi router—typically costs 300,000 to 800,000 yen. If you hire a professional photographer for listing photos on OTAs (online travel agencies), expect an additional 30,000 to 80,000 yen, and outsourcing logo and website design adds another 100,000 to 300,000 yen on top of that.
The Structure of Monthly Running Costs
To improve the accuracy of your profit simulation, accurately estimating monthly running costs is just as important as—if not more important than—estimating your initial investment. By separating fixed costs from variable costs, you can clearly identify your break-even point.
Rent and Loan Repayments
For a leased property, monthly rent is the largest fixed cost. For a whole-building rental property in an urban area, this typically runs 100,000 to 200,000 yen per month, and can exceed 250,000 yen for a prime location in a tourist destination. If you purchased the property, loan repayments become your fixed cost—for example, borrowing 20 million yen at a 2% interest rate over a 20-year term results in monthly repayments of roughly 100,000 yen.
Cleaning and Linen Costs
Cleaning costs, which arise each time a guest checks out, typically run 5,000 to 15,000 yen per session for a whole-building rental. Assuming 15 cleanings per month, this translates to a variable cost of 75,000 to 225,000 yen per month. If you use linen rental services, expect an additional 500 to 1,500 yen per set. Since cleaning quality directly impacts review ratings, cutting corners here to save money is counterproductive.
OTA and Payment Processing Fees
Airbnb charges hosts roughly 3% of revenue in fees, while Booking.com typically deducts 12-15%. If you list on multiple OTAs, it’s realistic to budget an average fee rate of 10-15%. With monthly revenue of 400,000 yen, OTA fees alone would take out 40,000 to 60,000 yen.
Utilities, Communications, and Miscellaneous Expenses
For a small whole-building rental property, utility costs typically run 15,000 to 30,000 yen per month. Wi-Fi service costs 4,000 to 6,000 yen per month, IoT devices such as smart locks add 1,000 to 3,000 yen monthly, and restocking consumables costs roughly 5,000 to 10,000 yen. Altogether, budget approximately 25,000 to 50,000 yen per month for these running costs.
Costs of Using a Property Management Company
If you outsource guest communication, reservation management, and cleaning arrangements to a property management company, the typical fee ranges from 10% to 30% of revenue (varying depending on the company and scope of services). With monthly revenue of 400,000 yen, management fees would run 60,000 to 100,000 yen. While your profit margin is lower than with self-management, for owners who have a full-time job or live far from the property, this can significantly reduce the time and effort required—making it a reasonable choice overall in many cases.
Revenue Simulation by Occupancy Rate
Here, we’ll estimate monthly revenue at different occupancy rates, assuming a whole-building rental simple lodging facility with a room rate of 15,000 yen per night. The figures below are calculated based on a 30-day month.
At a 50% occupancy rate, that’s 15 booked nights, yielding monthly revenue of 225,000 yen. At 65% occupancy, that’s 19.5 nights, yielding roughly 292,500 yen in monthly revenue, while at 80% occupancy, that’s 24 nights, yielding 360,000 yen in monthly revenue. For a well-managed simple lodging facility in an urban tourist area, a realistic annual average occupancy rate is around 60-75%. Since brand recognition is low immediately after opening, you should expect occupancy rates of around 40-50% during the first three to six months.
Case Study: 50% Occupancy Rate
Against monthly revenue of 225,000 yen, running costs (150,000 yen rent, 75,000 yen cleaning, 23,000 yen OTA fees, and 25,000 yen for utilities and other expenses) total approximately 273,000 yen, resulting in a monthly loss of about 48,000 yen. If this occupancy level continues, it would accumulate into an annual loss of roughly 570,000 yen—making it urgent to revisit pricing and improve your listing.
Case Study: 65% Occupancy Rate
Monthly revenue comes to roughly 292,500 yen. Since more cleanings are required, cleaning costs rise to about 98,000 yen, and OTA fees increase to about 29,000 yen, bringing total running costs to roughly 302,000 yen—leaving a shortfall of around 10,000 yen, putting you close to the break-even point. Combined with a strategy of raising rates during peak season, this level makes annual profitability achievable.
Case Study: 80% Occupancy Rate
Against monthly revenue of 360,000 yen, running costs—including roughly 120,000 yen in cleaning fees and about 36,000 yen in OTA fees—total approximately 331,000 yen, leaving a monthly operating profit of about 29,000 yen. Over a year, this leaves roughly 350,000 yen in profit. Note that this estimate does not account for recovering your initial investment. By raising rates during peak season (20,000 to 25,000 yen per night), you could push annual profit up to 500,000-800,000 yen.
Guidelines for Profitability and Investment Payback Period
If you open a simple lodging facility on a leased property (with an initial investment of 5 million yen and a room rate of 15,000 yen), and you can maintain an annual average occupancy rate of 70%, monthly operating profit would come to roughly 10,000-30,000 yen. At this level, recovering your initial investment would take 14 to over 40 years—meaning that relying solely on the margin between rent and revenue is not an efficient use of capital.
There are three realistic strategies for accelerating profitability. The first is raising your room rate. By enhancing the interior design or offering a unique guest experience, you can set rates in the 20,000-30,000 yen per night range. The second is operating multiple properties simultaneously. By consolidating cleaning and reservation management, you can reduce the fixed-cost ratio per property. The third is increasing the proportion of direct bookings. As bookings through your own website or social media increase, you can reduce OTA fees, improving your profit margin by 5 to 15 percentage points.
If you purchase a property to open your facility, the calculation for investment payback changes since the property itself holds asset value. If your annual cash flow is a positive 1 million to 1.5 million yen, a 20-million-yen property purchase can be recovered in 13 to 20 years. Factoring in potential resale gains as well, total investment returns can reach 5-8% annually in some cases.
Key Variables That Determine Profitability
To improve the accuracy of your simulation, it’s essential to understand the sensitivity of the variables that affect your revenue. Even with the same property and same location, the way you manage your business can create differences of hundreds of thousands of yen in annual revenue.
Location and Target Guest Segment
A property in the heart of a tourist destination and one located more than a 15-minute walk from the nearest station can show a 20-30 percentage point difference in occupancy rate, even with the same room rate. That said, prime-location properties also come with higher rent, so profit margins aren’t necessarily higher. Areas with steady business demand tend to see more stable weekday occupancy, while tourist destinations tend to see occupancy skew toward weekends and holidays. The optimal location and price range will differ depending on whether you target families, couples, or inbound travelers.
Review Ratings and Search Ranking
Display ranking on OTAs is directly tied to review ratings—properties with a rating of 4.5 or higher can see booking rates 2-3 times higher than those rated below 4.0. Whether you can secure high ratings for your first 10 reviews significantly influences your subsequent occupancy rate. Thorough cleaning quality, prompt guest message responses, and accurate property listings are the fundamental building blocks for earning strong reviews.
Managing Seasonal Fluctuations
Occupancy rates for simple lodging facilities fluctuate significantly by season. During cherry blossom and autumn foliage seasons, the New Year holidays, and long holiday weekends, occupancy can exceed 90% with rates 1.5-2 times higher, while during the off-season (mid-January to February, the rainy season in June, etc.), occupancy can drop as low as 30-40%. Introducing dynamic pricing—adjusting rates based on supply and demand—and securing occupancy by lowering rates during off-peak periods is an effective strategy for maximizing total annual revenue.
Consult Stay Buddy Co., Ltd. to Maximize Your Simple Lodging Profits
Running an accurate profit simulation for opening or operating a simple lodging facility—and actually achieving profitability—requires extensive specialized knowledge and hands-on experience across many areas: property selection, licensing, pricing strategy, OTA management, and building a cleaning system. Handling all of this on your own, especially if it’s your first time opening a facility, can be a significant burden.
Stay Buddy Co., Ltd. specializes in operational management for minpaku and simple lodging facilities, providing end-to-end support from profitability assessments and opening assistance to daily guest communication, cleaning arrangements, and revenue optimization. We’ve built up management know-how designed to maximize owners’ profits through improved occupancy rates and appropriate pricing.
If you’re wondering “How much revenue could I realistically earn from my property?”, “I want to start preparing to open but don’t know where to begin,” or “I’m already operating but not seeing the profits I expected”—please don’t hesitate to reach out to Stay Buddy Co., Ltd. We’ll propose a concrete profit simulation tailored to your property’s situation and your goals.
