Are you thinking of starting a vacation rental business but unsure how to find the right property? Or perhaps you’re torn between buying and renting? If so, you’re not alone.

Choosing the right property is one of the most critical factors in the success of any vacation rental business. In this article, we’ll walk you through the specific process and research methods for purchasing a vacation rental property. We’ll also compare the pros and cons of buying versus renting, so you can decide which option best suits your needs.

Requirements Your Vacation Rental Property Must Meet

To operate a vacation rental business, your property must satisfy the requirements set out under one of three legal frameworks: the Private Lodging Business Act, the Hotel Business Act, or the National Strategic Special Zone Act (Special Zone Minpaku). For example, the property requirements under the Private Lodging Business Act are as follows:

・The property must be lived in by a designated individual
・The property must be one for which tenants are being recruited
・The property must qualify as a vacation home or second home owned by the owner or sublessee

Additionally, the property must be equipped with a kitchen, bathroom, toilet, and washing facilities. In some cases, the Hotel Business Act or Special Zone Minpaku framework may impose even stricter requirements. When choosing a property, be sure to carefully verify these requirements to confirm the facility is suitable for your business plan.

(For more detailed requirements, this article may be helpful)

The Process of Purchasing a Vacation Rental Property

Purchasing a vacation rental property typically involves the following steps. Let’s review the key points to keep in mind at each stage so you can find an approach that fits your plans.

Decide on the Type of Property

First, decide what type of property you want to purchase. Vacation rental properties generally fall into three categories:

・Detached houses
Like whole apartment buildings, detached houses have no management regulations to worry about, and they can be purchased at relatively affordable prices. Some properties may require renovation work, but overall this is an accessible option for beginner investors.

・Condominium units
This involves purchasing a single unit within a condominium building. Since each unit has a different owner, the building’s management regulations may prohibit vacation rental use. Be sure to check with the management association beforehand.

・Whole apartment buildings
This means owning an entire building, which frees you from management regulation constraints. However, keep in mind that the purchase price is significantly higher, requiring a larger initial investment.

Narrow Down the Area and Search for Properties

Next, decide on the area where you want to open your vacation rental. Here are some options to consider:

・Major cities (Tokyo, Osaka, etc.)
Demand for accommodation is high, but so is competition and rent. To achieve profitability, it’s essential to strengthen the property’s appeal.

・Tourist destinations
You can leverage the area’s tourism resources, but keep in mind that demand may fluctuate depending on the season or local events.

・Rural areas
Competition is low, but attracting guests can be challenging. You’ll need to dig deep into the area’s charm and highlight its unique value.

・Near your own home
This makes management easier and allows for quick responses in emergencies, making it a good option for beginners.

Develop a Funding and Revenue Plan

Create a funding plan that covers not just the purchase price but also furniture, fixtures, and the cost of installing fire safety equipment. If you lack sufficient personal funds, consider the following loan programs:

• Sumitomo Mitsui Trust Bank’s “Vacation Rental Business Loan”
• Japan Finance Corporation’s “Sanitary Environment Loan”

To secure financing, you’ll need to prepare a business plan document. Working with a specialist to draft this plan can significantly improve your chances of approval.

Application & Contract

Once you’ve found the right property, apply to purchase it through a real estate agency. This typically involves the following steps:

・Deposit of application earnest money
You may be required to deposit earnest money when applying to purchase. If you decide to withdraw before signing the contract, this deposit will be refunded.

・Review of important disclosures
You’ll receive important disclosure information about the property from the seller or their agent. If there are no issues, the contract process moves forward.

・Property inspection (optional)
You may also consider having a licensed architect inspect the building’s condition. This can help prevent disputes after the contract is finalized.

By thoroughly understanding the process from property selection to purchase, you can choose a property that’s right for you and set your vacation rental business up for success.

How to Find a Vacation Rental Property

Even once you understand the purchasing process, many people still aren’t sure where to actually look for a property. Here, we’ll introduce four useful methods for finding a property. Understanding the pros and cons of each will help you find the approach that works best for you.

Search on Real Estate Portal Sites

This involves using general real estate portal sites to search for vacation rental properties. For example, sites like SUUMO and LIFULL HOME’S also list properties suitable for vacation rentals.

One advantage of using portal sites is that, since they list general properties alongside vacation rental properties, it’s easier to get a sense of overall market prices. You may also find properties that aren’t listed on vacation-rental-specific sites.

On the other hand, since these sites aren’t dedicated to vacation rentals, the number of relevant listings tends to be limited. That said, it may be worth finding a property that’s been sitting vacant for a long time and negotiating with the landlord about permitting vacation rental use.

Search on Vacation Rental-Specific Portal Sites

This method involves using portal sites dedicated specifically to vacation rental properties, such as Minpaku Bukken.com or MINCOLLE.

The biggest advantage of specialized sites is their abundance of listings for vacation-rental-eligible properties. Since properties that can legally be operated as vacation rentals are limited in number, these sites let you search much more efficiently.

However, some listings may be priced above market rate, or come with higher-than-average security deposits and key money, so careful evaluation is necessary. Also keep in mind that, unlike general real estate portal sites, you may not receive as much hands-on support from brokers.

Search Registered Vacation Rental Listings

This method involves using the “Registered Private Lodging Business Housing List” published by local municipalities. This list includes properties that have already received permission to operate as vacation rentals.

The advantage of this approach is that you can find properties already operating as vacation rentals. If there’s a vacancy in the same building, you’re more likely to gain permission from the landlord. Existing properties also often already have fire safety equipment in place, which can help reduce your initial costs.

On the other hand, unlike portal sites, these lists don’t include photos or other detailed property information, so you’ll need to research addresses yourself, which takes extra effort. Also, be aware that some listed properties may no longer have vacancies.

Search Through Vacation Rental Management or Brokerage Companies

This involves working with vacation rental management companies or brokers specializing in vacation rentals. Management companies have extensive experience with property management and obtaining licenses, so they can offer well-informed advice. Brokers, meanwhile, may not have operational experience but possess deep knowledge of the vacation rental industry.

Both can clearly explain the pros and cons involved in property selection, making them reassuring sources of support for beginners. However, since brokers earn income once a contract is finalized, it’s important not to take all their advice at face value—be sure to do your own careful evaluation as well.

Key Points to Watch For When Searching for a Vacation Rental Property

Now that you understand how to search for vacation rental properties, let’s cover some important points to keep in mind during your actual search. Paying attention to these details will help you find your ideal property more efficiently.

Confirm the Property Is Vacation-Rental-Eligible

One thing to be especially careful about when using real estate portal sites is confirming whether a property is truly “vacation-rental-eligible.”

Even when a portal site lists a property as compatible with vacation rentals, it’s not uncommon to find, upon inquiry, that it’s actually not allowed. For this reason, whenever you find a property of interest, carefully review any statements on the listing page related to vacation rental eligibility.

You’ll also need to check whether the property meets the previously mentioned requirements for vacation rental use (such as standards under the Private Lodging Business Act or Special Zone Minpaku regulations). Additionally, be sure to assess the property’s condition and factor in renovation costs if needed.

Check the Zoning Designation

When selecting a property for vacation rental use, it’s essential to check the property’s zoning designation. Zoning refers to land-use classifications established under the City Planning Act, which divide areas into categories such as residential, commercial, and industrial zones.

Areas where vacation rental operations are permitted are limited, and operations may be restricted in exclusively residential zones. On the other hand, vacation rental operations tend to proceed more smoothly in commercial zones and quasi-residential zones.

Additionally, if you plan to operate under the Special Zone Minpaku framework, additional requirements may apply depending on the area, so it’s essential to check local ordinances and regulations as well. When choosing a property, be sure to consult with real estate agents or local government offices to confirm that it complies with zoning requirements.

Also Check the Hazard Map

Once you find a property of interest, it’s also important to use a hazard map to check for disaster risks. Specifically, verify whether the property falls within a designated warning zone for flooding, tsunamis, or landslides.

If a property is located in a high-disaster-risk area, the following drawbacks may apply:

・Increased disaster risk: In the event of a major natural disaster, the facility is more likely to sustain damage.
・Decreased asset value: Properties within disaster warning zones tend to be avoided by potential buyers, which can lower their resale value.
・Rebuilding restrictions: In particular, properties within landslide special warning zones may face restrictions on rebuilding, potentially resulting in additional costs.

For example, in coastal areas where tsunami damage from a potential Nankai Trough earthquake is a concern, property prices have already begun trending downward in some regions. For this reason, it’s recommended to avoid locations with high disaster risk. You can check hazard maps through your local municipality or the website of the Ministry of Land, Infrastructure, Transport and Tourism—be sure to review this information when choosing a property to ensure its safety.

Vacation Rental: Should You Buy or Rent?

Now that you have a solid understanding of how to purchase a vacation rental property, you may still be wondering whether buying or renting is the better choice. Here, we’ll break down the pros and cons of each option.

Pros and Cons of Buying

Advantages of Purchasing a Vacation Rental Property

Purchasing a property offers several major advantages:

・No need to get landlord approval
With rental properties, you need to obtain permission from the landlord to operate a vacation rental, but with a purchased property, this step is unnecessary—shortening your preparation timeline as well.

・Potential for capital gains
There’s a chance you could sell the property for more than you paid for it. If you buy in an area where real estate values are rising, you could earn additional profit by selling the property after ending your vacation rental business.

・Greater renovation freedom
Since a purchased property is entirely your own, you’re free to renovate it however you like to match your desired theme or atmosphere. This ability to create a unique identity is a great way to stand out from competitors.

Disadvantages of Purchasing a Vacation Rental Property

On the other hand, purchasing also comes with the following drawbacks:

・High initial costs
Buying requires a substantial amount of capital upfront, covering not just the property price but also registration fees, brokerage commissions, and renovation costs.

・High running costs
You’ll be responsible for fixed asset tax and city planning tax, and if the property isn’t classified for residential use, you may not qualify for tax reduction measures. Additionally, since standard residential fire insurance may not apply, you may need to take out commercial fire insurance instead.

・Higher operational risk
If real estate prices decline, you may not achieve the capital gains you were hoping for. And if your vacation rental business doesn’t perform well, maintenance costs can become a significant burden.

While purchasing offers greater freedom and profit potential, it also comes with the weight of higher initial investment and ongoing costs. It’s essential to build a solid funding plan and carefully approach both property selection and operational strategy.

Pros and Cons of Renting

Starting a vacation rental business with a leased property offers convenience and flexibility that buying doesn’t, but it also comes with its own unique constraints. Here, we’ll break down the pros and cons of using a rental property.

Advantages of Running a Vacation Rental as a Tenant

Starting a vacation rental business with a leased property offers several advantages:

・Lower initial costs
With a rental property, initial costs typically come to around 1 million yen, making it much more accessible to get started compared to purchasing. Since you won’t need to take out a loan, your financial planning also becomes much simpler.

・No fixed asset tax
Unlike purchased properties, you won’t need to pay fixed asset tax or city planning tax, which is a major advantage for keeping running costs down.

・Easier to exit
If revenue doesn’t meet expectations, you can simply terminate your lease and move out with a rental property. Compared to purchased properties, which can be difficult to sell or repurpose, the low barrier to exiting is a major benefit of renting.

Disadvantages of Running a Vacation Rental as a Tenant

On the other hand, renting also comes with the following drawbacks:

・Rent and initial costs tend to be higher
Since properties eligible for vacation rental use are limited in the market, and demand for them is high, rent, security deposits, and key money tend to be pricier. Keep in mind that costs will likely be higher than renting a standard residential property.

・Renovation restrictions
Rental properties often come with restrictions on interior and facility modifications, making it harder to create a concept that showcases the property’s unique character. Even when renovations are permitted, you may be required to use a specific contractor designated by the landlord.

・Requires obtaining permission
Before starting your vacation rental business, you’ll need to obtain permission from the property owner or building manager. This process requires time and negotiation, which can make it harder to get started smoothly.

Not Sure Whether to Buy or Rent for Your Vacation Rental? Talk to Stay Buddy!

Before deciding whether to purchase a vacation rental property, be sure to carefully compare it against the option of renting. Once you’ve decided to buy, start by leveraging various research methods to explore properties and get a feel for the market.

To efficiently narrow down your search based on your available budget and desired conditions, consulting a vacation rental expert—such as a management company—can be a great option. At Stay Buddy, we offer comprehensive support that goes beyond just property searches, covering everything from vacation rental production and licensing applications to full operational management. If you’re interested, please feel free to reach out for a consultation.