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What is key money? Should you pay it?

Key money (reikin) is also known as gratitude money and it is a non-refundable payment made to the landlord at the beginning of the lease contract. It is very common in Japan and hated by the foreigners who are trying to rent an apartment. Is it really necessary to pay it?

Origin of key money:

At the beginning, it was a gift money paid by the new tenant to the landlord to thank them for allowing them to rent their house. That is why it is also called gratitude money. You may say “Why should I show gratitude to the landlord who is trying to rent their property for the best price in a free market?” Nowadays it is not about gratitude anymore, the very saturated rental market in Japan allowed this tradition to continue.

Difference from deposit:

Deposit (shikikin) is a refundable payment made at the beginning of the lease. It is sometimes 1 month, sometimes 2 months, and sometimes 0. The deposit is paid back after deducting the cleaning fee and and fee for damages. Since the purpose of the deposit is well understood by everyone around the world, tenants rarely complain about the deposit. However you may realize as the size and value of the property rises, the deposit also may rise from 1 month to 2 months. It is because the owner is worried that a 1-month deposit may not be enough to cover all the costs if there are any damages.

Why you should pay key money?

Maybe you don’t feel any gratitude but you still should not try to avoid key money if you want to catch a good rental property where you will stay for the long term. If you only search for 0 key money houses you miss many of the good properties. If you try to negotiate to omit the key money you may end up with higher monthly rent. It may be a good strategy if you plan to stay in the property for only a year but what if you stay longer? You may end up paying more with that strategy and may regret not paying the key money in the long run. When you compare rental properties with and without key money you should always compare how much you will pay in total in 2 years or maybe in 4 years. Soon you will realize that properties with key money are not bad at all. In my opinion, key money is a tool used by property owners and property managers to distinguish stable tenants. If you don’t have enough budget for initial fees, the best way to avoid key money is to search for newly built mansions with a lot of vacancies. These will come with many promotions like 0 key money and even free rent.

My advice as a real estate agent is, if you have the budget you should always search for properties with and without key money. That way you will have more options. You may find a great house with 0 key money as well but you should always be open to both options and compare them by calculating how much you will pay in the long run. Author K

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