Capturing Inbound Demand: Short-term Rental Conversion Strategy | Monetizing Existing Properties for Tourism

Inbound Recovery and Current Short-term Rental Market Status

Demand for inbound tourism, which declined significantly due to the COVID-19 pandemic, has recovered rapidly since 2023, and as of 2026, many tourist destinations have reached levels exceeding pre-pandemic levels. Aided by favorable exchange rates, long-stay travelers from Europe, North America, and Asia have increased, and the shortage of accommodation and rising nightly rates continue.

In response to this trend, the number of investors converting existing rental properties into short-term rentals (minpaku) has surged. Several years have passed since the implementation of the Residential Accommodation Business Act (the so-called minpaku law), and rules governing notifications and operating day limitations have become well established. Meanwhile, obtaining licenses under the Hotel Business Act as simple inns, or operating as special zone minpaku, has become possible, allowing for regulatory choices suited to objectives and regional characteristics.

The profitability of short-term rentals varies greatly depending on location and management, but in desirable locations such as tourist destinations or city centers, it is not uncommon for properties to generate 2-4 times the income of standard rental properties. However, on the other hand, there are unique challenges absent in traditional rental operations: operational burden, legal risks, and friction with neighboring residents.

Conditions for Properties and Locations Suitable for Short-term Rentals

Not all properties are suitable for short-term rental conversion. Suitable properties are located in tourist destinations, business hubs, or areas with good airport access, and the buildings must have structures and be in zoning categories that permit short-term rental operations.

First, zoning verification is essential. In residential-only zones, only the minpaku law applies, with an annual operating day limit of 180 days. In commercial or semi-industrial zones, operation as a simple inn under the Hotel Business Act allows 365-day operation, significantly changing profitability. Additionally, for condominiums, verification that short-term rentals are not prohibited in the management rules is indispensable.

From a location standpoint, conditions such as proximity to stations (within a 10-minute walk), good access to major tourist attractions, and nearby 24-hour convenience stores influence competitiveness. Furthermore, research into the occupancy rates and price ranges of similar properties in the area (hotels and short-term rentals) is required to accurately assess supply-demand balance before entering the market.

Legal Requirements and Operational Framework

Short-term rental operations require either notification or licensing. The Residential Accommodation Business Act (new law minpaku) has a low notification barrier, but includes a 180-day annual operating limit and mandatory delegation to a management company when the owner is absent. Hotel Business Act simple inns require licensing with stricter building code and fire safety requirements, but allow year-round operation.

The operational structure involves choosing between self-management or outsourcing to a management company. Self-management reduces costs but comes with significant daily responsibilities—scheduling cleanings, guest support, incident response, and inventory replenishment—making it difficult to scale to multiple properties. Outsourcing to a management company incurs fees (typically 20-35% of revenue), but offers the benefit of higher occupancy rates through professional operational expertise.

Especially for inbound guests requiring multilingual support, a 24-hour inquiry response system is critical for guest satisfaction. Reviews on platforms like Airbnb directly drive bookings, so quality guest interactions at the outset significantly determine subsequent revenue.

Steps for Converting Existing Rental Properties

Converting existing rental properties to short-term rentals involves several steps. First, wait for the current tenant to vacate and assess the conversion opportunity once the unit becomes vacant. Next, proceed with necessary legal procedures (notification or license application), installation of fire safety equipment (automatic fire alarms, emergency lighting, etc.), furnishing and equipping the unit, and creating photographs and listings.

Initial investment varies by property size and existing equipment, but generally ranges from ¥500,000 to ¥1 million for one-room units and ¥1 million to ¥2 million for family-sized units. The timeframe to recoup this initial investment determines the break-even point of short-term rental conversion.

For investors familiar with rental operations contemplating a move into short-term rentals, many aspects cannot be addressed using rental expertise alone. It is important to master the fundamentals of rental operations while also learning the unique operational skills required for short-term rentals. Distinguishing between information sources such as sumuie.jp for rental operation knowledge and m-assets.co.jp for property sourcing and comprehensive real estate consultation is effective.

Risk Management and Exit Strategies

Short-term rental operations carry unique risks: neighbor friction (noise complaints, garbage disposal issues, suspicion), guest property damage, demand collapse due to infection or disaster, and regulatory changes affecting operating conditions. Particularly important is addressing neighbor concerns—initial greetings and sharing contact information with courteous communication are essential.

Additionally, due to low entry barriers, the short-term rental market tends to attract increasing competition. As similar properties proliferate in an area, occupancy rates decline and properties become caught in price competition. With these risks in mind, maintaining a "dual operation" perspective—the ability to revert to traditional rental at any time—is important. Even in tourist areas, commercial locations offer the option of converting to tenant uses, and leveraging information sources like senkyaku.jp, which specializes in commercial and tenant brokerage, allows for building flexible exit strategies.

Inbound short-term rentals present an attractive option for pursuing high returns, yet they require attention to operations, legal compliance, and community relations—a high-touch business. Through thorough preparation and continuous learning, it is possible to monetize sustained inbound demand for the long term through 2026 and beyond.