STRATEGY & YIELD
Why a 60% Occupancy STR Can Lose to a 95% Long-Term Rental
The STR vs long-term rental comparison in Japan isn't always won by Airbnb. Here's the breakeven analysis that tells you which wins for your property.
On this page 8
- Setting Up the Comparison: Same Property, Two Scenarios
- Scenario A: Minpaku STR (180-Day Cap, 60% Occupancy)
- Scenario B: Long-Term Rental (95% Occupancy = ~11.4 months rented)
- The Breakeven Occupancy: Where STR Starts Winning
- Four Situations Where Long-Term Rental Wins
- When STR Clearly Wins
- Where This Goes Wrong
- FAQ
TL;DR: A Tokyo minpaku running 60% occupancy doesn’t automatically beat long-term rental. After OTA fees, cleaning, management, utilities, and the operating complexity premium, the net cash advantage of STR compresses significantly. For some property types, neighborhoods, and investor situations, long-term rental produces higher risk-adjusted returns. This issue runs both models side by side on the same property.
I own STR units and long-term rental units. The comparison needs to be made honestly, on actual numbers, for each specific property.
Last year I converted one of my minpaku units to long-term rental for six months while waiting for a building management vote on a new STR bylaw. Monthly rent came in lower than my best STR months, higher than my worst. Operating work dropped to near zero. The comparison wasn’t obvious.
Setting Up the Comparison: Same Property, Two Scenarios
Figures below are illustrative — representative of this property type in Taito-ku at current market conditions, not a specific transaction or guaranteed outcome.
Property: 1LDK, 42 sqm, 5th floor walk-up condo, Taito-ku (Asakusa adjacents), built 2009
Purchase price: ¥32,000,000 (illustrative)
Monthly mortgage payment (35-year, 1.2% interest): ~¥88,000 (illustrative)
Scenario A: Minpaku STR (180-Day Cap, 60% Occupancy)
| Item | Amount |
|---|---|
| Available days | 180 |
| Occupancy rate | 60% |
| Booked nights | 108 |
| ADR | ¥19,000 |
| Gross room revenue | ¥2,052,000 |
| Cleaning fee revenue (net of OTA cut) | ¥180,000 |
| Total gross revenue | ¥2,232,000 |
| OTA commission (16%) | −¥328,320 |
| Cleaning (48 turnovers × ¥10,000) | −¥480,000 |
| Property management (20% of gross) | −¥446,400 |
| Utilities | −¥300,000 |
| Supplies | −¥130,000 |
| Insurance (STR) | −¥100,000 |
| Property tax | −¥170,000 |
| Tools and subscriptions | −¥70,000 |
| Maintenance reserve | −¥250,000 |
| Net Operating Income | −¥42,720 |
At 60% occupancy with this cost structure, STR loses money.
Scenario B: Long-Term Rental (95% Occupancy = ~11.4 months rented)
| Item | Amount |
|---|---|
| Monthly rent (illustrative, Taito-ku 1LDK) | ¥115,000 |
| Annual rent (12 months) | ¥1,380,000 |
| Vacancy allowance (5%) | −¥69,000 |
| Net annual rent | ¥1,311,000 |
| Agency fee (tenant sourcing, amortized) | −¥57,500 |
| Property management (5% of rent) | −¥65,550 |
| Insurance (landlord) | −¥30,000 |
| Property tax | −¥170,000 |
| Maintenance reserve | −¥250,000 |
| Net Operating Income | ¥738,950 |
Long-term rental NOI: ¥738,950
STR NOI at 60% occupancy: −¥42,720
STR loses by ¥781,670 per year in this comparison. Before considering the time and operational complexity of running a minpaku.
From the desk — In a decade of closings I keep watching first-time buyers fixate on the STR headline number and skip the NOI line entirely. The single-unit remote owners who actually called me a year later to switch to long-term rental were almost never the ones losing on revenue; they were losing on their own evenings, burned out by the turnover churn that never shows up in a pro forma.
The Breakeven Occupancy: Where STR Starts Winning
The question isn’t “is STR better?” — it’s “what occupancy rate does STR need to beat long-term rental?”
Working backward from the long-term rental NOI of ¥738,950:
STR needs to generate ¥738,950 in NOI. With the fixed cost structure above (approximately ¥1,875,000 in operating costs for utilities, management, insurance, taxes, tools, reserve), STR needs net revenue of ¥738,950 + ¥1,875,000 = ¥2,613,950.
After OTA commission (16%) and cleaning costs that scale with occupancy, the breakeven booked nights calculation (simplified):
- Net revenue per booked night after OTA (¥19,000 × 0.84 = ¥15,960) plus cleaning fee contribution (~¥1,700) = ~¥17,660
- Minus variable cost per turnover (cleaning ¥10,000 ÷ 2.2 nights = ¥4,545/night), minus variable supplies (~¥1,100/night)
- Net contribution per booked night: ~¥12,015
At fixed costs of ~¥1,200,000 (property tax, insurance, tools, reserve — costs that don’t scale with occupancy):
- Breakeven above long-term rental NOI: (¥738,950 + ¥1,200,000) ÷ ¥12,015 ≈ 161 booked nights
161 booked nights within the 180-day cap = 89.4% occupancy of available days.
High bar. Not impossible for a well-run central Tokyo unit in peak neighborhoods — but not automatic. At 60%, STR loses. At 89%+, it wins meaningfully. Most operators live somewhere between those two numbers.
Four Situations Where Long-Term Rental Wins
1. The building has STR restrictions. If the building bylaws prohibit minpaku (increasingly common in Tokyo), long-term rental isn’t a fallback — it’s the only option. Having the comparison already modeled means you know exactly what you’re buying.
2. You’re a remote operator without a strong management partner. Poor management compounds the occupancy problem. A long-term rental with a 5% management fee is simpler, cheaper, and less exposed to operational failure.
3. The property is in a ward with aggressive operating restrictions. If municipal rules constrain your actual operating window below 120 days, the STR math breaks further. Recalculate the breakeven occupancy — it may be above 100%, meaning STR is structurally unprofitable at that location.
4. Your purchase price was high and you’re holding long. A ¥40M+ 1LDK in prime Shinjuku or Shibuya may have compelling long-term appreciation. Running it as a stable long-term rental while collecting appreciation preserves the asset, avoids management complexity, and generates reliable income. The STR upside from a premium-priced property in a regulated ward often doesn’t compensate for the hassle.
When STR Clearly Wins
Properties where STR materially outperforms:
- High-ADR locations (Asakusa, Shinjuku entertainment adjacents, Harajuku) where room rates push ¥22,000–¥28,000 average
- Properties suitable for groups (2LDK+) where ADR per booking exceeds what equivalent long-term rental would produce
- Hotel/ryokan-licensed properties running 365 days with no cap
- Special-zone minpaku (tokku minpaku) properties in designated zones (covered in a separate piece)
The comparison also changes with the portfolio. If you own 10 units and have a dedicated cleaning team, management infrastructure, and direct booking channels, your cost per unit drops. At scale, STR economics improve. For a single unit held remotely, they’re tighter than the benchmarks suggest.
Where This Goes Wrong
Using STR revenue to cover long-term rental opportunity cost. Some investors compare STR gross revenue to long-term rental net rent. Wrong comparison. Use NOI vs. NOI.
Not modeling seasonality. A flat annual occupancy assumption hides the fact that 60% average might be 80% in Q2 and 40% in Q1. The cost structure doesn’t flex the same way revenue does. January has the same insurance, tax, and reserve costs as April, with far less revenue.
Ignoring the time cost of operational complexity. STR requires active management even with a property manager. Guest issues, platform disputes, maintenance calls, regulatory updates — this takes owner time. At some scale that’s fine. For a single-unit remote investor managing a near-breakeven STR, that time is expensive.
Assuming STR ADR grows linearly. The weak yen has been driving inbound tourism demand and pushing ADR up. That tailwind may not persist at the same rate. Long-term rental rents in Tokyo are sticky and rise more slowly — but they’re also more predictable.
FAQ
Q: Is there a simple rule for when to choose STR vs long-term rental? Not a simple rule, but a useful frame: if your breakeven occupancy (to match long-term rental NOI) is above 75%, the STR proposition is fragile. If it’s below 65%, STR has a reasonable margin of safety.
Q: What if I want to do both — STR during peak, long-term rental during off-peak? Possible in some configurations. Be careful about lease terms — monthly furnished rentals during off-peak can work, but standard long-term leases (typically 2-year contracts) can’t be easily switched seasonally. Monthly rentals typically come at a discount to minpaku rates.
Q: Does the 180-day cap apply if I’m doing monthly corporate rentals? Corporate rentals at 30+ day stays are generally not classified as minpaku and are not subject to the 180-day cap. They’re also not classified as hotel/ryokan activity. They have their own legal character. Confirm with a licensed agent for your specific situation.
Q: How does depreciation affect this comparison for tax purposes? For Japanese tax purposes, depreciation on the building (not land) reduces taxable income. The depreciation schedule and applicable rates depend on construction type and building age. A Japanese tax accountant specializing in non-resident property investors should run this calculation for your specific property.
Q: What cap rate should I target for a Tokyo STR acquisition? Using NOI, a well-run inner Tokyo minpaku might produce a 2–3.5% cap rate (NOI ÷ purchase price). Long-term rental on the same property might produce 2–3%. The spread is narrower than STR advocates typically claim. Capital appreciation assumptions matter significantly in both cases.
