Doesn’t make a lot of sense to me
I got this flyer the other day, and it made me curious.
Basically it’s an ad for a 4-plex rental apartment in a good area in Sendai. The building is fairly old, currently fully occupied, and the yield when full is only 7.53%. I presume you start losing money if one of the apartments is unoccupied.
Given that the building will have to be renovated/rebuilt regularly, I don’t see how this makes any sense. One possible thing going for it is that land in this particular area is expensive and could become more valuable as the area gets further built up.
I realize the better offers are probably getting snapped up before they go out on flyers to the general public, but still. Am I missing something here? Why would anyone buy this?
Subscribing to comments on this one, for sure. Have researched just enough to know that I’d have to know a lot more to make it profitable as you will lose money if you don’t know what you’re doing.
I do remember hearing that the way to do it in Japan is the 1R layouts near stations, especially around universities. Family-type layouts in particular are apparently not profitable investment properties.
Maybe living in one of them yourself changes the math?
Huge amount to learn on this before pulling the trigger.
Adding to which is the demographics and future government policy particularly with regards to interest rates.
Either of those could change the environment enough to make things that worked before not work anymore.
Still too scary for me by far 😉
I may be completely getting it wrong here, but doesn’t that mean the initial investment (43,800,000yen) will be fully paid off in 13/14 years. Thereafter (assuming full occupancies at current rates) you would be clearing 3,300,000 yen a year, minus taxes, fees costs etc. Certainly not great but you would own the land for further development/selling off etc.
I wouldn’t go for it I don’t think… I’m still trying to work out whether its better to buy or rent my own place to live!
As a best case scenario it’s not terrible I guess 😉
Assuming full occupancy and not having to rebuild.
I need to learn more about taxes, etc. Maybe the write-offs would be good for higher earners…
In the case of older apartments due to thier limited remaining lifespan, you will be able to write off more of the income in depreciation as an expense and so pay less tax
Also when borrowing to invest you will be paying a higher interest rate, I was quoted 5.5% myself for an investment loan. In the case of buyng a place to live I was quoted 0.7%…
I must admit the possibility of an earthquake it a major deterrent for mrat the moment
If the yield was really good, though it might be worth checking into such an investment.
Given the economic fundamentals of Japan as as whole, any form of real estate investment is a losing proposition in the long term. The house/apartment will steadily lose its value to the point that any semblance of perceived worth is in the land itself. IMHO, if you MUST invest in real estate, it would be best to stick strictly to Tokyo given that many Japanese people, tourists and other long term residents are flocking there in search of better economic opportunities, thus generating organic demand for accommodation.
Personally, I would rather take a low interest loan from one of the internet banks, and go purchase real estate in a developing economy where demographics and fundamentals are much more attractive. And it also provides a legal way to shield oneself from high levels income, real estate, and inheritance taxes from the taxman.
My thoughts exactly. I’d also be worried about a big earthquake in Tokyo -I’ve seen how inadequate earthquake insurance is firsthand up here in Sendai 🙁
These properties are not necessarily bad investments in my opinion for several reasons – especially if you have idle yen. Borrowing at 5% and buying makes no sense at all. 1) Most of them seem to return 7 to 10%. What other JPY denominated investment other than the very risky stock market does that? Bonds? Bond funds? The yeild is essentially zero. 2) Even if you assume a less than 100% occupancy rate, the yeild is still over 6% in most cases. 3) It creates a cash flow from day 1 that can be reinvested. The example is for a 43m investment that will yeild 200k/month after costs. Not bad. 4) They generally can be sold pretty quickly if you dont mind taking some loss. 5) The costs of maintenance and management can be reduced greatly if you shop around which really drives up return. 6) It requires cash and is still a relatively small investment so it keeps the small punters with no money away and the big players dont bother. That is why these opportunities exist. 7) Eventually it will pay for itself if you buy one that does not need to be rebuilt for 20 or 30 years. After that it is all gravy.
The key is to buy the right one(s). You need to know the area and be confident that you will get a minimum return from rents. This takes local knowledge and research. I dont think the Japan demographic problem is a reason to say that real estate investment for rental income is a bad idea. The Tokyo area is actually still growing; rents and home prices are rising. Silghtly but rising nevertheless. As in all things, it depends….
Thanks for commenting! I go back and forth on real estate but at the end of the day I think I am too lazy to be an owner. I hear there are lots of tax benefits though and know people that swear by rental property investing…