Bait and Switch
A couple of months ago I read something about rental properties in Japan, which made me start thinking about loans, which made me take a look at some loan comparison sites, which led me to the Tokyo Star Bank Mortgage Secured Loan.
On paper, this loan looks incredible. You can borrow up to 100 million yen, for up to 20 years, at an interest rate of 0.8-8.6% (that’s quite a range). The loan is backed on a property, but you don’t have to own the property (it can be owned by a family member).
The loan can be used for any non-commercial purpose, so of course I started thinking about what would happen if I borrowed, say, 15 million yen for twenty years and just put it into a cheap world stock ETF.
Obviously we already have a mortgage so couldn’t borrow against our flat, but my in-laws have a paid-off house and might be willing to play along with this.
I popped into the Sendai branch of Tokyo Star Bank, but unfortunately they are not allowed to deal with this type of loan so referred me to the Ikebukuro Branch in Tokyo.
Strike one.
The Ikebukuro Branch got in touch and sent me an information pack and application materials.
Rather than a preliminary application, this was a full application that requires me to submit all the paperwork you might imagine, and also requires the owner of the property to do the same.
A fair amount of work and I still didn’t know what the interest rate was likely to be or how much we’d be allowed to borrow.
Strike two.
So I called Tokyo again and asked them to give me an idea of the interest rate and possible loan size based on my situation. Obviously I wasn’t going to run around getting documents and talking to my father-in-law if there was a possibility that the bank was going to turn around and offer me 2 million yen at 6% 🙂
Unfortunately I was told that they couldn’t tell me anything until the results of the official credit check, at which point they would offer me an interest rate and confirm how much we could borrow based on the property. After a lot of pushing the person I was talking to confirmed there was a good chance the interest rate would be over 2%.
Strike three. I’m out.
Now, this deal obviously seemed a bit too good to be true. I asked what I’d have to do to get 0.8% but the rep wasn’t able to say much more than having a large income and valuable property, along with all the usual credit-check type stuff.
So I suspect this was a classic bait and switch.
Advertise an amazing rate, then after people have gone through all the hassle of the application process offer them a more normal rate and hope they’ll take it.
The loan also has a 108,000 yen fee, and I would have had to go to Tokyo to close the deal.
This was an interesting experience, but unfortunately didn’t work out this time. How about you? Any good loan stories? What other amazing financial products are out there?
Debt leveraged investing along with shorting stocks are 2 things that are too risky for me. Sure, at a super low interest rate it seems like a no-brainer but what if the stock market goes into a 10 year decline, the bond bubble bursts or the yen appreciates a huge amount? You (and any guarantor) are personally liable for the full debt obligation. If it is your own money it hurts but at the end of the day you are not liable to anyone else for the losses. But if it is a loan then you have to keep paying it at a loss or declare bankruptcy (and kiss the mortgaged property good-bye). Since I enjoy sleeping at night this is not something I would personally pursue as an individual at any interest rate.
That’s a very good point, and I have to admit most of my ‘lost week’ was spent thinking about whether it was a good idea.
For me, it ended up working. 0.8% compared to growth/dividends over 20 years seemed good, and in a worst case scenario I could just pay off the loan and lick my wounds 🙂
Still, no debt/no shorting is a good rule of thumb!
Actually, now that I think about it more, in theory if you could use the borrowed money to purchase a government bond or government guaranteed term deposit that yielded a higher interest rate and was denominated in Yen or was hedged to the Yen to eliminate currency risk then it would be basically a risk free investment.
However, if this were possible and relatively easy to do wouldn’t everyone be doing it?
Well, as I found out, it was a bit too good to be true 🙂
This is the same bank that advertises reverse loans. I’m guessing they wouldn’t be interested in property where land is depreciating ..The ad makes it sound wonderful..but of course they aren’t in business to give you a good deal.
Anyone familiar with the companies in Tokyo that specialize in brokering deals for real-estate investment properties by individuals?
They set it up so that you form a new Kabushikikaisha SPV, arrange the loan for you from a willing bank, often times for full amount including all-fees, etc. Seems maybe too good to be true…
Sounds interesting. Do you have any links?
Also sounds like something where the person setting it up makes most of the profit, and the person investing takes most of the risk 😉
Here’s one:
http://www.pacific-am.com/en/service.html
They make their fee through a ~3%(?) brokerage fee based on the total amount of loan. And they also happen to run a property management company, of course, that covers the day-to-day for you, and nets them a monthly fee.
Excellent. We’re going to have a few guest posts soon from someone that works there, so you can ask him directly.
Stay tuned!