Renovating a House in Japan 2

Three options

My in-laws’ place is in an incredible location

We’re still working on the house project. Quick summary:

  1. My wife’s parents live about 20 minutes from us, in a 40-year old steel frame house.
  2. We first considered knocking their house down and building a two-generation house so we could live with them, but this didn’t work out for a number of reasons.
  3. Now we are thinking about renovating their house so it is more comfortable for them and so we have some space if we need to stay with them.
  4. The house is already in my wife’s name and we’ll pay for half of the renovation.

​We had another series of meetings with Ishiguro Architectural Workshop. Things were dragging on a bit, so I asked them to price out three options: just insulation, insulation + redoing the interior, and the full monty.

Option 1, just insulation, includes insulating the walls, floor, and ceiling, changing the front door, adding interior double windows, and changing the bathroom. It comes to 8.3 million yen.

Option 2 is basically option 1 as well as a complete interior remodel giving us a more senior-friendly floorplan and a nice space upstairs for my wife and I (or other visitors) to use. This comes to 15.9 million.

Option 3 is the first two options plus increasing the airtightness, a new heating system, ventilation system, and thicker insulation. It comes to 18.9 million.

IAW seem to specialise in custom interiors, so asking them to do option 1 is a bit of a waste. They also seem to want to do the interior, and are very proud of their past jobs (they keep encouraging us to visit their previous projects).

I think we’re going to go for the full-spec job on this, so I expect we’ll end up paying around 10 million yen (half of the total). This doesn’t make much financial sense to me except that it is something my wife wants to do for her parents, and so that is good enough for me. 10 million is also a lot less than the 23 million that would have been our half of the new-build price πŸ˜‰

We also have to think about how to pay for this, basically either with cash or by taking out a loan.

I’ve spent a long time arguing about this with frequent contributor DA and in this instance have decided he’s probably right. Instead of taking out a loan for our share of the 10 million (I found a special deal for public servants which would lend us 10m at 1.3% for ten years) we will instead sell some shares to do so.

In fact I sold the shares last night. My wife had a TOPIX index fund that was up 44% so instead of risking the value falling before we need to pay for the house later in the year we are going to cash instead.

If you will need money in the short term (1-2 years), or the medium term (up to five years) it may not be a good idea to invest it in the stock market. You might lose out on some profits, but you avoid the risk of losing money just before you need it.

We may or may not end up living in the house eventually (although I suspect my MIL will outlive me), but it is in a wonderful location on the edge of a public forest. It would be a very pleasant place to spend weekends and lazy summer mornings.

What do you think? Do you have experience of renovations in Japan? Any advice?
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23 Responses

  1. We bought I 25 year old house and put in double glazed inner windows (ε†…ηͺ“οΌ‰inside all the windows and replaced the air conditioners. That came to under 200man. Our electric bill was 2man in January for my home and school. (Water is heated by gas) Those single pane windows with aluminium frames are the worst cause for heat lose.

  2. Not sure I follow why you decided to sell some shares instead of taking a loan at 1.3%. Statistically, it feels counterproductive, unless you feel that with the current CAPE numbers, we’re entering a bad period for the markets? Or is it a way to diversify?

    1. It took me a long way to come around to this way of thinking, so I’ll see if I can explain it properly. Had a long-running argument/discussion with DA for a few weeks on this topic.
      At first I was under the impression that borrowing at a low rate was a no-brainer. However, DA disagreed. I now kind of agree with him.
      My current thinking is:
      1. don’t want to do the paperwork or pay the fees for the loan
      2. don’t want to increase our monthly fixed costs
      3. stocks are very richly valued right now, this might not remain the case
      4. the payments we would have put towards the loan can instead be used to dollar average into the stock market (if stocks fall, this is a net benefit)
      Basically it’s a drive for simplicity and a bet that investments will fall in value over the short- to medium-term. Don’t think it’s a clear decision either way. Happy with the worst-case scenario (which is the stocks continue going up).

      2. Renovating an old place has very big advantages but taking out a loan or selling stocks to pay someone else to do the work for you is stupid. If you have the time and access to YouTube di Y is the way to go for turning worthless structures into a home you can live in no matter what the condition.

      3. Ha, ha, I’m sure you’re right David.
        Sadly I have neither the time, the interest, nor the aptitude to do that. Happy to pay a professional to do it for me πŸ˜‰

      4. It’s not a clear decision either way. But interest rates are so cheap at the moment, even on a 10-year fix and without the 1% tax refund which you get for new properties. If you think your investment would only have grown by 1.3% a year for the next 10 years then you should have done what you did, i.e. sell it. But I think an index tracker like that will deliver spectacularly more than 1.3% a year over the next 10 years, in which case you should have borrowed the money then paid it off in 10 years at a massive profit. The point about not increasing monthly outgoings is perfectly valid, though..

      5. Very true, Richard.
        In fact I suspect we’re going to have some sort of stock market crash over the short-medium term, so there is a good chance that dollar cost averaging into that will be more profitable.
        We’ll be fine either way though. This just makes life a little less complex πŸ™‚

  3. Don’t know about RJ, but my thinking is a) the ’10 million yen’ is a lot closer to ’11 million yen’ with interest, b) it’s locking in an Y88,000 monthly payment for the next 10 years, for a home that they may or may not live in, and who knows what will happen in the intervening 10 years and c) given where we are in the market – nine years into an extended bull run – I personally wouldn’t mind taking a bit of cash off the table.
    The ‘oh the interest rate is so low just take out a loan’ mentality, I don’t quite get it. You’ll never find a millionaire that says they got rich by borrowing money.

    1. I think there are many millionaires who got rich by borrowing money! Take investment property, for example. The tenants are paying off the mortgage and you don’t have to blow a big chunk of your capital on one property.
      However, in RJ’s case I agree with you. The stock market is at a risky time right now, especially with inflation and potential trade wars on the horizon, so it makes more sense for RJ to finance this with stock market profit than a loan.

    2. Well, if the loan is much less than what you would be potentially making on stocks over a decade, why would you pay a large sum of cash for the work? That’s the point, I think. If you don’t believe the stock market is going to do anything, just pay the money up front. I find it hard to believe that it won’t perform better than that over the long term though.
      But, as the author writes, for that low an interest rate, you also may as well just pay if you can and take the sting now and have less to worry about every month. The house is paid for, it’s done.

  4. “3. stocks are very richly valued right now, this might not remain the case
    4. the payments we would have put towards the loan can instead be used to dollar average into the stock market ”
    Thats a smart move, borrowing money at 1.3% so you can leave other money in the stock market would have been risky
    Of course no one can predict where the market will go from here short term, but we are closer to the end of this bull run, than to the beginning..

  5. I looked at a house last weekend–it was three years old, and there were many things to like about it.
    (I’ll not use full caps, but..) When is Japan going to give up lighting a room with a single fixture in the center of the ceiling?!?!? This place was full LED, too.
    I wish that Japan had made as much progress on lighting design as it has on windows, air-tightness, insulation, and so on.

    1. We occasionally come across decent lighting, and almost inevitably the person responsible trained abroad, often in northern Europe.
      I think the design aesthetic of designing lighting is slowly becoming more common in Japan, but it’s a long way from being standard.

      1. Have you thought about a roof and exterior painting..I know that these things can add to the price of renovation. Nancy

      2. I think they are going to rip the walls and roof off, so might not be necessary. My in-laws have also been very good at maintaining the property. I guess we’ll find out more in the next dozen meetings or so πŸ˜‰

  6. Did the company assess the earthquake worthiness of the house’s frame? Do they plan to make any upgrades which would bring it up to the current earthquake code?

  7. I’ll ask them next time. The survey we did shows the ground is unbelievably hard though, the house has a steel frame, and during the big earthquakes in 2011 the total damage was… one cup fell off a shelf.

    1. The problem is, there may have been some damage or deformation of a joint or beam during that earthquake that might not survive the next one. If they’re going to remove enough of the walls and floors to see the strongest portions of the frame, they may discover something unexpected that needs to be fixed and will raise the cost. You should be prepared for this possibility.

    2. Thanks! they did say they would have to open all the walls, etc. to install insulation. I’ll ask about it in our next meeting πŸ™‚

  8. A well-insulated home with triple paned windows and good sunlight will be cheap to live in because it is so easy to cool in summer and heat in winter. The energy efficiency will bring your living costs down. Barrier free was a new term when our house was built 20 years ago. We are so happy that our architect kept steps to a minimum with no mouldings or level differences from room to room. Please keep in mind the likelihood of sick house problems from the construction materials. If you seal your home, the outgassing of the plywood, bonds, glues, flooring, paint, etc will take years and you will have to deal with the short and long term physical effects of the chemicals including formaldehyde, petroleum based compounds, etc. If you are working with a good company, they should be willing to locate low chemical materials, for example soy based paints from Germany which are a good replacement for wall coverings that are made with retardants and other smelly compounds and require strong glues to attach onto the walls. You have to be careful with cork and other seemingly natural materials because they are bonded with strong glues. Wood saturated with insecticides is another problem. The list is long, but I strongly recommend a conference with your builder and express any concerns about the harmful effects of building materials and their willingness to work with you to make a healthy living environment for you and your family. It will be well worth the effort.

  9. Hi Cynthia
    Thanks! We’ve asked them to put in mechanical ventilation, which should help with the off-gassing πŸ˜‰