Value of Second hand Mansions

[eyeswideshut]

To answer the initial question:
My opinion is also that people who sell their manshon are trying to recoup their loss. When we sold ours (it was about 10 years old, we weren't the first owners), the overall cost for the buyer was pretty much the same thing we had paid 2 years before, when we bought it.

However with the closing costs, all the fees that everyone takes here and there, we lost a significant amount of money by buying and reselling. We estimate it would have been the same if we had rented the place for that same amount of time, so not a big loss, but still a loss.

Bottom line, from the eyes of the prospective buyer, the manshon looked like it hadn't dropped in value over the course of 2 years. In practice, it did, and the difference went in the pockets of the real estate agents, attorneys, banks, etc... and we initially bumped the price up in a vain attempt to compensate for that. I'm sure lots of owners trying to sell are doing the same. So it could even look like the price is going up...

This is an important lesson. My wife and I ran the numbers a few years back and came to the conclusion that, unless there was a sudden appreciation in property values in Tokyo, with all the associated costs included it would take about 5 years for a purchase to show its value (i.e.: be cheaper than renting). As we were not sure whether we wanted to stay in Tokyo we felt it was better to continue renting. I suspect that may have been the wrong decision as I have noticed prices going up recently. Now that we are more certain that we will be in Tokyo for a while we have started looking again but honestly I feel prices here are so out of line with the rest of the country that it is really difficult to pull the trigger.

[jcc]

My wife and I ran the numbers a few years back and came to the conclusion that, unless there was a sudden appreciation in property values in Tokyo, with all the associated costs included it would take about 5 years for a purchase to show its value (i.e.: be cheaper than renting).

Yeah, this is why I said that living there long-term would be important.

I'd actually be surprised if 5 years is long enough. I really thought it'd take longer to beat out rent, especially if you buy new(due to the higher depreciation at start).

The real estate agents are pretty pushy with getting people to "invest" in real estate. Because whether you win or lose, they always win. They get their chuukai tesuuryou or their management fees regardless. Surely if those places were surefire profits, they would just buy them and rent them themselves? Of course then they take on the risk when they could just have you take on the risk and still receive a generous payment.

They're the exact people with the most information but their interests are absolutely not alligned with yours so they simply can't be trusted which is why I get so sketched out every time they say "yeah you should just buy, you can always resell or rent it out if you find circumstances change". One of them told me his personal story of how he started out in a 2ldk, then sold it, moved to a 3ldk, had another kid and decided to move to a 4ldk and rent out the 3ldk. It's very believable and sounds like easy money, but he wouldn't give me a clear answer on if he expects the 3ldk rent to cover the mortgage, tax and repair costs even as it gets older.

[DragonAsh]

This is an important lesson. My wife and I ran the numbers a few years back and came to the conclusion that, unless there was a sudden appreciation in property values in Tokyo, with all the associated costs included it would take about 5 years for a purchase to show its value (i.e.: be cheaper than renting).

Interesting - obviously the numbers will change depending on where you're renting and what you buy, how much of a down payment you make and such. So I'm not sure of the numbers you're running, but wow, needing five years to come out ahead seems...odd.

Looking at examples in the neighborhood where I live: homes that would sell for Y25-30 million are being rented out for Y150,000-180,000 a month. We could be conservative and peg the rent at Y125,000 a month on a home selling for Y25 million.

Scenario 1: Pay 125,000 a month.
Cash outflow for years 1-5: Y1.5 million a year
Five-year Total: -Y7.5 million

Scenario 2: Buy the Y25 million house, paying Y2.5 million down with 10% closing fees (a bit too high, but being conservative - if you are just a little bit diligent, you can buy a house and pay around 1% in fees) and a Y22.5 million mortgage, 15-year fixed at 1.5%. Property tax Y75,000 a year and we'll add in Y100,000 a year for maintenance and repairs and stuff. You sell the house at the end of five years for the same market price, pay off the loan (balance is Y15.5 million), and you lose 5% in closing fees (which is higher than it would normally be, but being conservative).
Cash outflows:
Year 1: -Y6.763 million
Years 2-4: -Y1.763 million
Year 5: +Y6.432 million
Five-year Total: -Y5.62 million

So in this example, you spend roughly Y2 million less over the five years buying vs selling, and that's being very conservative on the rent and fees. In fact you could have around some depreciation and still easily come out ahead.

I also ran the simulation using a 35yr loan, and the 15yr loan scenario was still the better option after five years.

And of course the longer you own, the more beneficial it is vs renting.

Anyway, food for thought. If anyone is interested in the Excel I can post it to dropbox.

[RetireJapan]

How realistic is it to assume you'll be able to sell for the same price in Japan? I'm guessing it will depend on the local market.

[jcc]

Looking at examples in the neighborhood where I live: homes that would sell for Y25-30 million are being rented out for Y150,000-180,000 a month. We could be conservative and peg the rent at Y125,000 a month on a home selling for Y25 million.

If you're seeing homes like that that's impressive.

I'm seeing flyers for brand new 40m homes and that advertise the fact they could be rented for ~135k a month like that's an amazing deal(while paying a 35 year 100k mortgage).

Of course I think if renting it out is the plan buying second hand after the initial depreciation would be better.

What kind of homes are you looking at that would rent out at such high prices?

edit: I currently rent for 190 a month and used to rent for 150 a month so have a decent idea of what rents are like(yes I'm aware it's expensive but until recently it didn't bother me as I liked to be close to work and have a spacious home). I could not find anything in my current neighborhood for a similar place that was cheaper than 45mil, most places were more like 50.

[DragonAsh]

How realistic is it to assume you'll be able to sell for the same price in Japan? I'm guessing it will depend on the local market.

Yeah, obviously would depend on the local market, as well as the actual property (close to station, age etc).

But over the past 6-7 years from what I can tell, per-tsubo prices are up around 10-15% in Tokyo and Nagoya (+10% or so where I live, outside of Shinjuku). Also saw data that showed real estate prices over the past three years by area: Tokyo +26%, Saitama +20%, Kanagawa +16%, Chiba +17%. Kansai seems to have just held flat over the past 5-6 years.

What kind of homes are you looking at that would rent out at such high prices?
edit: I currently rent for 190 a month and used to rent for 150 a month so have a decent idea of what rents are like(yes I'm aware it's expensive but until recently it didn't bother me as I liked to be close to work and have a spacious home). I could not find anything in my current neighborhood for a similar place that was cheaper than 45mil, most places were more like 50.

In this area (outside Shinjuku), homes built roughly 25 years ago that have probably been remodeled a bit, mostly 3- or 4-bedroom houses with a parking spot. This is reasonably representative:
https://suumo.jp/chintai/jnc_0000382680 ... 0114738495

[jcc]

In this area (outside Shinjuku), homes built roughly 25 years ago that have probably been remodeled a bit, mostly 3- or 4-bedroom houses with a parking spot. This is reasonably representative:
https://suumo.jp/chintai/jnc_0000382680 ... 0114738495

Can you find something like that for sale below 40m? I'd be surprised if I could find something like that below 50, though I haven't really looked into shinjuku at all

edit: ah, it's a used house, not condo so that explains a lot. Most of its value would be for the land its on.

I was warned by real estate dudes that very few people want to rent used homes so there's that... Honestly this place is beyond my experience and I can't comment much on it

[DragonAsh]

I was warned by real estate dudes that very few people want to rent used homes so there's that... Honestly this place is beyond my experience and I can't comment much on it

I have no idea what the dude(s) in question is basing that on, but based on my experience (a) in the area where I live now and (b) several decades of working and living overseas with expats from Japan, I have seen zero evidence to back up the dudes' claim. Maybe it's very area-specific?