To buy or not to buy, that is the question

[bakabakababy]

Hello all, I was pointed to this forum by some kind folks on the JapanFinance page on Reddit - I hope it’s ok to re-ask for advice here also?

I have been avidly reading posts here and in other places on the costs and benefits of property ownership in Japan and I am still very torn on whether or not it makes financial sense to buy an apartment instead of renting. Here is my broad personal summary:

- ~30 years old, EU/UK citizen
- PR holder
- current rent: ~350k a month
- estimated price to buy a similar appartment to the one I am renting: ~160m JPY + fees
- area to buy in: central Tokyo
- long-term residence in Japan: unknown, but expect to be here another 5-10 years. Unlikely to retire here / be here very long term

Securing a mortgage should not be an issue as I am fortunate to have a fairly high base salary. As I expect I may live outside Japan for an extended period of time at some point, my plan would be to change mortgage product at that time to a landlord/investment mortgage if appropriate and rent out my apartment (hopefully for above the monthly mortgage costs, after fees to rental agency, maintainence etc.).

Here is my dilemma - how can I best calculate all of the costs to figure out if this is a good idea financially? Could anyone recommend a real estate consultant or service that would help me navigate this? It’s probably the biggest financial and/or life decision I’ve ever made so I really want to get it right.

I figure I need to as accurately as possible assess:

- fees for purchase, taxes (at time of purchase and annually thereafter), mortgage repayments, maintainence costs
- value change in property over time - eg if I buy an apartment 5 years old today, would it really depreciate to less than 50% of value in 25 years?
- ease, ability and estimated return if I am to rent out in future if I move including change of mortgage product, requirement for landlord insurance etc.
- any financial upside to owning beyond acquiring an asset eg reduced taxes

I would deeply appreciate any advice - in any other country this would be a no brainier I think, but given apartments are likely to depreciate significantly in Japan with age and given I can’t guarantee how long I will live in it, it’s not as cut and dry as “better to pay your own mortgage than one for a landlord” as would be the case in the EU and UK areas I’ve lived in previously.

[RetireJapan]

You might be interested in our livestream chat with Emil Gorgees, a realtor and mortgage specialist in Tokyo: https://youtube.com/live/n-N1fwNge4c?feature=share

[adamu]

It’s probably the biggest financial and/or life decision I’ve ever made so I really want to get it right.

Sorry I don't know the answers to your questions, but as this is a retirement forum I can't resist a quick sanity check:

Your savings rate as a percentage of your income is the most important financial metric. Looks like you spend about 15% of your income on rent. Hopefully you save more than that!

https://www.mrmoneymustache.com/2012/01 ... etirement/

[bakabakababy]

You might be interested in our livestream chat with Emil Gorgees, a realtor and mortgage specialist in Tokyo: https://youtube.com/live/n-N1fwNge4c?feature=share

Thanks - I’m going to watch that this morning on the way to work

[bakabakababy]

It’s probably the biggest financial and/or life decision I’ve ever made so I really want to get it right.

Sorry I don't know the answers to your questions, but as this is a retirement forum I can't resist a quick sanity check:

Your savings rate as a percentage of your income is the most important financial metric. Looks like you spend about 15% of your income on rent. Hopefully you save more than that!

https://www.mrmoneymustache.com/2012/01 ... etirement/

Thanks for sharing this. To be honest, I am not a great saver and looking to improve… this has partly driven the desire to purchase a property which feels like a long-term investment in itself.

I really need to be more disciplined around saving.

[bakabakababy]

Quick number check:
If the purchase price is 160m for an equivalent, in my opinion you’re possibly to be better off renting.
Reasoning:
1. your rent is only 2.6% of 160m. Good deal.
2. Your mortgage would be over 400k per month on 0.5% flex interest, plus 400-800k yen per year for property tax, plus the 30-60k of management fees, maybe 100-200k for annual insurance. So roughly you’d go from 350k to 500k in cash out every month.
3. Purchase and selling costs 8% for buying and 5% for selling (very rough estimate) of 20.8M, need about 5 years of mortgage payments to recover that.
4. Upside/downside of owning a central property not considered. I’d say that would be speculation. Some might say prices went up in the past so surely they’ll rise in the future, I tend to assume the high price levels are not sustainable as interest may go up and the yen is likely to appreciate leading to dampened demand.

Anyway, that would be my thinking.
You need to do your own math of course.
I’d rather invest the money at >3% or in cash yielding investment properties and pay the rent from that.

I purchased myself, but rent was 4% of purchase price and I’m now paying 70% of a rent for mortgage, mgnt fee, insurance, property taxes.

Thanks - I think this is sort of what I need to hear. I am probably approaching the whole “owning your own home” thing from a very UK perspective where almost certain appreciation makes it a bit of a no brainer.

Doing my own math is what has brought me here - I ultimately calculate it as a pretty “break even” investment given all the fees and budgeting conservatively around appreciation/depreciation of the property. I was, if I’m honest, hoping to be told otherwise and that renting out etc would be easy / should largely cover the mortgage etc in the future making it a more sound investment strategy.

[RetireJapan]

am not a great saver and looking to improve… this has partly driven the desire to purchase a property which feels like a long-term investment in itself.

You may get a much more out of learning about personal finance and investing instead of buying a property -it would take less time too

[RetireJapan]

renting out etc would be easy / should largely cover the mortgage etc in the future making it a more sound investment strategy.

Be careful with this, as most banks' residential mortgage contracts do not allow you to rent out the property. You would need to get permission from the bank to do so, or need to remortgage to a commercial mortgage with a much higher interest rate.

[Tkydon]

Quick number check:
If the purchase price is 160m for an equivalent, in my opinion you’re possibly to be better off renting.
Reasoning:
1. your rent is only 2.6% of 160m. Good deal.
2. Your mortgage would be over 400k per month on 0.5% flex interest, plus 400-800k yen per year for property tax, plus the 30-60k of management fees, maybe 100-200k for annual insurance. So roughly you’d go from 350k to 500k in cash out every month.
3. Purchase and selling costs 8% for buying and 5% for selling (very rough estimate) of 20.8M, need about 5 years of mortgage payments to recover that.
4. Upside/downside of owning a central property not considered. I’d say that would be speculation. Some might say prices went up in the past so surely they’ll rise in the future, I tend to assume the high price levels are not sustainable as interest may go up and the yen is likely to appreciate leading to dampened demand.

Anyway, that would be my thinking.
You need to do your own math of course.
I’d rather invest the money at >3% or in cash yielding investment properties and pay the rent from that.

I purchased myself, but rent was 4% of purchase price and I’m now paying 70% of a rent for mortgage, mgnt fee, insurance, property taxes.

Thanks - I think this is sort of what I need to hear. I am probably approaching the whole “owning your own home” thing from a very UK perspective where almost certain appreciation makes it a bit of a no brainer.

Doing my own math is what has brought me here - I ultimately calculate it as a pretty “break even” investment given all the fees and budgeting conservatively around appreciation/depreciation of the property. I was, if I’m honest, hoping to be told otherwise and that renting out etc would be easy / should largely cover the mortgage etc in the future making it a more sound investment strategy.

See

viewtopic.php?p=29360#p29360

[TokyoWart]

...
2. Your mortgage would be over 400k per month on 0.5% flex interest, plus 400-800k yen per year for property tax, plus the 30-60k of management fees, maybe 100-200k for annual insurance. So roughly you’d go from 350k to 500k in cash out every month.
...

Just a few numbers here I can help with based on my experience. We bought for 144 million yen in central Tokyo (Minami-Aoyama) back in 2001. Our property tax came in at 335,300 this year. I hear mixed reports on whether or not our home is worth more than our purchase price so I won't even speculate on that. We had a 15 year mortgage at something around 1.8% and while we were paying it my impression was we could have rented an equivalent home for about 60% of what we paid each month for the mortgage.