What would you do? Income/assets when buying

[japantous]

Hi all, what would you do if you were buying your first property in my situation?

Household income: 17m yen (me and wife, no kids and have solid plans to not have any)
Investments/savings: 70m yen
Debt: None to speak of

We are looking to buy a used manshon in Tokyo that is closer to our workplaces than our current rented apartment. We also intend to be in Tokyo for the long term. That said, I am considering other options which I will outline below. Just wondering what some of you more experienced people would do in my case. Our top priorities are being in a good location (for work and family needs) and the manshon's floor space, with less emphasis on the age of the building (although <30 years preferable)

A. Buy a used manshon, close to 100% loan, keep all investments generating income and try to retire earlier. Budget around 8,000man (Common sense indicates this as the clear winner, and yet...)

B. Use investment assets as collateral to get a bigger loan and build a new place with attached apartments to rent out. (Option A is clearly common sense and less risky, but with this option we could get a new place, have a say in the design, and potentially more living space. There is a guy in my area who has built a 4-story multi-use building with his family's manshon on top, some apartments, and some commercial space where there are clinics and other businesses. I swear there was a thread that talked about this but I can't find it for the life of me. Has anyone done this?)

C. New manshon, or
D. Other?

Thanks for any and all opinions.

[beanhead]

D. Keep renting. Find a more convenient place to rent.

[Tkydon]

Where in Tokyo? It's a big place...

[Tkydon]

Where in Tokyo?b

Income Y17M

You could reasonably afford 3x to 4x

Y51M to Y68M

With no deposit

Any more would compromise your standard of living...

But, bear in mind you will be on the hook for 35 years...

Keep as much of the Y70M invested as possible, pay as little down-payment as possible... Invest as much as you can over the Mortgage Payment in iDeCo, NISA, etc...

A or C, but budget as above, max Y7M

B. would be good, but it will be much harder to finance and you would only qualify for the Home Owner's loan on your part of the property. The rest would have to be financed with a commercial loan; probably 30% down and a higher interest rate at maybe 3-4%
You would have to buy the land, fund the construction, and your cashflow would not start until some time after completion...

[RetireJapan]

A

[Tsumitate Wrestler]

Depending on location 80,000,000 could get you a nice used-detached house with a small yard, or a newly built detached house. Why a mansion? Are you planning to live downtown?

Renting is definitely still an option for mansions and apartments. For detached homes, renting quickly becomes less advantageous.

[japantous]

Thanks for all the replies.

We are looking in Nerima-ku.

Keep renting is definitely an option. We are partial to a manshon for personal reasons, although not necessarily against a detached house. For one, we like having everything on one floor, without any stairs.

I think Tkydon is right about the B option. It would be good in theory but it is a ton of work and would likely have to put more money upfront. I may talk to a builder company that offers this type of thing and report back.

No surprise that Ben says A, and we may end up going that route

[RetireJapan]

No surprise that Ben says A, and we may end up going that route

What can I say, I am profoundly lazy. If I can get the desired result for minimal effort, I will

[Nancy]

A neighbor, who owns their land, was going to do this (tear down a single family home and build a 4 story building with maybe 12 small apartments. They had the plans all made before COVID hit, and they eventually had to cancel because the construction price increased to almost double. As people have said in other threads, due to the depreciation of a building, it is difficult to actually make money with real estate. So you will have the rental income, but remember the need for repairs etc. The land will increase in price, probably, while the building just depreciates, so I guess this only matters if you are going to resell, but it's a bit discouraging.

[japantous]

A neighbor, who owns their land, was going to do this (tear down a single family home and build a 4 story building with maybe 12 small apartments. They had the plans all made before COVID hit, and they eventually had to cancel because the construction price increased to almost double. As people have said in other threads, due to the depreciation of a building, it is difficult to actually make money with real estate. So you will have the rental income, but remember the need for repairs etc. The land will increase in price, probably, while the building just depreciates, so I guess this only matters if you are going to resell, but it's a bit discouraging.

Great point. Reading a bit online last night it sounds like this is a common pattern (already have the land in a decent location, going to rebuild with attached rentals).
Having to purchase the land on top of building costs would be a big financial burden for sure.

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