RetireJapan

Hi everyone. For family reasons, we are considering buying a second unit in our building. This is not a financial play (I hate it, financially) but might be worth it in terms of intangible benefits to family.

The question is, were we to do it, what would be the least bad way to do so?

We bought our place a few years ago for 9m yen, and got a mortgage for 9.9m (to cover fees). We have just under 8m left on the mortgage (monthly payment is 30,000 yen).

The new place was bought by one of these companies that renovates places and flips them. It went on the market for 23m earlier in the year, and is now listed at 21.3m. I think it is overpriced and has a poor chance of keeping its value over time.

The building is too old to get the mortgage tax benefit/does not have the necessary certificates.

I have six more months of employment, so if we are going to get a loan, the time is now.

As far as I can tell, we have three options:

1) pay off the mortgage on our place, and buy the new place with a residential mortgage
2) keep our current mortgage, and buy the new place with a commercial mortgage. Rent it out to our family, and use it as a way to reduce taxes (depreciation, etc.). Eventually sell it, possibly at a loss.
3) liquidate some investments and just buy it with cash. Possibly rent it out to family, as above.

What do you think? Which is the least bad option there? Am I missing anything?

If you'll accept the gut feeling of someone utterly unqualified in these matters...

RetireJapan wrote: ↑Sat Sep 04, 2021 2:04 am 3) liquidate some investments and just buy it with cash. Possibly rent it out to family, as above.

This seems (to me at least) like the wrong thing to do.
If investments are designed to grow over time and the manshon you're talking about is likely to depreciate over time, then getting rid of the one thing that might at least offset some of the long-term hit you'll take on the manshon seems counterintuitive.

1 looks like the best of those options to me.

Only you can balance 1-3 with 'intangible benefits to family'.

Since your contract is ending, don't do it at all.

Good luck

The advantage of the regular mortgage is only in the low interest rates considering the 10 year tax breaks won't be of that much use to you because you'll be retired. Gut feel though is that 1 is still the best shot since the original mortgage is still low so you can suck it up and pay it off.

zeroshiki wrote: ↑Sat Sep 04, 2021 4:43 am The advantage of the regular mortgage is only in the low interest rates considering the 10 year tax breaks won't be of that much use to you because you'll be retired. Gut feel though is that 1 is still the best shot since the original mortgage is still low so you can suck it up and pay it off.

Thanks! Can't use the 10-year mortgage tax break because the property is over 25 years old AND does not have the necessary documentation to prove safety etc. to qualify for it.

AreTheyTheLemmings? wrote: ↑Sat Sep 04, 2021 2:44 am This seems (to me at least) like the wrong thing to do.

I tend to agree! Hoping someone has a good argument in favour of this though, to help me think about it

captainspoke wrote: ↑Sat Sep 04, 2021 3:35 am Since your contract is ending, don't do it at all.

What's your thinking here? This is probably our last chance to get a loan, as we'll both be self-employed after next March. If we decide this is a good idea, we have a strict time limit in place

RetireJapan wrote: ↑Sat Sep 04, 2021 4:58 am

AreTheyTheLemmings? wrote: ↑Sat Sep 04, 2021 2:44 am This seems (to me at least) like the wrong thing to do.

I tend to agree! Hoping someone has a good argument in favour of this though, to help me think about it

I guess the argument in favour is that the investments you would cash in would likely have done very well, so you are locking in gain, possibly towards the end of a bull market. And not relying on the continued good performance of these assets to service the loan. It could be viewed as a kind of diversification in the assets you actually possess, since I imagine you will still have plenty of investments. The rental would be another income stream from a different source.

Beaglehound wrote: ↑Sat Sep 04, 2021 8:13 am I guess the argument in favour is that the investments you would cash in would likely have done very well, so you are locking in gain, possibly towards the end of a bull market. And not relying on the continued good performance of these assets to service the loan. It could be viewed as a kind of diversification in the assets you actually possess, since I imagine you will still have plenty of investments. The rental would be another income stream from a different source.

Nicely argued, thank you!