RetireJapan

Curious if anyone has built a new house, and added as part of the design, a small apartment or two into the design, as a way to generate some additional / side income? If so, how was the zoning and build process, and how has the rental experience been?

I'm considering this in a larger metro area, where I could rent the apartments out to English teachers or similar.

We did not build or buy a house, but the original school we rented had an apartment, which we used to live in, but have since moved. We still run the school from there, but now we sublet the apartment to an English teacher. Nice bit of income coming in every month.

Thx. Yes. I'm wondering what the zoning and tax implications are, and if it's common to have each unit metered and billed separately for energy and water consumption, to avoid the risk of paying high utility Bill's for tenants.

I'm in Vanada and will retire in Japan and ideally work my last pre retirement job in Japan (my spouse is Japanese).

In Canada we have separate metered suites but I dont know if that's the norm in Japan and what the tax implications are.

Zoning:

Land is zoned as Kempei Ritsu and Youseki Ritsu
Kempei Ritsu is the maximum amount of the land than can be occupied by the footprint of the building
Youseki Ritsu is the maximum ratio of total floor space to the size of the Land.

So, a 50/150 property can only occupy a maximum of 50% of the land, and can be built to a maximum floor space of 1.5 x the land size. (3 stories with caveats)
An 80/300 can be built to 80% of the land space with maximum total floor space of 3 x the land size... (4 stories with caveats)

Then there are Sun Rights - Kita Shasen - the properties to the north of you have the rights to receive sunlight, so many buildings are built with stepped structures to ensure they do not encroach on the sun rights of the properties to the north... If you have a road to the north is the best scenario. This may increase the number of floors by reducing the available floor space per floor...

So long as you stick to these zoning limits, you are good...

It is common to have each unit metered and billed separately for energy and water consumption.

Tax
Rental Income minus Expenses is taxable, but can be offset by the Depreciation Expense
1/22 years for a Timber Framed Structure, 1/43 years for a Steel Reinforced Concrete Structure, 1/15 years for Fixtures and Fittings
Land cannot be depreciated.

Excess loss after applying the Depreciation Expense can be used to offset Salary Income Taxes.

I would not want to live with my own renters next door, nor have renters that knew that I (right next door) was the landlord. Keep biz and personal life separate.

Renting to foreigners who are more transient (eg, english teachers) may sidestep the issue, but one factor is tenant's rights here. Something to consider with a rental. People can effectively stay forever, and if you want someone to leave it can be a touchy/expensive process.

One way around the "house plus an extra rental unit" could be (and only a possibility) a two generation style design. These are not uncommon at all, and sometimes there are, effectively two units (tho some have easy/good access between the two parts). These are usually designed/owned with parents/inlaws occupying the second/smaller part, so not a rental in the typical sense, but creatively, one part or the other of such a place might be rentable.

Another option might be a share house kind of place. One of our kids, during uni, stayed in one right downtown in central tokyo.

It was a three-story building, and the owner lived on the first floor, the share house part (completely separate entrance) was on the second and third floors--this was a common area (kitchen and living, with two shower rooms and two toilets) and four rooms for student tenants. References and guarantors were required, utilities (IIRC) were not metered separately, tho the a/c-heater units in each room might have been. Students are transient by nature, a pro, but the con side of that is turnover. This place was all women.

This place probably worked (for the landlord) since it was walking distance to a big university and not far from several others. Midway between Tokyo Dome and Ueno Park, so definitely city center, tho not a major business district. From my POV, I can't imagine what land would cost in an area like that. Alternatively, something like this might be possible in west tokyo if there were a couple few uni close by, and grad students would probably be an easier clientele than undergrads.

These are fairly common in Japan, they are called 賃貸併用住宅 and every major house-manufacturer offers plans (e.g. here or here). I've been to see some at the 住宅展示場 showrooms, and can confirm they are quite nice and well designed, and do a good job of separating the rental units from the main home.

They are a great idea for providing some supplemental income, but the primary downside is the (much) higher initial cost. These structures are more expensive to build (some sample prices at the Panasonic link above), you will need a larger-than-usual plot of land, and to attract tenants you will need to have a decent location (=more expensive land). All of this adds up pretty quick. Talking to the sales folks, I got the impression that many of the customers for this product are people who lucked into inheriting large plots of land in good locations, and thus didn't have to pony up for the land.

Zoning works differently here in Japan than in places like Canada, and the only restriction you will have to worry about is how big you can make the structure, as mentioned above. This size limitation will obviously have a direct impact on the number of units.

Also worth noting, but if you're planning on getting a mortage, in order to qualify for a homeowner's mortgage, your own living space must take up at least 50% of the total floor space of the structure. If not, you will need to get an investor loan, which has much higher interest rates and doesn't enjoy the tax breaks that a regular mortgage has.

Finally, in Japan it is completely ok to discriminate against tenants on the basis of sex, race, age, whatever. So you are perfectly free to stipulate to the agent that you only want, say, single females between 30-40 if you see that demographic as lower-risk for whatever reason.