Your Key To Passive Real Estate Income

Things To Avoid In Japanese Real Estate Investing (Part 1)

Japan real estate financial planning low-risk investment things to avoid

guide japan international investmentJapanese real estate can be very lucrative. For example, take the current average return on investment (ROI) in the 23 Special Wards of Tokyo. Using this average ROI, for every $100,000 you invest, you’ll get $5,500 per year in passive income. This number goes up to $6,500 in the outlying areas of Tokyo. It soars to $7,000 or more for riskier or more specialised real estate elsewhere in the country. However, it’s not without its risks. Here are some things to avoid in Japanese real estate. Of course, no property is perfect. However, if many of the following are an issue, it might be difficult to rent out or resell in the future.

 

 

 

Things To Avoid: #1: Undesirable Locations

Inconvenient Locations

Prospective tenants prefer the unit to be within ten minutes of a train station on a major line. If the unit is more than 15 minutes’ walk from the station, it might be harder to fill vacancies. The train station should also be on a main line. For example, in the case of Tokyo, the Chūō Line and the Yamanote Line both meet this description. The Chūō Line runs between Tokyo and Nagoya (Japan’s fourth-largest city). Within Tokyo, it connects Tokyo Station with Shinjuku (the location of the government) and Takao (Tokyo’s most popular mountain). The Yamanote Line forms a loop around some of the most important places in downtown Tokyo. Train lines that require transfers to reach the main lines will be less attractive to renters.

Not Enough Businesses and Other Institutions

Prospective tenants prefer to be near a 24-hour supermarket. If the supermarket closes at 7:00 PM, that isn’t as desirable. Because many people are either still working, or commuting home at that time. There also need to be banks, hospitals, retail outlets, and schools nearby.

Newtowns

A “newtown” is a development in an area that previously didn’t have many residents. A developer creates affordable housing there, landscapes it to look appealing, etc. The idea is that young couples, attracted by the low prices and the greenery, will move there and have children. However, as newtowns age, businesses and institutions (e.g. schools) begin to dry up and close. Buying real estate in a newtown might look like a solid investment decision right now. However, when the newtown starts to look more like a ghost town, then property prices might decrease.

The Building Is On The Site Of Or Near Something Undesirable

If the building is near something associated with funerals, then it will be harder to find tenants or resell it. Is it near a cemetery or a crematorium?

Possible Chemical Contamination

international investment brokerCould there be any harmful chemicals? Japanese still remember Yokkaichi asthma (四日市喘息, Yokkaichi zensoku). It’s a variety of asthma contracted by many in Yokkaichi City, Mie Prefecture from inhaling petrochemical plant fumes. Japanese renters may not trust, and be less likely to rent, in areas that might have toxic chemicals. These include factories that deal with hazardous materials, incinerators, gas/petrol tanks/stations, labs, industrial zones, or sewage treatment plants. If the building is on the former site of a hospital, that’s another minus.

Other Objectionable Things Nearby

Adult entertainment establishments nearby (e.g. bars, nightclubs, pachinko parlors, soaplands) create a perception of less safety. Gang headquarters (e.g. yakuza), extremist political groups, etc. do the same. Warehouses with large vehicles entering and exiting are another deal-breaker. The large diesel engines and constant “Beep! Beep!” are noisy, and Japanese tenants prefer as little noise as possible.

Stigmatized Properties (which things to avoid that have happened in a building’s past)

A stigmatized property, or jiko bukken (事故物件) is where something very bad has happened. Usually, this was an unnatural death like a murder or a suicide. Sometimes, in graying Japan, an elderly person will pass away alone and no one will notice for a while. They call this a “lonely death” (孤独死).

wake ari bukken tokyo cheapStigmatized properties can go for as little as a quarter of the price of non-stigmatized properties. However, they’re also more difficult to rent out, and when reselling, you can also expect them to sell for less. Legally, the owner must tell you if something ‘stigmatizing’ happened on the piece of real estate during the past tenancy. However, some less scrupulous real estate brokers might figure out legal loopholes around this. An example would be having one of the real estate brokerage employees rent it for a month. Or enticing someone to rent it with the promise of free or at least much cheaper rent. This would allow the real estate broker to claim that nothing horrible happened during the previous tenancy. Make sure to do your homework on the property before buying it, such as by running a search on Oshimaland.

Things To Avoid: #2: Undesirable Units Or Buildings

Sometimes the problem isn’t with the location. Maybe the location is great. The problem is with the unit or building itself.

Being On The Ground Floor (Especially At Street Level)

Units on the ground floor have a more negative image than buildings on the second, third, etc. floors. This is due to fears of potential burglary. Women living on their own tend to be the most fearful.

Imagine that there’s a ground floor unit built on a very high building site. It’s well above street level. The asking price is very reasonable. You know that it’ll be just as safe against burglary or other crimes as any 2nd or 3rd floor unit. To buy, or not to buy? If it’s for your own home, maybe it’s not a bad idea. However, if your goal is to rent it out or eventually resell it, then consider it among the things to avoid. The reason for this is that many search engines for real estate allow prospective tenants to filter out ground-floor units. Miss Satō simply clicks “exclude ground floor units” and clicks “Search.” She gets a list of 1,000 or so properties on 2F, 3F, etc. She doesn’t take the time to check elevations of every unit to realise that yours is 3 meters off the ground.

Problems Related To Natural Light And View

Prospective renters want units with plenty of natural light and a beautiful view. Or at least one that’s not the side of a building. North-facing units will generally command lower rents and sale prices than non-north-facing ones. However, there is some evidence to suggest that buying a new north-facing unit might be advantageous. This is because its value will go up more over time than a non-north-facing unit’s.

jikko bukken japan

Things to avoid are units in a building that face any of the following:

  • A car parking lot
  • Vacant land
  • A company dormitory or dormitories
  • Old, run-down buildings

The reason for this is that any of the above could become the future site for a high-rise building. It could block out the light and the scenery.

More Things To Avoid: Streets, Highways, and Expressways

If the unit has a balcony over a street, highway, or expressway, this might decrease its rent appeal. Even if the balcony doesn’t face a major road, just being close to one could turn off some potential tenants. Few prospective renters want to lose sleep over loud cars, trucks, vans, or motorcycle. These loud vehicles and the major roads they frequent all constitute things to avoid, because many potential renters are sensitive to noise and/or are light sleepers.

The Building Is Just Great…It’s Just Not Right For Me (or most other tenants)

Perhaps nothing is wrong with the building. It’s just too big or too small. Or it doesn’t match market demand. For example, the number of single-member households is increasing in Japan. Therefore, there’s expected to be less market demand for 3LDKs, 4LDKs, etc. in the future. Basically, things to avoid include large units and units with many rooms in an area where the average household size is decreasing.

Expensive Fees

Management fees and repair (reserve) fund fees should be around ¥200 each per square meter in the unit you own. For example, if you own a 100-square-meter unit, then management fees should be approximately ¥20,000 per month:

100 square meters × ¥200 in management (or repair reserve fund) fees per square meter = ¥20,000 in management (or repair reserve fund) fees per month

Repair reserve fund fees should be similar. If the fees are much higher than that, then it turns an asset into a liability. It’ll increase the amount of rent you have to charge, and deter potential tenants, resulting in the unit being vacant. It is one of the things to avoid because it’ll also make the unit more difficult to sell.

Self-Managed Buildings

foreigner friendly real estate japanEvery building containing multiple units has an owners’ association according to the Condominium Unit Ownership Act. Although not legally required, in 98% of cases, this owners’ association appoints a management company. Management companies are generally subject to more scrutiny and regulations than individuals. Therefore, a self-managed building, in which individuals manage it instead of a company, might not be as trustworthy and is among the things to avoid. Banks will often not lend for the purchase of a self-managed 自己管理 property.

Make sure that the management company has saved a decent repair reserve fund for that building. Ensure that the management company is in a good financial situation, i.e not on the verge of bankruptcy. If the management company goes bankrupt, you’ll still be the owner of your unit. However, changing management companies will halt or delay certain processes, for example finding new tenants.

Poorly-Maintained Buildings

Of the things to avoid, another is poorly-maintained buildings. Potential renters (and buyers, if reselling) want a building that looks well-maintained and functions well. They don’t want a building that looks like it’s about to fall down.

Click here Take Me To Part Two…

Should I Invest In Real Estate For Retirement?

Buying Old Vs. New Property

Other Than Tokyo, Where Should I Invest In Japan?

How Much Of My Portfolio Should Be In Real Estate?

How Do I Set Up Life Insurance For My Mortgage?

Does Japanese Real Estate Decrease In Value?

Should I Buy Or Rent In Japan?

How To Buy A Home In Japan

How Long Do Japanese Buildings Last?

How To Reduce Your Health Insurance Or Pension Premiums In Japan (Part 2)

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