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Wrong Real Estate Investment in Japan

Too small apartment is not good 

I explain this issue with taking up an example.

Assumed that an apartment is located in Fukuoka prefecture, Hakata ward.

Apartment located in this area is popular among foreign investors.

Because there are a lot of high yield apartment in this area.

Hakata ward attracts tourists from neighboring countries because it has convenience for access from other country.

So, some foreigners are familiar with this area and when they try to purchase a real estate in Japan, they try to find in this area.

There have been a lot of demand in this area. And too many apartments were constructed in this area.

Now, there are too many apartments and it brought decrease of market price of apartment.

That is why you can find ostensible high yield apartments in this area.


Example of apartment in Hakata

Selling price of this apartment : 3,200,000 yen.

Room area : 18 square meters.

Built in 1988.

Monthly Apartment management fee and reserved fund for repair : 12,000 yen.

There is already a renter.

Gross yield on investment : 11 %.

Monthly rental fee : 32,000 yen.

This apartment may attract some potential investors.

Because this apartment is close to the nearest station.

And there is a renter.

So, they do not concern about finding renters.

When they purchase this apartment, they can receive rental fee at once.

But, if there is not problem in this property, why is the seller going to sell this apartment ?

With respect to net yield on investment.

Monthly income : 32,000 yen – 12,000 = 20,000 yen.

(  37 % of rental fee was wiped out for the payment of  Apartment management fee and reserve fund for repair )

Annual amount of income : 20,000 yen × 12 monfths = 240,000 yen.

240,000 yen / 3,200,000 yen + 170,000 yen ( fee for realtor ) + 150,000 yen ( fee for judicial scrivener and the amount of registration tax ) + 50,000 yen ( acquisition tax ) × 100 = 6 %.

In the case, current renter leaves this room after you purchase this apartment, you may need to repair wall paper etc.

It will cost around 100,000 yen.

😥  41 % of your annual income was wiped out by such expenses.

In order to avoid this kind of situation, you should not purchase an apartment that can collect only low rental fee.

Or you need to reduce the amount of your expense to operate your investment.

When you need to repair wall paper etc, you need to fix it by yourself or find some affordable carpenters.

Do you think you can be a rich person just by looking at your bank account after you purchase investment property ?Or you need to purchase it at least 20 % of yield on investment.

But in the case of cheap apartment, the number of people who have such budget is bigger than number of people who have 10,000,000 yen by cash.

So, there are many competitors and it will reduce the chance to purchase it at very high yield on investment.

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