Diary of a foreign national who purchased a real estate in Japan…

A request from a potential real estate investor 

In this page, I will introduce a person who purchased a real estate in Japan.

( In order to avoid disclosure of personal information, I modify some parts )

In 16th, May, 2016

A person contacted me via skype

” Contact request I’d like to add you as a contact “

This was the first contact from her

” I looked at your website

There are a lot of good information on real estate investment

I want to buy a real estate in Japan

Can you assist me ? “

” Thank you very much for your contact

I can look for real estate on your behalf “

I replied

” Which area do you wan to purchase ? Could you tell me your budget ?  “

She said

” About within 50 million yen around Tokyo

I prefer wooden house, because of its depreciation cost “

She knows in the case of wooden house, she can depreciate the value of building shorter term than rein forced concrete and it produce tax merit

” You may want to send me some samples of real estate you would recommend

Can we meet in Tokyo next week ? “

” Yes, sure”

I replied

” Is it better for you that objective real estate has already renter ?

Is it OK even if a real estate is located outside of Tokyo ?   “

According to her reply, I looked for some real estates

Searching for a nice real estate via Japanese website 

In 20th, March, 2016

I sent him a information of a real estate

I have found this information in famous website where a lot of information of real estate for sale is published.

I know that it is very difficult to find nice real estate in this kind of website

Because, basically they only publish information of real estate that realtor can not found buyer for several period “

However, I need to confirm whether she was serious investor or just tire kicker “

If I have found she is serious investor, I can contact local real estate company

If you want to purchase a real estate in Kachidoki, Chuo ku, Tokyo, it is better for you to contact real estate agent who is located in Kachidoki, Chuo ku, Tokyo.

Because, there are more information than other real estate company that is located in other area.

Nice information of real estate is not shared with other real estate company at once.

” Hello, Nancy

This was information of a real estate

This information is just for sample

2 stories wooden detached house

Location :  Kita ward, Tokyo

Nearest station is Jujou( 12 minutes walk )

It takes about 12 minutes from Jujou station to Shinjuku station by train

Price 1,3500,000 yen

There is a renter in this house

Monthly rent : 120000 yen

Current yield on investment is 10%

Built in 1966

Statutory depreciation period has passed

So, she can depreciate price of house within 4 years

( As for calculation of  【 depreciation cost 】, I have explained in this page )

Land area: 48 ㎡

Floor area : 43 ㎡  “

Then, I waited for her reply

Some persons may say this real estate is too old and not located in center of Tokyo and room area is not enough, lot area is not enough, there is not parking space, yield is too low etc and they never purchase any real estate

If there is not problem in a real estate, current owner will not sell

Meeting with her

In 28th, March, 2016

We met at Tokyo and discussed about the real estate

In that time, she wanted to look at the real estate on the site

However, I told her that we should acquire further information before we go to see the real estate on the site

I asked real estate agent to provide further information

I know that Advertisement of real estate does not provide enough information to make decision to proceed this transaction

In 29th, March, 2016

I sent her an email

” Thank you very much for yesterday

I have received additional information from the real estate company

There is not renter in this real estate as of now, though advertisement indicates that there is a renter already

But, a person has applied for renting this real estate at 120,000 yen rent

So, we can not know if the prospective renter has intention to live in this real estate for long years or not

There is a possibility that current owner asked her friend to make application for renting at 120,000 yen and she looks for buyer

When buyer has paid purchase price to current owner, the renter will leave this real estate soon

This is worst case scenario, though

In the case the prospective renter leaves this real estate soon after your purchase, if you can find next renter at 120,000 yen, it is good

However, if you can not find renter at 120,000 yen, but 60,000 yen, it will be terrible

I will confirm the realtor the amount of previous rental amount

If it was 60,000 yen, this 120,000 yen will be fake

Matters to be confirmed

When you purchase a real estate in Japan where there is a already renter, you need to confirm matters below

1   When did former renter began to live in the real estate ?

2   When did former renter left the house ?

3  How much was the former rental amount ?

4  When did former renter concluded lease contract with owner, did owner received deposit ( shikikin ) and gift money ( reikin ) ?

5  When did current renter concluded lease contract with current owner ?

If former renter left the house, 1st, April, 2015 and next renter concluded lease contract in 1st, June, 2015, it means that owner could not find renter for 6 months

It may symptom that this real estate is not suitable to find renter with current rental amount

6  When current renter concluded lease contract with owner, did owner received deposit ( shikikin ) and gift money ( reikin ) ?

If current owner could not find renters easily, he did not received deposit and gift money

7  What kind of persons are living in the real estate now ?

Student, aged husband and wife, young husband and wife and children and dog ?

If student is living in this house, he will leave the house when he graduated from university

If aged husband and wife are living there, they will live there for several year

They do not want to transfer their living

If renters have dog in the house, it will damage condition of house

However, people who have dog want to live in detached house rather than apartment

So, if you accept renter who has dog and demand higher rental amount, your renting out business may be good.

8  How much is the appraised value of building and land ?

It differs the amount of depreciation cost and the amount of income tax.

As for lavatory, it is Japanese style bench

Nowadays, all people do not like it.

If you renovate it into western style lavatory, it will cost at least 300,000 yen.

And this flyer says a part of this real estate may cross the border to neighboring lot

In their website, they did not indicate such kind of important information ( I still do not know the details ), but at last they have disclosed

Now, I am demanding further information “”

30th, March, 2016

She sent me a reply

”  Thank you for your additional information below

Now, I am worried about some risks involved in this house

However, I will wait for further information to make decision “

1st, April, 2016

” Hello, Nancy

I think this real estate is not suitable for investment

The current owner claims that a person has made application for renting this real estate and monthly rent is 120,000 yen

However, according to real estate company, reasonable rent is 80,000 yen per a month

80,000 yen × 12 months / 1350 million yen = 7%

This is gross yield on investment

This figure is not bad, I think

However, prospective renter is going to operate airbnb business and in Japan and airbnb business is illegal.

Actually, operator of airbnb business ( hotel business without permit ) and neighboring persons are making conflict in some cases

I think it is better that there is not renter than there is a renter who is going to operate illegal hotel business there.

I think it is better to find a real estate with renter who has intention to live there or a real estate without renter.

This real estate is old

And renter needs to take steep slope

But, I think it is not serious problem, as far as purchase price is reasonable

As for real estate, current owner is real estate company and has enough knowledge

They should not sell real estate at reasonable price

If they want to get profit through real estate transaction, they will purchase old real estate from a person who wants to sell real estate asap and find renter and make fake high yield instrument

I asked real estate company to introduce other real estates and received some information

And now I asked them to look for other real estate

If I have found suitable real estate, I will let you know

After this time, even if I sent her emails, she did not replied

I believe that she was busy in her work

But, relation with former real estate agent was over

He could not wait for such a long period without any progress

Finding another real estate in Japan

After15th, April, 2016

At last I have received an email from her

”  I am still looking for real estate, though, it is very difficult

But, I have found a real estate and would like to know your idea “

She tried to look for real estate by herself

Price : 69 million yen

Location : Nishi shinjuku 5 chome

Wooden apartment

Yield on investment : 617%

There are 4 residence in this apartment

All rooms are occupied with renters

9 minutes walk from the nearest station

Lot area : 120 m2

Building area :  110 m2

Built in 1978

What do you think of looking for real estate in neighboring prefecture or Hokkaido, by the way ?

16th, April, 2016

I sent a reply to her

”  Are you going to spend such amount of money ( Over 60 million yen ) in your first investment ?

I have asked the real estate company who published this real estate to provide more details

They indicate that all of rooms are occupied with renters

In front of this real estate, there is a wide road and maybe some persons pass through

In that case, everyone can see inside of 1st floor and I think it is very uncomfortable who are living in first floor

In the case of this location, it is not easy to find renter for 1st floor

As for looking for real estate in neighboring prefecture, it may be good

At least other foreigners like Chinese have not pushed up market price

As for real estate in Hokkaido

I am not familiar with real estate in Hokkaido

But in the case you are not familiar with real estate in Hokkaido, it is not good, I think

Yield on investment is very high in Hokkaido, compared to other area

But it reflects the situation that owner is suffering from finding a renter

It is completely oversupply

And even if there is a renter, owner needs to pay extra fee to remove snow

And in the case owner asks realtor to find a renter, the amount of his fee is much higher than that of Tokyo

So, I do not recommend you to look for real estate in Hokkaido ( Including Fukuoka that is also oversupply )

17th, April, 2016

I sent her a reply as below

”  For future reference, I provide this information

① monthly rental fee :

room 101   86000 yen

102 80000

201 75000

202  86000

② As for 201, owner could not find renter for more than one year

Then, she conducted small renovation and reduced the rent and found renter last year

③ When she rent out her room, she has received Shikikin (deposit) from renter
The amount is about 160,000 yen or 80000 yen

( It differs depending on room )

In the case owner is suffering from finding renter, she tries to look for renter without demanding deposit

Because, if renter does not need to pay deposit, it is easy for renter to enter the room

When you look at real estate in Hokkaido, some of them are looking for renter without demanding deposit

④ When a person rents a real estate in Japan, she sometimes needs to pay Reikin ( gift money to landlord )

It depends on the real estate and landlord

As for this real estate, the realtor does not know this information
⑤ There is a space in a part of this real estate

When owner rented out this part as parking space, monthly rent was 32000 yen

But, now she does not rent out the space

⑥ As for rebuilding of this real estate

This real estate is connected with statutory road

So, you can rebuild new building on this lot

⑦ Market price of this lot may be 90 million yen, according to realtor

So, if you can evict the renters and demolish the building and sell the lot, it may be good

⑧ When current owner tried to find renter for 201, she reduced the rent to 75000 yen

So, in the case renter of other rooms also have left the room and you look for next renter, next rent may be 75000 yen

In that case yield on investment may be 5%

( 75000 times 4 rooms times 12 months / 6980 million yen )

⑨ As for renters

As for 101, 201,202, salaried workers are living

Regarding 102 Elderly person is living

⑩ Renter of 101、102、202, they are living in their rooms for long years

That is nice

On the other hand, when they have left the room, next owner needs to conduct repair work

⑪ As for appraised value

Building : 1,725,200 yen

Lot : 31,940,000 yen

This is based on appraise value

Government appraise the value of real estate to levy property tax

This price is irrelevant to market price of real estate

If I were you, I will not purchase this real estate with this price

This real estate is located in suitable place, there are suitable renters

However, the selling price is too high compared to age of building

Realtor says some persons come to this real estate on the site

But as of now no one has purchased it

If the seller has decided to discount the selling price to 50 million yen, it may be reasonable  “

22nd, April, 2016

A real estate agent introduced me other real estate

I sent her a email

” Good morning, real estate agent introduced me other real estate

As of now, there is not a picture of this real estate, though

Selling price : 148 million yen

There is renter who is living in this house more than 4 years

Former renter lived in this house more than 6 years

Parents and child are  living in this house now

Owner received deposit worth 2 months rent and Gift money for 1 month

You can rebuild new house on this lot

Elementary school and junior high school, supermarket is close to this house

18 minutes walk from Omori station

Wooden house, 2 stories building

1st floor : 19 square meters

2nd floor :  18 square meters

Lot area : 30㎡

Built in 1970

Current rent 110,000 yen

If the owner had trouble to find renter, he should have cease to receive deposit and gift money

But, he received it

So, I imagine he did not have much trouble to find renter

Yield on investment : 8%

I am waiting for further information from realtor “

Within that day,  I received her reply

” Thank for your information I wait for further information “

I asked the realtor to provide further information, for example appraised value of house and lot, but he could not provide itfacebookinvestjapan

24th, April, 2016

I have received information of another real estate and emailed her

”  Located in Ota ku, chuo 1920 million yen

15 minutes walk from the nearest station

Lot area : 29 square meters

1 st floor : 21 square meters

2nd floor : 20 square meters

Built in 1989

There is a renter who is living in this house more than 4 years

Former renter lived there for about 5 years

Current renter is wife and husband

Owner received deposit for 2 months and gift money for 1 month

Realtor can not provide value of building and lot as of now

You can rebuild new building on this lot

As for this real estate, seller can not provide further information

Do you hope to look at this property on the site  ? “

26th, April, 2016

We met at the nearest station of the real estate and went to see the real estate on the site

Actually, these real estate are old and there are some parts to be repaired

There are renters, so we could not look at inside of the house

There are cracks on the wall

But, I think she can repair these defects after she purchased it

However, for her,  condition was not enough to decide to purchase it

27th, April, 2016

I emailed her

” Thank you very much for your time

What did you make of distance from station to the property ?

It took about 20 minutes

I think the location is not problem, though the property is not close to station

A lot of people are living there and atmosphere is suitable to live

Or do you want to look for real estate that is closer to station ?

Regarding lot area, was it all right, though it is small ?

As for depreciation cost

1920 million yen ( selling price )× 850,000 yen (appraised value for building) / 617 million yen (appraised value for lot ) + 850,000 yen (appraised value for building)  = 232 million yen = price for building

232 yen / 4 years = 581,000 yen

So, you can depreciate about 581,000 yen every year for 4 years

The 1st property we looked was not in good condition

So, I asked the realtor to look for real estate that is better condition

If you prefer high yield real estate, it is better to look for that kind of real estate

However, you have already enough fund and do not need to take much risk

And you do not want to spend time for your real estate investment

In that case, real estate that requires frequent repair will not be suitable for you

I am waiting for information from realtor “

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