You can not find cheap real estate in the center of Tokyo
In the case a foreign national starts real estate investment in Japan, she will look for affordable real estate.
Everyday I receive queries from potential foreign investors and some of them demand for very affordable real estate.
In their first investment in Japan, they hesitate to spend a lot of money to buy a real estate in Japan.
However, on the other hand they demand for real estate that is located in urban area.
They want to buy a real estate that is new, located near the large station, produce high yield, with reliable renter etc…….
If you have read through my website, you can find that you can not buy affordable real estate in Tokyo.
I hope that you understand a lot of people are living outside of Tokyo, too.
My parents, my brothers, my parents in law, my brothers in law do not live in Tokyo.
If you really want to start real estate investment in Japan, you should look for affordable real estate outside of Tokyo or increase the amount of budget to buy a real estate in Tokyo.
In this page, I introduce a person who bought a cheap real estate in Japan.
Of course, that is not located in Tokyo.
Looking for a real estate via internet
She looked for cheap real estate via internet for several weeks.
At first, she looked for apartment that was affordable, that was located in center of Tokyo, that had high yield, that was new.
However, wisely she noticed that there was not a such wonderful real estate.
So, she decided to purchase a small real estate that was located outside of Tokyo.
That was not old but not new.
Anyway, it was within her budget and she was going to master necessary knowledge from practice.
And there was a renter in the apartment and amount of monthly rent was 26000 yen.
The amount of Apartment management fee and reserve fund for repair is 10,000 yen per a month.
26,000 yen – 10,000 yen × １２ months = 192,000 yen.
192,000 yen ÷ 2,000,000 = 0.096.
Yield will be 9 %.
When she found tempting real estate via website, she contacted with me and ordered to confirm if the real estate company that did not charge any fee for buyer could intermediate this real estate.
Then, she found out that the real estate company could intermediate this real estate.
The next day, she visited the real estate with employee of this realtor personally.
They met at the nearest station of this real estate and walked for 13 minutes to this apartment.
The nearest station of this apartment is Yamato and it takes ５０ minutes by train from Yamato station to Shinjuku station.
There is not s supermarket near this apartment.
Condition of the apartment
At first she entered into garbage area.
She could know the situation of management of the apartment when she looked at garbage area.
In the case of apartment where situation of management ( Kanri ) is not good, situation of garbage area is also scattered.
Next, she looked at outerwall of apartment.
There was a iron poll on the roof and it rusted and rain water flew from the roof on the wall and it dirt the outerwall.
When potential renter looks at this apartment, first impression is important.
So, when outerwall is dirty, it is not good to attract renters.
So, it is good.
There is not an elevator in this apartment, so she needs to walk up by stairs.
When there is a crack on the stairs, rain water leaks into concrete and steel frame rusts.
There is not garbage on corridor.
In the case of abandoned apartment, there are some garbage on the corridor.
By the way, when a renter of specific room leaves his room and next person rents this room, he will change key of this room.
In that case, it will cost about 25,000 yen and most of cases, renter needs to pay this expense.
She looked at roof of the apartment.
Situation of roof was good.
According to realtor, waterproofing work was conducted within several years.
In the case of apartment, waterproofing work is necessary every 10 years.
After confirming several matters from realtor, she decided to purchase the apartment.
Meeting with seller of the apartment
About two weeks later from her visit to the apartment, real estate transaction was conducted.
In weekend, legal affairs bureau is closed. So, judicial scrivener cannot file registering of ownership transfer.
So, she needed to take away from her job and participated in real estate transaction. ( November, 11th, 2012. )
The transaction was conducted in office of real estate company that is close to the real estate.
She met with judicial scrivener, seller, broker and handed over her ID and certificate of her domicile.
During this transaction, broker ( employee of real estate company ) explained important matters （ Jusetsu = 重説 ）relating to the real estate.
Then when she understood the content of contract paper, she wrote her address and name and affixed her seal.
( In the case of foreign national, you do not need to prepare seal. Your signature is substitute. )
Once a judicial scrivener received necessary documents to file registering of ownership transfer to her, she paid purchase money.
Then, she received key and contract papers.
Now, she has become a owner of the real estate.
Nonpayment of the rental fee
In January 11th, 2013, She was stressed.
She did not decide whether she manages payment of rent by herself or she hired real estate company to manage payment.
In the case, she hired a real estate company to manage payment of rental fee, her renter paid his rental fee to bank account of her real estate company.
Then, generally, they deducte 10% of the rental fee as their fee and send residue to her bank account.
In the case, she does not hire realtor to mange payment of rental fee, she needs to take necessary action to manage her investment.
At that time, she did not hire a realtor to manage payment of rental fee from her renter.
But, she made contract with guarantor company.In the case, her renter does not pay his rental fee, her guarantor company pays his rental fee for her.
So, even if her renter does not pay his rental fee for three months, she can receive money from guarantor company.
But, in order to make guarantor company pay his rental fee, she needs to notify guarantor company of his nonpayment within 30 days from due date of rental fee.
In the case due date of his rental fee is December 31st, she needs to let guarantor company ( Yachin hosho kaisha = 家賃保証会社 ) know by January 30th.
However, before she called to her guarantor company, she could make contact with her renter, he promised to pay his rental fee until next day.
The next day, she found his payment in her bank account.
If she does not hire realtor to manage her operation of renting out business, she needs to collect rental fee.
If her renter leaves her room, she needs to make necessary documents, she needs to meet with renter in the room to confirm the situation of the room, she needs to hire a interior work carpenter.
In the case, her renter leaves her room, she needs to order local real estate company to find next renter.
In the case drainage pipe is clogged up, her renter calls to her.But, she has her main job and may not reply the call.
So, she decided to hire the real estate company to manage her operation of renting out business in Japan.
She found a real estate company, the amount of monthly fee was 3000 yen.
In the case, she hires real estate company, she can receive rental fee at the 5th of month of after next.
So, the real estate company ordered her renter to pay rental fee ASAP.
Filing tax return
In March 15th, 2013.,
Even if your real estate investment is in the red.She has salaried income in Japan.
So, if her real estate investment is in the red, she may receive refund of income tax.
( Even if she is a foreign national and does not have status of residence in Japan, she needs to file final tax return.
Otherwise, she will encounter big trouble when she sells her real estate in the future. )
After I lectured how to file final tax return, she accessed website of National tax agency of Japan ( Kokuzei cho ).
She was obtained permit of Aoiro shinkoku ( Blue form final tax return. ).
Because she submitted Application Form for Approval for Filing a Blue Return ( Aoiro shinkoku shonin shinseisho = 青色申告承認申請書 ).
In the case, an individual ( who operateｓ business, real estate investment ) submits tax office an application form to obtain Aoiro shinkoku, tax office provides application form for Aorio shinkoku.
Then, if she files final tax return by Aoiro shinkoku, she can apply for deduction of at most 650,000 yen or carry over of deficit to following year.
It means in the case the amount of her annual income is 1,650,000 yen, if she can apply for income deduction of 650,000 yen, she can reduce the amount of taxable income by 650,000 yen.
It also means in the case her real estate investment was in the red of 100,000 yen, she can carry over this -100,000 yen to following year.
So, she can reduce the amount of taxable income of following year by this 100,000 yen.
( As for income deduction in Japan, please look at this page ➡ )
As I explained the page above, in order to apply for deduction of 650,000 yen, she needs to own at least 10 rooms of apartment or 5 detached houses, so she cannot apply for 650,000 yen.
But, in that case she applies for blue income tax return ( aoiro shinkoku = 青色申告 ), she can apply for blue income tax return deduction of 100,000 yen.
（ This is one of documents to file blue income tax return. ）
At first, she filled in the amount of rental fee from her renter ( 賃貸料 ).
Then, she filled in the amount of depreciation cost ( Genka shokyaku hi. )
( You can know about real estate depreciation cost = Genka shokyaku hi in this page. )
In order to calculate the amount of depreciation cost, she needs to know the amount of purchase price.
Though, she purchased this real estate at 2 million yen, this price includes price of land.
So, she filled in the price of building based on purchase contract.
Then, she needs to fill in durable years of this apartment.
Though, durable years of reinforced concrete is 47 years, her apartment is used apartment.
So, statutory durable years ( 47 years) – ( elapsed years × 0.8 ) = 27 years.
Then, durable years of her apartment in Japan was 27 years.
According to this information, she found out the amount of annual depreciation cost is 13,333 yen.
Next, she filled in taxation ( sozei koka = 租税公課 ).
This sozei koka includes property tax, purchase tax, stamp duty.
Next, she calculated the amount of necessary expenses.
In order to reduce the amount of taxable income, she needed to collect all receipts of expenses.
She included fee for judicial scrivener, Apartment management fee and reserve fund for repair, train fee to look at her real estate on the site, cost to buy books to study real estate investment.
Then, the amount of her taxable income is – 133,777 yen.
So, her real estate investment got deficit.
She had salaried income, so she filled in the amount of salaried income.
Also, she wanted to avoid letting her employer know her real estate investment in Japan.
So, at the column of the way of withholding of resident tax ( 住民税の徴収方法 ), she selected ” payment by herself ( 自分で納付 )”.
Now, she calculated the amount of income tax and found out that a part of income tax ( that was already withheld from her salary. ) would be reimbursed.
( Please look at this page to learn about reimburse of income tax by real estate investment in Japan. )
She filled in information of bank account in Japan, so tax office would refund a part of withholding tax to her bank account.
If she hired tax accontant ( zeirishi ), she needed to pay fee of several ten thousand yen.
She completed necessary documents to file final tax return and went to tax office.
She waited for her turn for several minutes.
In her turn, she submitted documents and received counterfoil.
Repayment of tax
In April 10th, 2013.
She received repayment from tax office.
And soon after the repayment, she received bill of acquisition tax.
She was required to pay this tax of about 50,000 yen.
She purchased fire insurance and earthquake insurance.
In May 20th, 2013.
In March, a lot of real estate investors worry that their renters leave their room.
Because, in Japan During March, April, the number of people who transfer their residence is more than other months.
School begins April in Japan.
As for her apartment, renter did not leave the room and her renter paid rental fee as contracted.
It was because her realtor manged soundly.
Soon after that, she received bill of property tax of 21,000 yen （ annual amount ）
In February １３th 2014.
Her renter demanded for renewal of lease contract.
And her management real estate company charged half of monthly rent as a fee.
In March 1st 2014.
She has made necessary documents to file final tax return.
This year, her real estate investment get profit of 15,2000 yen.
This year, her renter has renewed lease contract without decreasing rental fee.
If he left the room, she needed to conduct interior repairs and it would cost about 100,000 yen.
The amount of her real estate income tax is 7,800 yen.
1 st year
Renewal fee, gift money from renter
Deposit from renter
Sum of earnings
Apartment management fee ( For common facility, like corridor, roof of building, outer wall )
Apartment management fee ( Fee for management company who manage payment of rental fee etc ）
Reserve fund for repair
Sum of expenses
Nonpayment of apartment management fee
In April 17th 2014.
There was a general meeting of apartment residents.
She found out that there were several owners who did not pay Apartment management fee and reserve fund for repair.
These money should be paid even if a person purchase an apartment via public auction. These funds are essential to sustain the apartment in good condition. Otherwise, she will be in trouble to find renters in the future.
As for Mr Yamada.
He had nonpayment of over one million yen.
Mr. Yamada passed away several years ago and his heirs renounced inheritance.
So, resident’s association needs to hire a lawyer to appoint administrator of inherited property ( 相続財産管理人).
Because, there is not a owner of this property.
In that case, resident’s association needs to pay following expenses.
Fee for attorney : 500,000 yen.
Deposit for court house : 1 million yen.
According to this process, administrator of inherited property is appointed by court house.
Then, he sells this real estate base on permit of court house.
And new owner of this real estate shall pay nonpayment of Apartment management fee and reserve fund for repair.
Anyway, resident’s association needs to pay 1,300,000 yen to collect one million yen……
However, if they do not take necessary action, the amount of nonpayment increase.
But, unfortunately this resident’s association could not take necessary action at that time.
As for other owners who did not perform obligation, they decided that they should send content registered mail ( Naiyo shomei yubin 内容証明郵便 ) to them.
In August 10th 2014
It was very hot day.
But unfortunately , there was a phone call from management company and he said that air conditioner on her apartment was broken.
He asked her whether she repaired it or not.
In that hot day, renter could not survive without air conditioner.
At that time, she did not know market price of repairing air conditioner.
In general, when persons buy a used apartment, within five years, air conditioner is broken.
So, when investors buy used apartment, they need to prepare for breakdown.
In the case of normal air conditioner, she needs to pay about 100,000 yen.
( In that case, these expenses will wipe out her earnings from several month rental fee. If her earnings are larger, damage is limited. Even if the amount of rental fee is higher, the cost to repair an air conditioner is as same as her apartment. )
But, in her case, she called to manufacturer and he could repair this air conditioner and he charge about 30,000 yen.
So, when persons buy real estate in Japan, it is better for them to look at date of manufacture of air conditioner and its model number.
This information is necessary to order manufacturer to repair it.
Current state of her real estate investment in Japan
In October 10th 2014
Two years passed since she bought this apartment in Japan.
She received rental fee of 26,000 yen × 2 years = 624,000 yen.
On the other hand, as for expenses.
Property tax : 44500 yen
Apartment management fee and reserve fund for repair: 228,000 yen
Fire and earth quake insurance premium : 10500 yen.
Fee for Judicial scrivener, registration tax etc : 250,000 yen.
Fee for Management company ( They receive rental fee from renter on behalf of her. ) : 24225 yen.
At the timing of renewal of lease contract, she paid fee for realtor.
( They made new lease contract. Though, they just changed date of lease term. ) : 13000 yen.
Income tax : 15000 yen.
So, sum of expenses for two years is 585,225 yen.
So, cash flow is only 38,775 yen 😥
In general, in the case of apartment with low rental fee, investors can keep one third of rental fee.
So, if annual amount of rental income is 300,000 yen, landlord can keep 100,000 yen after paying all necessary expenses and tax.
She did not hire tax accountant, but if she hired, her real estate investment had been in the red for two years.
When she bought a real estate in Japan, she needed to pay a lot of money.
But once she takes over the first year, she can get profit for several years.
After she calculated income and expense of her real estate investment in Japan, she received a phone call from management company .
In her apartment, drain pump was broken and in order to repair it, it would cost about 500,000 yen.
Though, there are enough reserved funds for upcoming repair ( paid by preceding owners ) of whole building, 500,000 yen has enough impact to this owners’s association.
If she invested in whole apartment, she was required to pay such expense at once.