Flawed idea?

[thamtutuhoanglong]

Hi all

I am thinking of buying a mansion in central Tokyo, and would appreciate the insight of anyone here who is better acquainted with the risks of ownership here.

My situation :
40 years old, married to a Japanese, have PR, one 2 year old child and another on the way. Been here 10 years, will likely relocate to UK or US in another 3. Currently rent a 3LDK 10 minutes walk from Meguro station for 240k a month which I can comfortably afford. Do not wish to leave the immediate area.

My idea :
Buy a place (maybe the place we live in if owner is interested) that will be a home for the next few years, but become a rental property if/when we leave. Buy an older 3LDK, within 10 minutes or less of the station, 70+ sqm, either refurbished or refurb ourselves. Budget up to around 1 oku.

The logic :
a) money is still cheap here and due to how leveraged Japan is this is unlikely to dramatically change b) apartments are relatively cheap here compared to London/NY/LA/Paris etc c) rental demand for decent apartments within 10 minutes walk of Shibuya/Ebisu/Meguro stations is extremely high and unlikely to cool off d) if/when we leave, rental income should comfortably cover loan + fees, but we’d effectively have someone in the property paying off what would become a future asset, or at least a place for us or our kids to live in, in the future

Are any of my assumptions here flawed? There is the alternative of a house but I have the impression that they are much harder to rent, and generally you will end up 15 min+ from the station, unless it is shoebox size.

mrg

 

[cs100]

@thamtutuhoanglong Personally I think if you’ve got the cash to consider buying a mansion in central Tokyo, especially around 100,000,000 then you might aswell just buy property in the country you’re relocating too. Easier to manage, more dynamic market and owning just a single property and being on the other side of the world will make taxes, catching up with new tenants, hiring a company to deal with it a headache for you….doesn’t seem too worth it for me personally.

 

[mystical_faith]

@cs100 I don't understand people who buy in Japan when they have plans to move out in the next few years. For 100m JPY, the quality of property you get here is very different than in other countries.

 

[bigoink]

@thamtutuhoanglong Are you sure about d)? I’d like to see your projection for rental income set against mortgage payment, once condo fees, maintenance and property taxes are factored in.

 

[victoria37]

@thamtutuhoanglong The biggest flaw with your idea is 100m is not enough to buy a 70sqm+ 3LDK within 10 mins walk from Meguro/Shibuya/Ebisu, unless you want to buy a place built on old earthquake standards which would be a very bad idea if you are planning to either sell or rent out in the medium term.

 

[albinoguitman]

@victoria37 How many people care about the earthquake standards when renting out? Sure a % of the population, but probably not big enough to even make a dent on rent pricing. (internal) renovation, distance to the station and area surely play much bigger roles.

 

[victoria37]

@albinoguitman No? Rent clearly trends downwards with property age.

https://www.homes.co.jp/cont/press/opinion/opinion_00230/

 

[albinoguitman]

@thamtutuhoanglong Things to consider (AFAIK, please double check all of the points):

• If you don't live there and rent it out, then you are not allowed to keep the home loan and would need to convert to an investment loan.
• 1oku is a lot of money, used to be almost 1M USD but now sure it's a lot less with the FX madness. However, when renting it out, you will get relatively low bang for your buck IMHO, specially if (being abroad) you need to hire a management company, and pay taxes on that income. Are you sure it will "comfortably" cover loan + fees"?
  • Let's say you put 0.3oku down, then get 0.7oku (assuming 1oku is all-in). At 35 years, it's 2M/year. Let's assume you rent it out 10 months/year on average, that's 200k/month you need to make to break even. Add taxes, management fees, repair costs, etc. we are seeing it creep into the 300k/month.
• On the flip positive side, if you rent it out then the depreciation will make that rental income virtually tax-free, or very tax-advantaged.

 

[originofthebeagle1835]

@thamtutuhoanglong Following.
I'm exactly the same situation as OP (13 years in Japan, 2 kids, japanese wife), and also considering moving out Japan in about 3-4 years. I live in Kichijouji and pay 250k/m for a 100mq detached house. Considering buying a similar property but eventually resell when we relocate.

 

[farmer4life]

@originofthebeagle1835 If you buy new you’ll almost definitely lose money across 3 years due to one off costs and the initial drop in valuation that affects new properties.

 

[dinowish]

@thamtutuhoanglong Keep in mind, if you invest in an apartment and there's a major earthquake, its value could take a substantial hit. From what I heard from Japanese real estate professionals, buying a house might be a more prudent choice. This is because you retain the land rights, even if the structure is compromised. Also, it's crucial to factor in the renovation costs when renting out. Many Japanese tenants have high expectations for the condition of the property. Transitioning between tenants often requires notable refurbishments, which can influence the return on your investment significantly.