Friday, September 14, 2018

Invest in Japan

Have you been to Japan? Have you fallen in love?
Do you have 1 M or 2 M to do real estate business in Japan?

First of all, you must know that Japanese homes only decreases home value after purchasing. If you buy homes in San Jose California, the home value will only go up. Even old homes can be sold for the current market price of 1M and above easily. But that doesn’t seem to be the same in Japan. Only new homes are expensive to purchase in Japan. Old Japanese homes will only decrease the value and will almost never go beyond its purchased price.  If you really must buy an old home in Japan, you can find old homes for less than 200K. Those old homes are about 2 – 3 bedrooms with 1 bathroom. And those homes are easy to collapse and easy to burn.

How about Airbnb business investment in Japan?
Current situation of the Airbnb business in Japan is known as Minpaku(民泊). The owners of homes are renting out their extra rooms. Some owners are subleasing the unit to conduct this business. But these are creating problems such as unexpected noise, bad mannerism, and too many trash. Now the Japanese government is stepping in to correct these new businesses and the problem with a new law.

What is going to happen with this new law in June 2018?
First of all, you are not allowed to rent the room out more than 180 days per year. You must get a signed approval from its building owner and all members of the building community. If neighbors are against this business to operate in the building the building community will not allow anybody to conduct this business.  Also, this new law makes all building owners comply with certain documentation and methods such as to have community meetings, the announcement of new business, and hotline to correct any problems. Not only that, there are areas where no business allowed. If you are in the area, you cannot make money doing this anymore. If you don’t get proper approval from building owners and don’t register properly, you won’t be able to market your place for rental accommodation business.

What can you do to invest in this new situation in Japan?
As I explained before, if you buy a home and you are expecting that home to increase its value, it won’t happen. Thus the invested home must make a profit immediately and ongoing basis.

One way to make money with the new law is to look for the area and the building owners where they allow you to rent the unit/home for making money. For example, your rent is $1500 (yes, in the dollar for easier understanding). You will rent it out for $90 per night. You cannot rent the place out more than 180 days. You have to pay for REIKIN(礼金) which means gift money to the building owner. It’s normally about 2 months of your rent. Therefore, your gift would be $3000 in this case. And you must pay a deposit. You must pay for cleaning fee, which estimated as 15% of your income. Then you must pay for management company where place your Ads for 25% of your income. HOA is about $50 to $100. You cannot escape from this middleman. This management company has the authority to place your Ads effectively and deal with clients.
By now, you know there won’t be much money you can make monthly. It would be break even if you are lucky.  This would be a losing investment.

Another way and it seems the only way to make money with real estate in Japan is to buy the whole building. Yes, that is right. You buy a building with several units in it. Then you do not need to pay $1500 for rent. In this case, you must pay more than 1 million dollars to purchase the entire building in cash. If you can find about 4 to 6 units building, it is still cheaper than buying three bedrooms with one bath in San Francisco. When you purchase the building, you still have to pay REIKIN, the gift money of some amount depending on the building and real estate agent, HOAs of all units, business rental agreement documentation. You must buy all furniture. You must contact the fire department an have to have a meeting to learn what you must add to your units. Without this fire department approval, you won’t be able to run a business. 

Now, what is difficult about buying a building in Japan is that there are not many new buildings coming up. You must be able to make deals before the new buildings will show up on the market. The real estate agents are walking around areas to search the future buildings that are building by foot. Another difficulty getting into this business is that when the real estate agent fined a building for this accommodation business, the management companies snatch fast. You must fly to Japan next day, pay in cash, stay in Japan for a while to buy furniture and meet with a fire department.  Unless you are looking at this for over 5 years, you won’t make much profit at the beginning due to expenses.

If you buy a building, you are the owner of the building and you can make the entire units in your building as a business purpose. But you will still need to deal with the management company for dealing with listing services in Japan.

If you are still interested, what you can do with this 180 days max rule is to rent the unite for regular lease after 180 days max allowing people to rent for a couple of months or 6 months.


Research conducted on April 22, 2018, in Japan.
Researcher AyaCise with some real estate agents in Osaka.