Real estate investing does not necessarily have to be in your backyard. In fact, with volatile markets around the world, many investors are expanding their criteria to more diverse international real estate portfolios. International properties can be much more rewarding, both in affordability and higher yield. To qualify for the under $50K option you must meet the following requirements: have an open mind to foreign real estate, an interest in cash flow rather than capital appreciation; and interested in investing under $50k.
The Prospect
Now that you qualify, let’s take a look at properties in the Japan market. Outside of Tokyo you can easily find properties from $30K to $50K. Even more impressive is the yield of 6% to 12% because prices haven't risen as sharply as they have in other cities. For example, in the centre of big cities, or first tier cities such as Fukuoka and Nagoya you can expect a yield of 6% to 8%. In second tier cities such as metropolitan Sapporo, you will find properties with a yield of 9% to 10%. In the third tier are smaller townships, albeit with good profiles, a yield of 10% to 12%, all net pre-tax. With an occupancy rate of 93% to 94% properties are usually occupied bringing your investment property immediate income of $250 to $400 a month on average.
Method
To invest in real estate in Japan investors work with an agent/proxy acting as an extension of themselves for the property purchase and management. This is mainly because of the language barrier. As agents/proxies ourselves, we communicate on investors’ behalf with the property/rent manager, building management company, tax authorities, and insurance company. Since non-residents cannot open local bank accounts, by having a physical address and telephone number in Japan to manage the portfolio, we are able to pay bills, collect rental income, and transfer/accept overseas funds. In fact, you actually never need to travel to close the purchase, unless of course, you want to take a leisurely trip to take in the culture, historic traditions and breathtaking scenery.
Tenants
Japan is a landlord’s paradise -- high, stable and reliable cash flow, very affordable, and because of Japanese ethics, tenants are polite, docile, trouble free, and honest. Living away from your investment property, you will not need to worry about destruction to your property or evictions. Of course, the same tenant will not last forever but the average turnover is quite stable at 4.5 years for singles' units, and higher for larger family sized units, sometime up to 15 years.
Earthquake Concerns
While the recent earthquakes have not deterred investors from properties in Japan, we have had concerns about the effect of earthquakes on properties. Under a standard policy, earthquake, tsunami, volcano and flood damages are covered by insurance policies and insurance is surprisingly inexpensive, only a few dollars a month. Since the building itself carries an accumulated funds pool, any remaining losses not covered by insurance are generally covered by the pool. As part of the due diligence process at the time of the purchase, we check the status of the accumulated funds to determine whether 100% coverage is necessary.
Selling Your Property
Since the market moves very quickly in Japan, properties are listed only a few days before they are sold. Therefore, if you decide to sell your property, there is usually a buyer ready to purchase. Keep in mind the tax implications. A property owner, whether foreign or local, who sells a Japanese property within five years can expect to pay 40% capital gains tax. After five years, the tax drops to 20%.
Generally, our clients invest in properties for cash flow purposes rather than capital gain. If capital appreciation is what you are looking for then your ideal market would be Australia, U.K., U.S. and even Tokyo and at a considerable price. But, for steady monthly income, where yield is high, cash flow is immediate and properties are incredibly affordable, the real estate market in Japan could be an option to consider to let your cash flow investment journey begin.
For more on Japan:
Japan's Hospitality Industry in the Spotlight
Japanese Investment Report 2H 2015
Savills Japan 2015 Review and 2016 Prospects
