[Must-see for beginners] An easy-to-understand explanation of the risks of real estate investment!Basic knowledge you need to know to avoid failure

Last timeexplained the benefits of real estate investment.However, real estate investment is risky as it is an investment.
Not knowing the risks is the same as walking down the street blindfolded.On the contrary, if you know how to deal with it well, you can avoid falling into unexpected pitfalls.
This time, we will explain the risks of real estate investment and how to deal with them.

All about real estate investment!Risk of trouble between residents

Even if you choose your tenants properly, you won't know their humanity until you enter.When various people move in, there are people who cause troubles among residents, such as loud noises late at night, people who are troubled by leaving garbage unattended, people who leave things in the common space, bad use of the bicycle storage area, etc. may appear.If the quality of tenants is low, not only will you miss new tenants who have put in a long-awaited move-in, but there is a high possibility that the next tenant candidate will also avoid you.If you leave these complaints to the management company, they will handle it, but in the case of self-management, the investor must handle everything themselves.If you own a property with a large number of units, handling complaints can be a heavy burden, so you need to consider requesting a management company.

Deal with the purpose of stopping the nuisance, not the contract cancellation!

If there is a problem between residents, put up a poster in the common space to let them know.People who are making noise or doing nuisances can be recognized as themselves because they read.At the same time, a letter will be mailed to all residents.This is to make sure that all residents are informed of the fact, and to appeal that they are responding properly not only to the person who caused the trouble but also to the person who complained.

If that doesn't work, contact the person who is having the problem directly.It may be necessary to call or visit in person to explain the situation.If you do not improve even if you patiently urge caution, we will send you a content-certified mail that states that you will cancel the contract.However, the real purpose is to stop the nuisance rather than canceling, so avoid giving priority to cancellation.Easy cancellation is not recommended because there is a risk that it may lead to vacant rooms.

Explanation of important matters ・Take measures before trouble occurs in the lease contract!

It is an explanation of important matters and a rental contract, which is an important opportunity to know the details of the property and the details of the contract before signing the contract.If you include ways to avoid possible troubles in advance, tenants will also be careful.In the unlikely event of a problem, you can deal with it by effectively using the rental agreement.

It would be a good idea to state that any behavior that causes trouble to other residents may be canceled.Furthermore, under the Civil Code, the lessee is obligated to use and generate income according to the purpose of the building, so it is possible to cancel the contract even if it is not written in detail in the lease contract.If you also write that fact at the same time, you can prevent nuisance of the tenants in advance.

Related article:[Troubles of real estate investment] Introducing common complaints from tenants in apartment management and how to deal with them

Rent delinquency risk

When you purchase a property for real estate investment, you must decide whether to leave the rent collection to the management company or collect it yourself.
Also, once the payment is delinquent, it will take a lot of time and effort to collect it, and as a result, it may not be possible to collect it.

Below are examples of failures due to non-payment of rent.
In Mr. A's apartment, the rent was collected without any problems, and most of the people continued to live there for a long time, so Mr. A collected the rent himself.The management company's collection fee was 5% of the monthly rent, so the breakdown is 8 yen for the rent of 4,320 yen.I felt that this cost was a shame and decided to collect the rent myself.
However, after that, there were several months of rent arrears.I couldn't get in touch with the tenants even after calling and visiting them, so I had no choice but to consult with the management company.As a result, the joint guarantor finished the payment and the tenant moved out, but it was quite troublesome to collect the rent arrears, and I regretted that I should have asked for this from the beginning. It was

Based on these failure examples, those who are thinking about starting from now should take risk measures.It is very important to think about emergency measures after considering the confirmation of documents when purchasing real estate, the time and effort required to collect rent, and the location of the purchase.
Even if the property looks attractive from the price and yield, do not make a quick decision. Research the area in advance and do not touch the property that seems to be high risk from the beginning, or take measures to use the management company. This way you can avoid such failures.

Risk of vacancies that cannot be avoided in real estate investment

Some people who didn't study much about real estate investment and started thinking that income would come in automatically without doing anything, are suffering from vacancies.When vacancies occur, not only does your income decrease accordingly, but in the worst case, you will have to apply the income from your main business to repay the loan, and you may eventually go bankrupt.
Moreover, Japan's population is expected to continue to decline in the future, and it is estimated that by 2040, the rate of population decline will reach 7% in 20% of regions.Furthermore, the percentage of people aged 65 and over exceeds 36%, and in some regions even exceeds 30%.Aomori, Kochi, Fukushima, Iwate, and other prefectures have a particularly high rate of decline, and it is said that there are many areas where the rate is as high as 40% because there is a tendency to have a large number of elderly people.In areas where the number of young people does not increase, population decline will accelerate in the future.
What should I do to avoid increasing the number of vacancies?What should I do to keep real estate investment stable?
We will explain the measures for risk avoidance.

Don't rely too much on specific factors such as major commercial facilities when choosing a property

There are cases where property selection for real estate investment fails if you rely too much on only certain factors.
For example, if you purchase real estate in an area where there is demand for commercial facilities, educational facilities, and large-scale factories, the withdrawal of these properties will reduce the value of the real estate, increasing the number of vacant rooms and reducing the yield. come out.

For example, there is a case where an apartment was built because there was a large-scale factory and demand was expected.
It was in a rural area far from the station, but there was an automobile factory nearby, and there were many employees, so we could expect demand from tenants.
However, since the factory was downsized after that, many of the employees have moved.As a result, the number of vacancies in the apartments has increased, and it is no longer full.
Universities are often built in rural areas, and more and more people are taking on the challenge of real estate investment in anticipation of this.However, the university will not always be there.Large commercial facilities may also relocate due to the changing needs of the times.
Even if it's good now, it's a failure that happened because I didn't realize there was a risk in the long term.

Watch out for aging buildings

When you think about the feelings of the tenants, do you want to live in a clean property rather than a dirty one?The answer is obvious.
No matter how strong a building is, it will eventually become dilapidated.If the exterior walls, roof, common areas, and other conspicuous parts of the building, as well as the state of the sashes and fittings, show signs of aging, the tenants will feel uneasy and will not be able to live comfortably.
Leaving a dilapidated building as it is will not only make it difficult to acquire new tenants, but it will also cause long-term tenants to leave.
In addition, the value of real estate will also decline, so it will be a situation where you will have to lower the rent because you will not be able to acquire tenants.Regarding the aging of the building, it is also important to visit the property and check the condition of the building frequently.By keeping in close contact with the management company on a regular basis and performing maintenance, you can avoid lowering the value of the property.

Related article:The most scary vacancy risk in real estate investment.What are the measures and characteristics of properties that tend to be vacant?

interest rate risk

Many salaried workers and self-employed people will take out a loan from a bank to purchase real estate, but if you do not think about anything at that time, there is a possibility that the repayment amount will increase more than you initially expected. .

When looking at the loan amount of 5000 million yen and the loan period of 30 years, there is a total difference of 2 yen between the interest rate of 3% and 9,357,084%.

2.0% interest rate example

Loan amount: 5,000 million yen

Interest rate: 2.0%

Borrowing period: 30 years

Total repayment: 66,531,359 yen

Total interest expense: 16,531,359 yen

Monthly repayment amount: 184,809 yen

Annual repayment amount: 2,217,708 yen

3.0% interest rate example

Loan amount: 5,000 million yen

Interest rate: 3.0%

Borrowing period: 30 years

Total repayment: 75,888,443 yen

Total interest expense: 25,888,443 yen

Monthly repayment amount: 210,802 yen

Annual repayment amount: 2,529,624 yen

It is important to have some leeway in your repayment plan and keep cash on hand so that you can repay without problems even if interest rates rise during the repayment period.

Related article:Everything you need to know about mortgage interest rates before you start investing in real estate.Types of interest rates and points to keep them low

Disaster risk in real estate investment

Investing in real estate also entails the risk of loss in the event of a disaster.In recent years, there have been many large-scale disasters, such as floods caused by earthquakes and typhoons, and being well prepared for such disasters will help you avoid risks.I will explain what kind of risks and avoidance there are in disasters.

earthquake risk

Earthquakes are the first thing that comes to mind when disaster strikes.Many buildings were destroyed in both the Great Hanshin-Awaji Earthquake and the Great East Japan Earthquake, which caused enormous damage.The scale is divided into complete destruction, partial destruction, partial destruction, etc., but there is no doubt that it will cause great damage.In addition, these earthquakes can cause damage from secondary disasters such as fires and tsunamis, making it a serious risk that cannot be taken lightly.

Typhoon and flood risk

In recent years, record-breaking heavy rains caused by typhoons have been observed more frequently, and damage such as floods and landslides caused by overflowing rivers has become more common.Typhoons are more frequent than earthquakes, and repairs are necessary when flooded.

fire risk

Fires rarely occur spontaneously in urban areas, but it is quite possible that you will suffer damage due to mishandling of fires or arson incidents.
In 30, there were 3973 fires in Tokyo, which is something that can happen on a daily basis.
In addition, there are many cases where fires occur as secondary disasters of earthquakes, so let's keep the risk of fire in mind.

Depending on the structure and construction materials of the building, damage can be minimized in the unlikely event of a fire.
It can be said that reinforced concrete is relatively less damaged than wooden buildings.In the case of wooden structures, if a fire breaks out in one room, the entire building is likely to burn down, but in the case of reinforced concrete, it is possible to limit the damage to only one room where the fire broke out.
Even if it burns down, it is said that reinforced concrete can be repaired in less than a few months.Also, from the perspective of location, when purchasing a property, it is important not to choose a location near a wooden building that is likely to be damaged by the spread of fire, as well as facing a wide road that is easy for fire engines to enter in the event of a fire. is the point.

Risk of depreciation due to land subsidence

In the ground with high groundwater level, liquefaction may occur due to the vibration when an earthquake occurs.If ground subsidence occurs as a result, there is a possibility that the building will tilt and damage will be added to the foundation.If that happens, residents will be forced to move out.And even if the building is repaired in the place where the ground subsidence due to liquefaction has occurred, there will be no tenants and the value of the land will fall, so the rent will continue to fall.Ground subsidence due to liquefaction, etc., will greatly reduce the value of real estate.

To avoid disaster risks, purchase insurance and select properties that are resistant to disasters.And ordinary awareness of disaster prevention

Natural disasters are difficult to avoid, no matter how careful you are.Therefore, we strongly recommend that you take out insurance.
If it is a fire caused by a man-made disaster, fire insurance can cover it sufficiently, and you should also consider purchasing non-life insurance with a wide range of coverage in preparation for earthquakes and tsunamis, and adding a rider to earthquake insurance.

Fire insurance and household contents insurance are considered as the minimum compensation for disasters and countermeasures for residents.
Fire insurance is subscribed by the owner to protect the building from disaster risk, but household contents insurance is subscribed by the tenants and used as a preparation for emergencies.Some landlords and realtors force their tenants to take home contents insurance.The reason for this is that the household goods owned by each person have become expensive in recent years, averaging 1,650 million yen.In particular, households with a large number of family members tend to be expensive.In addition to fire, home contents insurance covers disaster compensation, water leaks, and theft protection.It is now possible to cover the cost of about 6,000 yen to 15,000 yen per year.You can receive compensation when your household goods are damaged due to various damages.

In case of emergency, not only the fire insurance that the owner joins, but also the insurance that compensates for the things of the residents is necessary.Whether to make it compulsory or voluntary at the time of joining depends on how you think about it, but if you are lending to a family household or a high-income earner, it is safer to have a separate one.

It is also important to choose a building that is hard to collapse when purchasing.
Buildings built after June 1981, 56 meet the new seismic resistance standards, so they are designed not to collapse even with a seismic intensity of 6 upper to 1, and there is a risk of collapse. can be lowered.
Regarding land subsidence and liquefaction, the Bureau of Construction of the Tokyo Metropolitan Government prepared a forecast map of liquefaction (http://www.kensetsu.metro.tokyo.jp/jigyo/tech/start/03-jyouhou/ekijyouka/index.html) has been announced, and risks can be avoided by investigating the ground in advance.

And above all, it is important to have a management system in place to prevent fires on a daily basis.When signing a contract with a management company, it is important to make sure that fire prevention management is being done properly.Of course, having various facilities such as sprinklers, fire extinguishers, fire alarms, etc. is the most basic and major premise.It is an important point in fire prevention management whether a specialist such as a firefighting equipment engineer conducts regular inspections based on the law.

The risk of failing to file tax returns that tends to be overlooked in real estate investment

We carefully considered the risks when choosing a property, and signed a contract with a management company and various types of insurance.All is well now! … and not real estate investment.

When you invest in real estate, you have to pay various taxes.Real estate acquisition tax, property tax, registration fees, income tax, and inheritance tax are also levied.If you only think about buying and do not research taxes, you will end up failing to file tax returns without realizing it, resulting in late fees and additional tax collection.

Regarding tax matters and tax returns, it is safe to proceed with guidance from a tax accountant.

Summary

• Take measures against the risk of troubles between tenants before they become troubles in the lease agreement
• Let's use a management company for rent delinquency risk
• Do not rely too much on specific factors at the time of purchase to avoid the risk of vacancies.
• Keep cash on hand with leeway in your repayment plan in advance for the risk of rising interest rates
• For disaster risks, take out insurance and select properties that are resistant to disasters.And ordinary awareness of disaster prevention
• For the risk of not filing tax returns, which tends to be overlooked

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