What is the expansion strategy you want to be aware of in real estate investment? Why is the first building the most important?

The best time to buy more real estate is when the property you own has become profitable, you can maintain full occupancy, and you can make a down payment for a second building.This means that the question that naturally becomes apparent is how to select the first building in anticipation of future investment expansion.How did the investors who currently own several buildings and earn annual income exceeding 2 million yen choose the first one?Successful investors have a few things in common.This time, I would like to explain one of them, the success of the first property I chose.

Reasons why the first building is important in the real estate investment expansion strategy

Operating a real estate investment in only one building means concentrating the real estate investment risk on that property.

There is a famous saying that you should never put all your eggs in one basket.This means that if you have multiple investments, you can diversify your risk.In the case of stock investment, it is natural to invest in multiple companies, but the same can be said for real estate investment.

Since the property deteriorates little by little, the day will come when you will have to make large-scale repairs on a regular basis.At that time, by having two properties with different building years, you can shift the repair time and cover the large expenditure of one.In addition, it is easy to sell the property whose income has decreased and buy it in a new place by having it in multiple regions even if the situation changes depending on the region such as the relocation of the university. If you have only one building, you may become dependent on the property and have trouble selling the property that has fallen, which may worsen your cash flow.

Since real estate is also an investment, it can be said that it is necessary to think about owning multiple properties with an awareness of risk diversification, which is the basis of investment.

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The management strategy for the second and subsequent buildings will change significantly depending on the operational performance of the first building.

There are high hurdles to getting real estate, and if it's your first time, it's easy to feel like you've achieved your goal.But it's the same as standing on the starting line.The real goal is to operate and make a profit from now on.

The conditions for expanding investment are that the property is fully occupied and that it is profitable enough to make a down payment for the second building.

In the first building, there is no real estate investment experience and track record, so financing is often strict.I overdo it here and get a property of 1 million yen,

It is better to lower the hurdles and manage a single apartment for about 5000 million yen stably while leaving cash on hand rather than just barely managing it.Make profit margin higher than money.

Even if you don't buy it now, you can step up to the next step if you don't stumble at the beginning.In other words, when you purchase the first building, you can reduce the risk of failure not only in the first building but also in the second and subsequent buildings by establishing a strategy for the second and subsequent buildings.

Related article:What is the best timing to purchase a second building in real estate investment?Explanation of points at the time of purchase

“Goal setting” to create a strategy for expanding real estate investment

In order to make a strategy in real estate investment, it is first necessary to set goals such as how much income you want to earn.If you don't have a goal, you can't decide how far you can expand the property and what kind of property you should buy.Therefore, by setting goals first, you will be able to establish a strategy for selecting properties based on the yield and risk tolerance required to achieve them.

When you meet with a real estate company, if you are vague about this, they will proceed with various properties, but if you think about it carefully just because you can buy it under these conditions, you will contract a bad property. You can also put it away.

“I get a cash flow of ~ XNUMX yen every year! Even if I had already decided, I was told that the location was good and I could expect capital gains, so I changed my mind and signed a contract. ...but I can't sell it.It may result in losing sight of the original purpose.It is important to set a strategy without losing sight of the goal setting.

Basic real estate investment strategy

1. First, understand your attributes and assets

Attributes (annual income, affiliation, etc.) Let's assume that half of the assets (self-funds, collateral land, securities, etc.) can be invested roughly.This is because if you invest all your assets, you will not be able to cope with the unexpected expenditure.

2.Which financial institution can receive a loan after understanding the assets?

There is a high possibility that you can purchase up to 5 to 6 times your own funds, so if you have 1000 million yen in assets that can be invested, you can aim for 6000 million yen. It depends on the institution.

There is a financial institution that the real estate company has a close relationship with, and it may be advantageous if the company introduces you.

3. Where to set goals

How much cash flow do you need?From there, we will consider the type of investment property (whether it is a single building, a division, a studio, a new building, a second-hand property), and whether you will manage it yourself or leave it to a contractor.

4. Area, Structure, Profitability

Once you understand your situation and goals, search for the best property that you can find under those conditions.Look at real estate portal sites, etc., and pick up items that meet the conditions and scrutinize them.Here, it is really difficult for beginners to determine the good and bad of the property.There are a huge number of properties that cannot be selected on the portal site, such as those with good yields but poor locations, and even if there is a line to the terminal station, they are based on the old earthquake resistance standards.Find the property that best suits you.

After all, if it is your first time and you do not have yourself, it may be safer to choose a reliable real estate company and choose a property together.

In that case, let's choose a company that consistently handles management even after purchase.You can reduce the risk of being left unsold by a real estate company.

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Advantages and disadvantages of each property and compatibility

It can be any property, depending on what you purchased for the first building, how much money you have for the purchase, and what your investment objectives and goals are.

If you are an office worker with an annual income of less than 1,000 million yen and are thinking about building assets, there are many purchases using package loans. .

On the other hand, if you have ample funds, depending on your purpose, we recommend RC with a high evaluation so that you can easily receive business loans.

Second-hand wooden and light steel framed apartments

It is suitable for individuals with high income and those who want to start with a small single building.

Advantages: Less capital loss.High rate of return (yield).A large amount of depreciation can be taken in the fiscal year.Low rate of rent decline.Wide range of property prices.

Cons: Requires repair and maintenance.Difficult to obtain long-term financing.

Newly built apartment

It is suitable for corporations (asset management corporations, etc.), those with a high self-financing ratio, and those who do not emphasize exit (sale).

Advantages: You can aim for long-term financing.Low repair cost.You can get high rent.It is easy to get tenants in the early days.

Cons: Lower rent.Less annual depreciation.Capital loss is easy.Most of the land is badly shaped.Difficult to get out.

Local second-hand RC (heavy steel frame) condominiums

It is suitable for those who have stable additional income from real estate, etc., and those who do not emphasize exit (sale).

Advantages: high yield.Accumulated evaluation is high

Disadvantages: High vacancy rate and expense ratio.Capital loss is easy.Few management companies.Large repair costs.Less annual depreciation.

Used RC (heavy steel frame) condominiums in the Tokyo metropolitan area

It is suitable for corporations (asset management corporations, etc.), those with a high self-financing ratio, and those who need inheritance tax measures.

Advantages: Rent demand is firm (vacancy rate is low).high asset value.Less capital loss.

Cons: Low yield.Less annual depreciation.Accumulated evaluation is difficult to obtain.

Pre-owned condominium

It is suitable for housewives, young people, and those who want to start easily from a small amount.

Advantages: Solid rental demand (low vacancy rate), little capital loss.High liquidity.You can start with small capital.Low rate of rent decline.Cons: Small cash flow.High expense ratio.

Newly built condominium

Pros: Many options for funding.Long-term loans are available.

Cons: Often expensive.Capital loss is easy.Rent tends to go down.It is difficult to find an exit (sale).Hard to generate cash flow.

Related article:What kind of property is suitable for real estate investment?Wooden, steel, lightweight steel, RC?Know the types of buildings

How to formulate an “expansion strategy” for real estate investment

Increase self-financing ratio

The capital adequacy ratio is a measure of how much of your total assets you have at your disposal.

Real estate purchased with a loan from a bank is also an asset.However, it cannot be said that everything is self-funded because it means that you have debts.

Quasi-capital ÷ total capital × 100 is the self-fund ratio, and if you purchase a property of 1000 million yen with a down payment of 6000 million yen, the self-fund ratio will be 16.6%.The higher the self-financing ratio, the easier it is to receive a second loan.

Consider investment methods that aim for profit on sale (capital gain)

It is difficult to buy and sell in a short period of time with the aim of increasing land prices, as land prices continue to decline and stagnate.For this reason, we purchase properties with good location conditions, manage and operate them appropriately, do not decrease (or increase in some cases) the asset value, and sell it when it becomes positive in light of the self-financing ratio. With a long-term view, it is common to invest in real estate assets.

Summary

Expansion strategy to be aware of in real estate investment. Why is the first building important?

• Having multiple real estate properties diversifies risk
• Whether or not you can have a second building depends on the operational performance of the first building.
• The operating performance of the first building is that it is able to maintain full occupancy and that it is profitable enough to make a down payment for the second building.
• If you can manage and operate properties with good location conditions appropriately, you can also aim for capital gains

At Rich Road Co., Ltd., we will consistently support all aspects of investment real estate, from complete beginners to experienced people, from a wide range of real estate selection, loan consultations, post-purchase management, and renovations.Click here to book a free individual consultation