While the budget required to start real estate investment is higher than other investments, if you meet a good property / real estate company, you can expect professional support, so it can be said that it is an investment that is easy for beginners to succeed. .However, there is no end to the cases of failure due to misunderstandings, and it is also true that many people give up on real estate investment because it is not profitable.As long as it is an investment, it is not easy for anyone to earn income, so it is important to understand the risks before starting.This time, I would like to introduce the differences in perception that are common when starting real estate investment.
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Common perception differences in real estate investment
It is dangerous to think that once you get real estate, you will wait for income to come in.It is true that when management is going well, it is possible to create a state that is close to unearned income, but behind the scenes there are many things happening every day, such as management, repairs, and dealing with tenants.If you are too indifferent, you will have a hard time dealing with any troubles, so always keep in mind that "real estate investment is a business."
Tenant management
The owner has to think about how much and who to lend it to.A real estate agent will do the work to attract customers, but the owner is the one who selects the tenants and decides the rent.Also, when it comes time to renew, you will have to sign a new contract, and when you move out, we will be present to confirm repairs and settle the rent and security deposit.After that, a series of responses such as submitting a request for tenant recruitment to a real estate company is repeated.
Confirmation of repair points
If you buy it, it's already safe, but it's the beginning of operation.Apart from newly built apartments, regular maintenance is required.There are repairs related to daily life such as water heaters and water facilities, and renovations to maintain the value of real estate.Inexpensive repairs can be left to real estate companies and management companies, but large-scale renovations are also long-term for owners themselves. You have to make a strategy while calculating a reasonable cash flow.
About business management
In order to lead real estate investment to success, daily management must be done.Considering the ratio of expenses to income, we will accumulate renovation costs.You have to think about how much profit you can make, and even if you entrust property management to a real estate company, you need to do business management yourself.Of course, the real estate company will consult with you, but it is only a consultation and the decision must be made by the owner himself.
Related article:How to choose a management company that is important for real estate investment?Points to identify a reliable contractor
Inheritance tax measures
Some people think that buying real estate with money will reduce inheritance tax as a result.In conclusion, building a property is tax saving, but the debt itself is not inheritance tax.Let's take a closer look at what's going on.
If you build a property for real estate investment, the inheritance tax valuation of 6% of the building and 2% of the land will be lowered.This discount rate is obtained from the original cash.On the other hand, borrowing itself is not an inheritance tax countermeasure.For example, let's say you have $2 million in assets.The breakdown is 1 million yen in cash and 1 million yen in land.The percentage of inheritance tax measures will change depending on the two patterns.
Related article:Will real estate investment for inheritance tax increase the taxable amount?Understand how taxes work so you don't fail
·Example 1
I bought an investment apartment with 1 million yen in cash.Since the building is 6% of the inheritance tax assessment value, it will be taxed at 4,000 million yen.1 million yen of land can be reduced to 2 million yen with a 8,000% discount.As a result, we succeeded in reducing the assets of 2 million yen to the inheritance tax assessment of 1.2 million yen.
·Example 2
Let's say you take out a new loan of 1 million yen and invest in real estate. An inheritance tax of 1 million yen is imposed on the debt of 1 million yen, and since the building is 1% of the 6 million yen of the debt, the tax is 4,000 million yen.1 million yen of the land will be 2% off, so the inheritance tax assessment will be 8,000 million yen.Since there is 1 million yen left in cash, inheritance tax will be charged for that amount.As a result, 2 million yen became an inheritance valuation of 1.2 million yen.
In both cases, the inherited property will be reduced by 8,000 million yen, so it is the same whether you borrow or not.Turning your cash into an investment apartment turns out to be a tax-saving measure in itself.
5 common risks to watch out for when investing
buy in anticipation of price increases
During the bubble era, many people started investing in real estate.Many people expected the price to rise above the purchase price and wanted to sell it for a profit.Such a person was thinking of buying a newly built condominium by borrowing money and selling it when the price rose.However, the reality did not go well and the real estate price plummeted due to the bursting of the bubble.At this time, those who were involved in real estate investment suffered great losses.
For example, let's say you bought a newly built condominium that sold for nearly 4,000 million yen at the time.Now the price has dropped by a quarter.In the 4s, the price of a new one-room apartment in the Tokyo metropolitan area was around 1 million yen, but today it has fallen to around 1990 million yen.Second-hand properties are around 2,800 million yen, and the price has dropped significantly.Care should be taken when investing in real estate in anticipation of future price increases.
Not considering raising the repair reserve fund
When purchasing a room in an apartment as a real estate investment, you must take into account the monthly repair costs.If you buy a second-hand car, the purchase price will be cheaper and the yield will be higher, but on the other hand, the cost will increase due to the increase in repair costs, and the profit rate may decrease.
For example, let me introduce an example of purchasing a 30-year-old condominium as a real estate investment.The building is a little old, but the location is good and the purchase price was low, so it was an investment property with a good yield.However, six months after the purchase, the management company notified us of an increase in repair costs.Monthly expenses were 7,000 yen more than now, and as a result, the yield was low.
In such cases, we should have confirmed the increase in repair costs in advance.When you purchase a property, it is clearly documented. Be sure to read the materials, such as the "Investigation Report Concerning Important Matters," thoroughly.Especially in the case of older properties, it is common to see an increase in repair costs as the years pass.This is an example of a failure that could have been prevented with such knowledge.
Possibility of withdrawal of large-scale facilities
There are cases where property selection for real estate investment fails if you rely too much on only certain factors.For example, nearby commercial facilities, educational facilities, large-scale factories, etc.If these companies withdraw, the value of the real estate will also fall, so there is a possibility that the yield will worsen due to the increase in vacant rooms.
For example, let's take a look at an example where an apartment was built because there was a large-scale factory in a certain place 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 for apartments.However, the business has since shrunk and many of the employees have moved.As a result, the number of vacancies in the apartments has increased, and it is no longer full.From this example, you can see the danger of choosing a property based only on specific factors.It is also important to see from the route that it is directly connected to the terminal station and that it is directly connected to a densely populated area of universities.
Rent arrears
When you purchase a real estate investment property, you can either leave the rent collection to the management company or collect it yourself.Even if you decide to collect it yourself to keep the management cost afloat, it will take a lot of time and effort if you are delinquent, and there are many examples that you can't collect as a result of escaping.Here is an example.
When I invested in second-hand real estate, I was introduced to a rent agency system, and the collection fee was 5% of the monthly rent.However, until now, the rent has been collected without any problems, and most of the people have continued to live there for a long time, so they did not use it.The breakdown is 8 yen for the rent of 4,320 yen.
However, after that, the rent was delinquent for several months.I couldn't get in touch with the resident even after calling and visiting, 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. It was
Related article:This is how you deal with rent arrears!Points for avoiding risks in real estate investment and collecting rent
buying local property
Universities are often built in rural areas, and there is a strategy to purchase properties in anticipation of the influx of students into the area every year.However, the university will not always be there.Large commercial facilities may also relocate due to the changing needs of the times.At best, we had to start with the long-term risk in mind.
For rural apartments, targeting people who go to college, factories, etc. may fail.If there is a university nearby, you can expect students to move in, so you can feel that you can continue to invest in real estate for a long time.
In recent years, there has been a tendency for universities to move to urban centers where the population is more likely to concentrate.This is because it is difficult for people to gather even if it is operated in a rural area, and it is difficult for the university to manage it.
Also, if you target people who go to the factory, you will be in trouble if the company goes bankrupt and the factory is closed.Be wary of local properties that rely on specific needs, as the larger the factory, the more susceptible it is.
It is clear that the Tokyo metropolitan area, which has diverse needs, is more likely to attract tenants than rural areas where the population continues to decline.
What should I do to avoid risk?
buy multiple studio apartments
Rather than purchasing a real estate property in a rural area and purchasing an apartment building, it can be said that it is better to purchase multiple studio apartments in urban areas for risk management.For example, if you buy more than one in a remote location instead of in the same prefecture, you can spread the risk in the event of a disaster and your income will not drop to zero.In the future, the demand for rental properties will decrease as the population in rural areas is expected to decline.If there are few people, the price of land and buildings will be low, and there is a possibility that more people will choose to own a detached house rather than choose a rental property.In rural areas, there is a risk of failure unless there is a long-term demand for the property.Single rooms in the Tokyo metropolitan area meet various needs, such as singles, single employees, and elderly people living alone.
The biggest advantage of second-hand condominiums is that they are cheap.Compared to newly built condominiums, the cost can be reduced to about 7% to 8%, so it is chosen by beginners and those who cannot prepare a down payment.However, just because it's cheap doesn't mean it's a good property.
If it is cheap, it may be an unpopular property, or it may have demerits such as an old and declining property, or insufficient management.In addition, the selling price does not reflect the buyer's intention very much, and the selling side's intention tends to be prioritized, so the price does not necessarily correspond to the market price.
Another thing to consider is the short service life.Second-hand buildings have a limited useful life, and often the equipment inside is old, so capital investment costs are high.Even if it looks like a good yield at first glance, you may lose money if you don't think about running costs.
Aiming for an apartment building in the Tokyo metropolitan area
Investing in a whole apartment has the advantage of a higher yield and a higher income than a sectional condominium.Also, unlike a divided condominium where a vacant room is a matter of life and death, the rent of the occupied room can cover the loan payment until the vacant room is filled, so the risk of zero income is low and the asset value is high. It is also a recommended point that it is easy to receive a loan when expanding to the second building.The influx to the Tokyo metropolitan area is increasing year by year, and there are various needs such as students, singles, elderly people, and families, so there is a high possibility that people will move in compared to rural areas, and as a result, it can be said that the possibility of success is high. .However, since the cash flow of a single building increases, the risk of failure also increases.In order to minimize the risk as much as possible, choosing a good property is more important than anything else. There are many things to check before buying.It is important to operate with a detailed plan.
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Summary
Common examples of real estate investment failures are…
- Different perceptions of real estate investment
- Many people have different perceptions about tenant management, repair areas, business management, and inheritance tax measures.
- Common risks that you should be aware of when investing are expectations of price increases, the risk of an increase in the reserve fund for repairs, closing of nearby facilities, rent delinquency, and regional risks.
- In order to avoid risk, the aim is to buy multiple one-room apartments, or to purchase an apartment in the Tokyo metropolitan area.
- And in the first place, choosing a good property is more important than anything else in order to minimize the risk as much as possible.
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.
