If you are a real estate investor, you may have thought about investing in a second building at least once.However, it seems that there are many people who say, "I want to buy more, but I'm afraid I'll fail" or "I don't know when to buy more."So this time, we have summarized the points to buy the second building in real estate investment.
table of contents
- 1 What are the benefits of owning a second building in real estate investment?
- 2 Risks and precautions of owning a second building
- 3 What kind of property should be owned in the second building in real estate investment?
- 4 Points to be aware of when purchasing a second building in real estate investment
- 5 Summary
What are the benefits of owning a second building in real estate investment?
Some of those who are investing in real estate may be thinking about owning multiple properties in a second or third property when the operation of the first property has stabilized to some extent.
However, there may be cases where you do not fully understand the merits of owning a second building when purchasing additional real estate for the first time.
First of all, I will explain the benefits of owning a second building in real estate investment.
Related article:What is the reason why "multiple ownership" is ideal for real estate investment?
Can spread risk
Owning two real estate properties leads to "diversified investment" in terms of investment, and you can expect risk diversification.
If you own only one property, it is not uncommon for your rental income to fluctuate greatly due to changes in environmental factors such as natural disasters and land price fluctuations, and before you know it, your business is in the red.
However, even in such a situation, if you own a second property and one of the properties is properly managed, you can prevent the risk of your real estate income falling to zero even if the management of the other is hindered, You can reduce the overall damage.
However, from the perspective of risk diversification, the point to note when owning a second building is to choose a property that has different areas and facilities than the first building.
If you purchase a property in a different situation and environment than the first building, you can avoid the risk of disasters and vacancies.
Related article:[Real estate investment] What is the property purchase strategy?Explain benefits, risks, and appropriate timing
Lower interest rates can be expected
Recently, interest rates have been low, so when purchasing a second house, you can enjoy benefits in terms of interest rates by refinancing all at once to a financial institution with a lower interest rate.
In addition, although it is assumed that the management of the first building is stable, it will be easier to obtain a loan from a financial institution when borrowing a real estate investment loan for the second building.
At that time, please also remember that the higher the profit margin of the first building you are managing, the easier it is for the evaluation of the financial institution to rise.
Related article: What you need to know about interest rates on loans when you start investing in real estate.Types of interest rates and points to keep them lowhttps://www.richroad.co.jp/investment/200921-2/
have tax savings
If you own multiple properties, you can expect tax savings on inheritance tax.
Even if you own the same amount of assets in cash and real estate, you can reduce the assessed value of the property used for inheritance tax calculation by owning it as real estate, so the tax saving effect will increase.
Also, even if inheritance occurs due to the death of the owner of the property, it can be said that it is less likely that trouble will occur if you own two properties rather than if you have only one property.
Inheritance tax calculation standards vary depending on individual asset status, so please consult with a tax accountant or other expert.
You can take advantage of the experience of the first building
When purchasing the first building, you may have had many concerns.
However, when purchasing the second real estate, you can use the knowledge and experience you have cultivated during the first building.Rental management will not be as difficult as the first building, and will proceed smoothly.
Risks and precautions of owning a second building
I have introduced some of the benefits of owning a second building, but there are also risks associated with owning multiple real estate properties.
Therefore, let's understand the precautions when owning a second building.
For risk hedging purposes, separate the area from the first building
Multiple ownership of real estate leads to diversified investment, but if the property purchased for the second building is in the same area as the first building, the risk hedging effect cannot be expected so much.
Even if the first property is stable and profitable, when a disaster such as an earthquake occurs, all of the real estate owned will be greatly damaged.
Therefore, when owning multiple real estate properties for the purpose of risk hedging, we recommend choosing a different area from the first property or owning a property with a significantly different structure.
However, keep in mind that even properties owned through diversified investment may collapse together if an economic fluctuation occurs that shakes the real estate market from the ground up.
Increased management time
The more properties you own, the more time it takes to manage them.
Buying real estate is not the end of the story, and maintenance and repairs are required after purchase, so you have to set aside an appropriate amount as a preparation.
In addition, of course, the calculation of income and income will increase due to the additional purchase, but it is also necessary to pay attention to the total borrowing amount increasing.
There is no problem if the rent income is steadily repaying the loan, but if the rent income is jeopardized due to a disaster or a market crash, there is a risk of being unable to repay the loan.
Therefore, it is important to manage the business with an awareness of cash flow on a daily basis.
Related article:How to choose a management company that is important for real estate investment?Points to identify a reliable contractor
It's the second building, so I'm not letting my guard down
Even if the real estate management of the first property proceeds smoothly and produces favorable results, it does not necessarily mean that the second property will also succeed.
Don't get overly confident that you've experienced everything in the first building, and get your hands on the second real estate in a state where you've let your guard down.
It is not uncommon for the familiarity and complacency that comes from the experience of investing in the first house to lead to unexpected failures.
When purchasing a second building, it is important to ascertain the financial condition of the first real estate and determine whether it is really okay to buy more.
If you have even the slightest concern about the financial situation, let's postpone the purchase for a while and reconsider after a while.
If you rush, but make a mistake in your judgment, or if you purchase the second house too early, it will result in a deterioration of the cash flow itself.
What kind of property should be owned in the second building in real estate investment?
We have explained the advantages, disadvantages, and points to note when purchasing a second building. Isn't there?
What kind of property did you purchase as the first building, how much money do you have for the purchase, how do you set the purpose and goals of the investment, and so on. will change.
For that reason, it is not possible to say unconditionally that this is the second building.
Here, we will explain the merits and demerits of each property and their compatibility according to the structure of the property, so please refer to it when considering the purchase of the second building.
Second-hand wooden and light iron apartments have the following advantages.
- little 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
Wooden and light rail structures are cheap and can be constructed, so the rent is cheap (the rent fluctuation is small and the rate of decline is low), so the demand from singles is high compared to other structures.
We tend to think that an RC structure that allows us to set higher rents would be better, but there are many single office workers who do not have rent subsidies, and we can expect a certain level of demand from such groups.
The disadvantage is that the older the building, the higher the repair and maintenance costs after purchase.Also, it may be said that it is a disadvantage that it tends to be difficult to get long-term loans.
For these reasons, second-hand wooden and light iron apartments are recommended for those who are considering real estate investment for tax purposes and those who want to start investing from a small building.
Newly built apartment
Newly built apartments have the following features:
- Long-term financing available
- Less expensive to repair
- get high rent
- Easy to find tenants in the beginning
Let's think of newly built apartments as being roughly the opposite of used/light rail apartments.
Compared to second-hand apartments, it is easier for tenants to gather and loans can be obtained on favorable terms, but there are also disadvantages such as rents falling gradually, capital losses being likely to occur, and exit strategies being difficult.Therefore, new apartments may be risky for beginners in real estate investment.
Used RC (heavy iron) apartment
Although it depends on the purpose, RC condominiums are a recommended structure when you have abundant funds.Second-hand RC condominiums have different characteristics depending on whether they are located in rural areas or in the metropolitan area.
Local second-hand RC apartment
Local second-hand RC condominiums are characterized by high yields and high settlement evaluations.
Used RC condominiums in the Tokyo metropolitan area
Second-hand RC condominiums in the Tokyo metropolitan area are characterized by low vacancy rates and high asset value.
On the other hand, there are disadvantages such as low yield and productivity evaluation, so let's decide whether to buy a second-hand RC condominium in a rural area or a second-hand RC condominium in the Tokyo metropolitan area after understanding the characteristics of each.
Condominium
Separated condominiums also have advantages for second-hand and newly built condominiums.
Second-hand condominiums are popular among housewives and general office workers because the rate of rent decline is low and you can start with a small amount.
In addition, although long-term loans can be used for newly built condominiums, there are many disadvantages such as too high prices, no exit strategy, and no cash flow, so it is not recommended as an investment target.
Points to be aware of when purchasing a second building in real estate investment
Here, I will explain the points you want to be aware of when purchasing a second building in real estate investment.
There are three things to keep in mind:
- Clarify purchase criteria
- Have a broad perspective, including area and scale
- Careful selection of partner companies
Let's look at each one.
Clarify purchase criteria
People who fail to invest in real estate tend to buy a second home without thinking too much about it, relying on unsubstantiated confidence that they will be okay because the first one went well.
If you are not satisfied with the real estate you purchased with an easy decision, it is not an ordinary task to bring it to a good condition, and there is a possibility that it will fail without going well.
Therefore, even if the first building is operating smoothly, it is important to make a careful decision on investment and operation of the second building in the same way as the first building without buying anything.
For the second investment, we will clarify the meaning and intention of increasing the number of investment properties, thoroughly investigate whether the property will realize it, clarify the purchase criteria, and reduce the risk of failing to add let's
Have a broad perspective, including area and scale
When selecting a second property, be conscious of having a broad perspective, including area and scale.
From the perspective of diversified investment, it is recommended that the property listed as a candidate for the second building be a property that is different in nature from the real estate purchased in the first building.
Also, in order to make a sufficient comparison, it is better to hear from multiple real estate companies.
If you rely on only one company, you will not be able to avoid information bias.In order not to fail to invest in the second building due to lack of information, we will consult with multiple real estate companies and collect property information from every angle.Too much information can actually lead to confusion, but keep an eye out for real estate information, sort out the information you need and the information you don't need, and keep in touch with the latest information.
Careful selection of partner companies
Real estate companies and financial institutions are important business partners for real estate investment.Find out which real estate company to ask for intermediation and which financial institution is the best to get a loan from, then choose the ideal partner.
If you have a close relationship with a real estate company, they may be the first to find a tenant when a space becomes available.Also, if you purchase a third or fourth real estate in the future, there is a high chance that they will introduce you to a good property at that time as well.
If you build a relationship of trust with the financial institution, it will be easier for them to consult with you about financing such as housing loans.
Long-term relationships with business partners.It is important to choose real estate companies and financial institutions carefully.
Summary
This time I explained the point of buying a second building in real estate investment.For the acquisition of the second real estate, it is important to select a reliable real estate company and financial institution, as well as to understand the characteristics of each property structure before choosing an investment destination.
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.
