View of Tokyo
An interesting article this week from Reid Kirchenbauer who owns and runs investasian.com. Reid has an interesting story, from child actor to property and stock investor, you should take a look.
This week Reid wrote about Japanese property, which always peeks our interest. The article on his website is entitled “Why You Shouldn’t Buy Japanese Property” which doubled out interest! Reid outlines 3 reasons why he believes Japanese Property is not a good buy. The article shows the importance of local knowledge when investing in any marketplace.
Dispelling the myths
Reid’s first point is that property in Japan is not an asset. The basic argument here is that Japanese property only lasts for 20 years. While it is true that Japanese property is not build to last 100 years, as in England, Japanese property lasts well beyond 20 years. During the bubble period, it was common for Japanese owners to pull their houses down after 10-15 years and rebuild. This was when the Japanese had limitless money and thought the good times would never end. They did end and now Japanese property owners are far more cautious and frugal. DIY and home improvement books, magazines and TV shows are commonplace, people stay in their houses and apartments longer. And of course, the land that the property sits on will always hold some residual value. JPI’s counter-argument is of course that Japanese property is an asset and offers great returns.
The second point Reid makes concerns the Japanese demographics. It is no secret that the Japanese population is declining. Government statistics tell us the population reduced by 1 million people last year, which would cause serious problems for the economy. But what Reid doesn’t know, as the Japanese government keeps this news quiet, is that there have never been more foreign workers in Japan as there has today. Politically it is not done to allow foreign workers flow into Japan but pragmatically it has to happen. And it is happening. This trend will only increase as Japanese manufacturing, retail and service sector companies need to fill the labor shortage all over the country. So while the Japanese population is in decline, steps are well underway to tackle this situation.
Reid’s third point had (has) some merit. The Japan, Korea, China geographic location has the highest concentration of military personnel of anywhere in the world. North Korean has been a constant concern in recent years. The new American administration raised tensions but in the past week, a historic meeting between North and South Korea seems to have defused tensions. The region has its ups and downs but the future looks promising and we are certainly not going anywhere.
Local knowledge always key
When investing in any market, local knowledge is key. It is easy to read a few articles and jump to the wrong conclusions. Taking the time to understand a market from the inside is vital. Here in Japan with JPI you can invest safe in the knowledge that you have access to years of sourcing, buying, and investing experience.
Access www.japanpropertyinvestments.com to download our free e-guide “Real Estate Investing in Japan”
Access the full article from Reid Kirchenbauer, here.
Really, a rant… are you serious?
Here at Japan Property Investments, we tend to keep the posts light, fun, and informative. Why? Because life is hard and you don’t need to read any more bad news. Also, successful people have a positive growth mindset like us. But for today allow me a little rant.
First, the background.
What is “Smart Days” and why should I care? Well, for many investors Smart Days was a progressive property company based in Tokyo that had an interesting investment strategy. The company sourced, purchased and managed women only ‘shared houses’, a very new concept for the Japanese market. Smart Days also guaranteed a fixed monthly income to investors. In recent years the UK market has seen an explosion of HMOs, (House of Multi Occupancy) which offers quality accommodation and a low price. Basically a room in a house with a shared kitchen and bathroom, sometimes with an en-suite option. The UK HMO strategy is a win-win, lower rent for tenants and great returns for investors and they continue to be popular. Where the two models differ was that Smart Days investors purchased the property and had to agree to Smart Days managing the property.
I see where this is going
Savvy investors out there will already have seen the problem. The selling agent and the managing agent is the same = conflict. Early on in my investment days, I made the same mistake. However after 6 months, I sacked the agent and put in a new one, I have never looked back with that agent. Smart Days investors signed agreements that locked them into management contracts with ONLY Smart Days. It would appear Smart Days were more focused on attracting investors and selling property then filling up those rooms. So in January, this year investors were informed that they would not receive rent for the month. Of course, the investors still have to pay their loans. A terrible situation to be involved in.
So who is to blame?
Well, it is easy to blame Smart Days, surely the mislead investors. Or they overestimated what they could/could not afford to pay back. Perhaps they grew too quickly and overstretched. Only they will know and the story is not completely over so I should not speculate.
But what of the investors? A key goal of JPPI is education, learning about property strategies, the risks, and the returns. Smart Days investors need to take some responsibility. If an investment is too good to be true, it usually is. Do your due diligence, read books, listen to podcasts, attend events – ASK QUESTIONS! and learn all there is to know about your chosen field of investment.
The story is not over and for all involved, I hope there is a positive outcome and people can move forward but this story really brought home to me the importance of property education. If it is too good to be true, it probably is!
Let me know your views on this topic, but for now, rant over! [email protected]
The best of 2018 quarter 1 property in Japan.
If you haven’t joined us on LinkedIn yet, please do. The LinkedIn group is called Japanese Investment Properties and every day we post the best investment property we can find. Our criteria are very simple, high returns, great location and already tenanted for instant cash flow.
Coming up to the last week in March, the last week of the first quarter in 2018, we review the best three properties we found. Join us on LinkedIn Japanese Investment Properties to access daily deals like these.
Property Number One
This is a great investment property. Recently renovated, 4 minutes from the station and returning 8.2% net!!! This will not stay on the market for long. Built in 1977, 21 square meters, on the 2nd of 4 floors. One of 32 south facing bright 1 room apartments. Annual income is ¥540,000, low monthly charges of ¥8,455 and annual land taxes of ¥24,300. All for an asking price of ¥5 million.
Property Number Two
Brand new building in Tokyo
A brand new building, just completed in November 2017. A wood frame building built on a corner plot in Tokyo with 10 apartments. 8 minutes walk to the nearest station, a must for Japanese tenants. The ground floor has five 17 square meter apartments and the second floor has five 17 square meter apartments with 5 square meter loft space. The building already has 9 apartments filled and the last one is under offer. With an asking price of ¥114 million yen and an annual income of ¥7.4 million, who ever purchases this apartment will enjoy 6.5% returns and limited maintenance due to the high construction standards in Japan.
Property Number Three
Bargain property in Fukuoka
Once in a while, they come along. This one is in Fukuoka and the asking price is a mere ¥2,800,000 or US$26,000 according to xe.com! Built in 1987, this top floor apartment, the 7th floor has an annual income of ¥344,400 and monthly charges of ¥10,650 giving a gross ROI of 12.3% and a net of 6.9%.
Let us know how we can help you, single lets or buildings in Tokyo, Kobe, Osaka, Fukuoka, Sapporo or anywhere in Japan. Contact JPI today.
Japan on the up.
The stock market is up. Next year is the Rugby World cup. And of course, everyone is gearing up for the Olympics in 2020.
Local train company going Global.
In the past twenty years, there has never been a better time to invest in Japan. We see it here every day but forget that most of our investors live overseas. We came across an article from Deal Street Asia which highlights Japan’s resurgence perfectly. JR Kyushu, or Japan Railways Kyushu, are using some of their profits. Entering the Thai real estate market with a deal to purchase 429 apartments in Bangkok. The deal will cost JR Kyushu US$90 million with a further $100 million going into refurbishment, no small deal.
Bumper profits make deep pockets.
Keep in mind that JR Kyushu is merely a railway company in the south of Japan. The benefits of inbound tourism across the country have been enormous. Companies like JR Kyushu have benefited from bumper profits as 29 million tourists flood the country. Spending within Japan has jumped significantly in the past 5 years. Japanese companies with full wallets and are going shopping for bargains overseas.
History repeating itself.
This could be a throwback to the bubble days. Days when Japanese companies bought foreign assets like they were going out of fashion. Growing up in Britain in the 80s Japanese companies bought the local golf course, hotels, and shopping centers. It seems like history is repeating itself.
We have a different view than the Japanese companies. At JPI we prefer to invest IN Japan where returns are good, tenants respectful and investments stable. We wish JR Kyushu well in their foreign mission. Hopefully, they purchase more and more overseas properties, leaving the Japanese ones to us here at Japan Property Investments.
Japan’s JR Kyushu buys Bangkok apartment complex for $90m
You are now in the position to look for a unit or house but what determines whether a property would be a good cash flow property or a capital growth property.
Below are some of the key points you should be looking for in your search.
Locating Cash flow properties
- Look in high yielding suburbs
- Buying properties 20 – 40% below the median price for the suburb.
- Buying in regional areas or targeting student accommodation.
- Renovating and adding value to increase rents.
- Managing interest rates and fixing when we think the current interest rate is at the bottom of its cycle.
Locating capital growth properties
- Strong economic growth and low levels of development
- Close to schools, shops and public transport
- Close to a capital city
- Older properties rather than new ones
- Properties that have rental appeal
- Purchase in countries where there has been a history of growth
Let’s be honest here “The Perfect property does not exist”
To find a property that has positive cash flow and has capital growth especially in the short term is very difficult to find. The better strategy is to have a balance between capital growth and cash flow properties in your foundation portfolio. Over time a cash flow negative property may become positive.
It is also possible to improve a property through renovations that could lead to positive cash flow and also increase capital growth
Therefore what’s the better option, capital growth or cash flow?
This all depends on your current circumstances, but there are a few considerations to take into account to know what might fit you best.
Do you want to increase your personal wealth, or do you want a source of income?
If you want to grow your personal wealth, then you should choose a capital growth strategy. As a general rule of thumb, capital growth is best for investors aged between 20 and 60, who are still accumulating their wealth. Buying high growth properties will allow investors to benefit from compound growth as their properties rise in value and amass significant personal wealth.
As you near retirement, you should‘ve created the wealth required to live the type of lifestyle you want. However, you’ll also require a source of income if you’re no longer working.
This is when a cash flow strategy is necessary as investors can utilise the rental returns as a means of passive income.
Whatever is your preferred strategy is essential to purchase in line with your goals and financial position, while also buying each property in the right order.