How to get the most benefits from investing in Japanese real estate?

In recent years, Japan has become a hot spot for Chinese overseas real estate investment. At the same time, the good investment environment, the 2020 Tokyo Olympics, etc. have also been a shot in the arm for Japanese real estate, attracting many investors. Few Chinese people come to Japan to purchase real estate for investment. Today, let us explain to you from several aspects the benefits of investing in Japanese real estate.

Before introducing the calculation method of return on investment, we should understand that return on investment is usually a rough return before removing various expenses. The formula is return on investment = annual rental income ÷ house purchase price × 100. In addition, another important indicator is the rate of return, which is the net return on investment, also called net operating income. After excluding various handling fees and other miscellaneous expenses, the net The return on investment will be lower than the return on investment.

Japan continues to relax the visa threshold for foreign tourists to Japan, which has also indirectly affected the popularity of foreigners investing in Japanese real estate. As a novice investor, whenever I see the return rate on real estate investment in Japan exceeding 10%, I am so excited that I want to buy an entire building right away. However, don’t be impatient. You must know that the yield rate of such a house is often a “surface rate of return.” So how to judge the rate of return within the normal range?

01

Surface rate of return

The calculation method of real estate rental rate of return is usually divided into two methods: "surface rate of return" and "actual rate of return". Surface rate of return refers to one year's rental income divided by the purchase price of the property. Surface rate of return = one year’s rent income ÷ real estate purchase price × 100%.

What needs to be noted here is that when operating investment properties, in addition to the main rental income, you also need to consider management fees, repair fees, gift money, parking fees, deposits, etc. Carefully consider all income and expenses involved. Generally speaking, some yields higher than 8% or even 10% are "surface yields" that do not take these expenses into account.

02

Actual rate of return

The actual rate of return is the estimated income minus management entrustment fees, fixed asset tax, urban planning tax, and renovation Fees, mortgage interest and other expenses are divided by the purchase price of the real estate. That is: actual rate of return = (1 year's rent income - various expenses) ÷ real estate purchase price × 100%

To accurately understand the income from rental properties, it is very necessary to use the actual rate of return. At the same time, when renting, when encountering changes such as vacancy periods, rent adjustments, large-scale repair costs, etc., these expenses cannot be ignored. In order to improve the accuracy of the actual rate of return, consumption tax, real estate acquisition tax, agency fees, etc. should also be considered.

03

Don’t trust high yields

When investing in buying a house in Japan, you should pay attention if you encounter items with high yields such as 8% or 10%. . These are often "surface rates of return" and require further analysis of various expense matters. In addition, some intermediaries will inflate the return yield in remote areas like Hokkaido to more than 10% because the vacancy rate is also included in the calculation. But often such houses are too remote, not very popular, and difficult to rent.

Every investor should be careful not to place too much and blind emphasis on the level of return on investment. This is also a common misunderstanding among many domestic investors when investing in real estate. A high rate of return does not mean a high income. The Japanese real estate market is a mixed bag, and there are also many unscrupulous real estate developers who promote high rates of return, deliberately misleading some investors who are unfamiliar with the Japanese real estate market, causing them to blindly pursue the rate of return and regard the rate of return as the only criterion for measuring houses.

In Japan, properties located in remote areas with inconvenient transportation will take advantage of the advantages of cheap property prices. From the perspective of return rate, they are superior to properties in prosperous areas of metropolitan areas. However, such areas have a high vacancy rate, making it very difficult to rent and resell, and there is no room for appreciation. Once the real estate in such a place cannot be rented out and is not handled properly, not only will it not make money, but it will actually lose money.

Therefore, it is best to use the return on investment as a reference for purchasing a house, and do not rely too much on it