Real Estate Japan recently conducted an e-mail interview with Mr. Kotaro Kikkawaon frequently asked questions about buying property in Tokyo as a foreigner. Mr. Kikkawa is an agent with Tokyo-based EM Labo Co. Ltd.
Here are his insightful answers to the questions that many property buyers and sellers have about buying, managing, and selling an investment property in Tokyo.
1. What are the main things you should consider when buying a home in Tokyo? What about an investment property?
When you’re looking at a property, whether it’s going to be your future home or an investment, the most important thing to ask is, “What objective am I trying to achieve with this purchase?” and to choose the property that has the greatest potential for reaching your goal. In other words, you need to be clear about the purpose of your purchase. This is even more fundamental than buying an asset that is highly valued and has a lesser chance of falling in price.
Buying a home
Once you have a clear grasp of your objective, in the case of a home purchase, you can consider other key questions such as:
- If you and your family do have to end up moving, would you be able to lease out your home?
- If and when you sell your home, will you be able to pay off the mortgage?
- Can you easily get a loan for this property?
- How easy will it be to sell? With respect to this, you should look at the property from a future home buyer’s perspective.
Buying an investment property
When you are buying an investment property, of course, you should look at the numbers, such as yield and cash flow.
However, you shouldn’t overlook your instincts. That is, whether you actually think it’s a good property. This is because in the long-run, if you don’t love the property it will be difficult for you to make the commitment to managing it well.
I also think it’s important for an investor to have a clear idea of your future plans and exit strategy for any property that you are thinking of buying.
As I mentioned above, if you have a clear grasp of why you are buying a property, you should also consider follow-up questions like when you should sell (how long to hold the property and whether its price has appreciated sufficiently).
I think you could even say that a profitable investment property results from good management, not just investment. As with any business, you need to make an annual business plan and keep track of your bottom line. For example, take a look at what you think a realistic occupancy rate would be for the property, then set up a plan for holding the property for five years, then calculate your potential profit while considering taxes and fees, etc. I think this would apply not just to Tokyo, of course, but to other regions as well.
Q2. We understand that you’re a broker and that you also do property management. Can you tell us a little about your PM experience? Why should an owner/investor use a property manager?
I started doing property management because many of my clients felt uneasy about managing their income property after the purchase. During the purchase process, I always discuss the issue of property management with my clients, and many of my clients do ask me to help manage their property.
Also, my clients aren’t necessarily resident in Japan. If you aren’t familiar with Japanese rental customs, it makes sense to ask a local property manager who can help properly manage your investment.
I also believe I offer a competitive advantage to my clients because as an agent and property manager, I can target both Japanese and foreign tenants and potential buyers. This isn’t something that most Japanese real agents can easily do.
As the owner of an income property, one of the most important things you should think about is whether you can earn a steady income stream. It’s a big risk to let someone manage a property on your behalf who doesn’t actually know the property. Some potential problems arising from poor management include: broken equipment and appliances, an extremely dirty property resulting from the tenant never cleaning it, delinquent rent, and in the worst case, difficulty in evicting a tenant who is delinquent with rent. To resolve these kinds of issues, you will need to retain specialists. Better yet, in order to avoid these problems, it’s best to practice good property management and establish a win-win relationship between the tenant and yourself (the lessor).
3. What are some issues that buyers sometimes encounter after they buy a house or investment property in Japan? Can you tell us a little about your approach to customer service and the kind of aftercare that you provide to your clients?
Unscrupulous property managers
As I mentioned in my previous answers, if you are buying an investment property it’s important that you actually make a profit on your investment, so it’s important to find a partner who will do a good job managing your property.
You’ll sometimes hear stories about property managers who fail to remit payment to owners even though they’ve received rent from the tenants or property managers who fail to pay taxes and property management fees for properties they are supposed to be managing. Obviously, you would not want to hire a property manager like this.
Also, it’s important that you learn something about the taxes associated with your purchase and future taxes that you will owe, but of course, tax laws are complicated and each country’s tax laws are different. Your agent should explain tax issues to you carefully and thoroughly.
When I deal with clients who are not resident in Japan, I make it a point to spend as much time as necessary to explain tax issues to them. It’s important for you to understand what taxes you owe well in advance so that you can pay them on time.
Q4. Some people who currently own property in Tokyo are thinking about selling in the run-up to the Tokyo 2020 Olympics. Do you have any advice or insight on how to decide when to sell a property?
Many people expect prices to drop after the Olympics. Many people are also saying that prices have peaked. In general, I also think so, but I don’t expect prices to fall sharply after the Olympics.
Selling is not the only answer: Diversifying uses of real estate
One thing to consider is that there has been diversification in the uses of real estate. Selling a property is not the only way to make money from it.
For example, you can rent out a room in your home or rent a property on a short fixed-term lease basis. It’s true that regulation of private home sharing (basically, AirBnB) continues to be strict in some areas, but this segment has largely been de-regulated which gives owners more opportunities to generate cash flow.
Real estate is local
Also, if you are thinking about selling a property, I think it’s important for you to consult with your agent regarding your loan repayment and market prices in your area.
Real estate market prices are very local and it may not be useful to say that “Tokyo prices have hit a peak” or “Kanto prices have hit a peak” when you are deciding when to sell. Agents in Japan have access to a system called REINS (Real Estate Information Network System), where they can obtain transaction prices for comparable properties in your neighborhood. It’s a good idea to work with your agent to understand market prices in your local area.
Q5. What qualities should someone look for when choosing an agent
Of course you should choose an agent who is experienced and knowledgeable. However, it’s also important not to think of your purchase as a one-time transaction. You should consider working with an agent who won’t hesitate to help you even after you’ve completed the purchase.
As I mentioned above,
I think that buying an investment property is like buying a business, so you should consider working with an agent who can help you consider the purchase from an on-going business perspective.
It’s also important to work with an agent who is committed to working in a transparent and above board manner so that you can avoid any problems down the road.
Q6. Is there anything else you would like to share with our readers?
Some people may think, “Why is the Japanese real estate system and culture so strange?!” For example, why aren’t actual transaction records (sales) more transparent and accessible? Why is it so hard for a foreigner to rent a room? My answer to this is that every culture and every system is different and has its peculiarities. As long you accept that point, I think it’s possible for you to find a good property in Japan. I think this is true of any business.
As a foreigner, you’ve come all the way to Japan to live or to do business, and I’d like to help you make the most of your time by enjoying your life in Japan and doing the most to utilize the assets here.