Buying Rentals in Japan

[Michael Deering]

Hi everyone, I am in Japan meeting with some agents. If anyone is interested in the Japanese market shoot over some questions and I’ll get them answered.

[David Gotsill]

Hey @Bill Hamilton (woo-hoo Colorado!) - that's an interesting question.  

This may come off negative, although it's not meant to be.  And I've heard good things about @Priti Donnelly's company, so not trying to undermine them.  And I should say that I have property in Japan, and have spent nearly 15 years there. Love the place most of the time (not a fan of Tokyo rush hours trains). So I'm not trying to bash the market there, just speaking in broad generalities and of my own opinion. So...

Assuming we're considering the advantages for American's to invest in Japan, I personally think it only makes sense in a select few situations.  Most American investors are more likely to get better investments elsewhere.   

I'll acknowledge that, in general, there is something to be said for diversification of market and diversification of currency.  Both sound strategies.  Is Japan a good place to carry out that strategy? Could be.

I think that for most individual American investors leverage is a critical tool.  If you're not resident in Japan, you can't borrow from Japanese banks, and so that's out the window.  That eliminates most investors right there.  If you could borrow in Japan that'd be sweet, since rates are often near or below 1.0%.  For example, I have a loan that's at 0.97%.  Ridiculous. 

Two other key aspects that worry me about Japan are (1) generally depreciating values of real estate and (2) generally decreasing rents.  For (1), from a US perspective, we expect real estate values to increase over time.  In Japan, it's the opposite, at least for structures (land and building values are separate).  Rising land prices are not that common either, and limited to select areas.  There are of course people whose properties appreciate, but that's the exception rather than the norm.  For (2), as properties age the rents you command decrease.  Landlords have limited ability to raise rents, and the market standard is that rents drop.  Moreover, Japan tends to see constant new construction, meaning there are frequently newer properties to compete with.  

Those factors, and others, such as high prices in desirable markets, make finding a solid investment difficult.  That's not to say that it can't be done.  I met a number of people through BP when I was in Tokyo who had some pretty awesome deals there.  ALL of them were residents in Tokyo and took advantage of cheap financing.  

But to restate my point: MOST Americans have a BETTER CHANCE of getting a BETTER INVESTMENT just staying in the US.  When most US investors are faced with the prospect of converting (lots of) USD to JPY, to buy properties in cash, that in depreciate in value (when contemplating resale) and face decreasing rents over time... you need something else to justify choosing Japan over the US.