How Long to Profit from a Property Purchase in Tokyo? - Real Estate ...

Most of you who know me would know how passionate I am about people owing at the very least their own home. To this end I recently gave a presentation for which I finally got around to preparing a bit of data to show why I believe so strongly in this.

Due to the popular response I thought I?d write it in the form of an article for all those who are interested. The simple data presented herein is highly relevant for investors of real estate also.

Being an article with no space to elaborate please allow me to just to give you the bare bones of it:

?If you will be in Japan for any appreciable time, I have no doubt you will be wealthier with, first, your own property and later if you like, some investment properties. ?

According to a popular Japanese portal website the average gross return on properties in Tokyo 23 Wards is 8.24%. The breakdown across the wards are summarised below. The portal arrives at this data by having thousands of properties for sale and rent in the same location at any one time and then simply dividing the annual rent by sales price to arrive at this ROI.

So what does this mean for the owner occupier? Well, if you divide 100% by 8.24% per annum you arrive at 12.1 years. This is the time measured in rent payments that it would take you buy the place you are living in now!! It begs the question, how long have you been renting?! For potential investors, if this isn?t enough, keep reading?it gets even better!

Turning to slide no. 2: Foreclosure Savings.

I have a simple calculator on the front page of my website called the Foreclosure Savings Calculator. Being on the front page I sometimes get asked if it?s for real and not just a gimmick. Again most people who know me know that despite being easy going am also a little on the serious side especially when it comes to this sort of stuff. So in short, yes, the figures are real. The government also keeps tabs on sales prices of conventionally sold property. Sleepwellhomes.jp has foreclosure data since Nov 2011. To calculate the savings the system simply compares the 2 databases. For the recent presentation I prepared a table (shown below) comparing the percentage savings of 50m2 apartments for 30, 15 & 5 years old in each of the 23wards (columns A, B & C respectively).

ROI to the maximum with Foreclosures

You can see that on average foreclosures are 30.6% cheaper than conventionally sold property over similar periods. Substituting this back into our simple calculation above therefore, we get a new ROI of 11.77% per annum (8.24/(1-0.3)). For the wannabe home owner that is a mere 8.5 years worth of rental payments. For the investor, need I say more?!

There are not many major city centres of the world, if any, other than Tokyo where you can do this. Back home (Australia for me) to arrive at a return of this magnitude in a city centre we usually have to accept negative cash flow and speculate that the combination of inflation and population growth will boost my investment to realise this kind of return sometime in the future. In Tokyo all the guesswork is taken out and it?s cash flow from day one.

So before getting back to Christmas activities let me get back to my original premise. If you were to buy conventionally or better still a foreclosure and even though Tokyo has seen negative growth of residential property in some areas of 3%, if you are returning 8.24% or 11.77% a year worth in the positive growth you are still between 5.24% and 8.77% per year in front. I therefore believe and infact myself experience, that ?if living here for any appreciable time I have no doubt that you will be wealthier with, first, your own property??

A giant thanks to Adam German and Real Estate Japan, Sleepwell clients, members and friends for what was SleepWell Homes founding year. I very much looking forward to working with many more of you in the New Year. Remember that while money and skilled discipline may purchase a great house, understanding, care and tolerance make it a home for both yourselves and your tenants. Wishing you all a Merry Christmas and Happy New Year. from the SleepWell Team.

Disclaimer: Real estate prices vary with many both quantifiable and qualitative variables. The above simple explanation is ?in average?. Skeptics & over enthusiasts would do good to remember that as such many prices were above and below this ?average?. It is vital importance that you do your own calculations, see that the figures make sense to yourself for your target property. Furthermore comparing it to other possible investments that you have access to and compare risk, return, liquidity, etc. Fit any investment plans in with the rest of your life and goals, dreams for the future. The above is purely my own opinion formed through research, study and experience of my owning my own places and being a landlord and investing in RE.

Follow up of previous article:

By the way, for those who saw the last article I wrote, about the Renovation in Sugamo, auction results show that I was blown out of the water in bidding with a Selling Price of 100.3MJPY and 23 other bidders! and I thought that I was alone in thinking it was a great deal!! Anyway win some, lose some! Be interesting to see how this one progresses and not being too geographically distant from here may stick my nose round a few times in the new year to see what?s what. for those who missed the article, check it out at:

Japanese Foreclosed Property: Renovate and Flip Opportunity.

Tokyo Apartments For Sale | Tokyo Apartments For Rent | Real Estate Japan

Source: http://www.realestate.co.jp/2012/12/26/how-long-to-profit-from-a-property-purchase-in-tokyo/

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