Compared to other real estate investments, apartment investment can reduce the risk of vacancies, so it is a useful option for diversified investment other than virtual currency.
However, since apartment investment starts from building management, it costs a lot of money when purchasing land and apartments. In order to obtain stable income, it is important to use real estate experts to select properties with high profitability.
Apartment investment is an investment method that owns multiple rooms and earns rental income, and the difference after deducting expenses such as loans and repair costs is the monthly income.
In this article, we explain the differences between condominiums and detached houses, the advantages and disadvantages of investing, and how to start investing in apartments. you can learn
- table of contents
- What is apartment investment?
- Differences between apartment investment, condominium investment, and detached house investment
- 3 merits of apartment investment
- 2 Disadvantages of Apartment Investment
- How to start investing in apartments and points to note
- Securing long-term returns on apartment investments
1. What is apartment investment?
Apartment investment is an investment method that earns rental income by owning real estate and renting out the real estate. Usually, you buy an apartment building and your monthly income is the difference after deducting the loan and repair costs from the rent.
The way to start investing in apartments is generally to buy land and build an apartment, or buy a second-hand apartment. In any case, accurate market research and planned investment are essential.
In addition, in recent years, many efforts have been made, such as some real estate agents introducing virtual currency settlements for real estate purchase costs. Payment by virtual currency has the advantages of low fees and quick transactions, especially for overseas real estate investors, because there is no need to exchange money into Japanese yen.
2. Differences between apartment investment, condominium investment, and detached house investment
When investing in an apartment, the comparison is between condominium investment and detached house investment. They have the following differences:
|apartment investment||apartment investment||detached investment|
|real estate size||one building||from one room||a house|
|Investment amount||big||from a small amount||small amount|
|property management||owner||Operating company||owner|
Explain the difference between each investment.
2-1.Differences between apartment investment and condominium investment
The main differences between apartment investment and condominium investment are the size of the real estate, the management method, and the investment amount.
Apartment investment is an investment in which a relatively small collective housing property is purchased and rented individually. On the other hand, condominium investment can be started from one room as unit ownership, so there is no need to purchase all rooms in one building.
In addition, the method of purchasing and investing in only “one room” of a condominium is called studio condominium investment. Since the scale is smaller than apartment investment, you can start with a small investment amount, but you have to consider the vacancy risk that rent income will not come in if there are no tenants.
Also, when purchasing an entire condominium, the investment amount is much larger than purchasing a one-room apartment, but the price varies greatly depending on the location and conditions. For example, high-rise condominiums tend to be built in convenient areas such as in front of train stations, while low-rise, low-cost apartments tend to be built in the suburbs.
In addition, while apartment investment manages the entire building, there are differences such as that condominium management companies generally manage unit ownership such as one-room condominium investment.
2-2.Differences between investing in apartments/condominiums and detached houses
Investing in a detached house is smaller than investing in an apartment or condominium, and can be started with a relatively small amount of money compared to other real estate investments. Detached houses are often occupied by families, and the tenancy period tends to be long, so it is relatively easy to sell as well as rent.
However, since detached houses are large, there may be cases where the “restoration fee” and “cleaning fee” are high. As with studio apartment investment, there is also the risk of vacancies, so it is highly necessary to implement regular renovations, increase the value of the property, and take measures to stably acquire tenants.
In addition, residents of detached houses tend to emphasize “comfortable living with family” rather than convenience such as in front of the station, so it can be said that the advantage is that the impact of location is minimal.
3. 3 merits of apartment investment
There are three advantages to investing in apartments: “Vacancy risk can be dispersed,” “High degree of freedom in management,” and “As an alternative to life insurance.”
3-1. Vacancy risk can be distributed
When investing in an apartment building, you can diversify the risk of vacancies by renting multiple rooms. In the case of studio apartments and detached houses, rent income from the property will completely stop if the room becomes vacant, but in the case of an apartment where you can rent out multiple rooms, there is an advantage that such a risk is small.
In addition, by owning multiple properties with different regions and floor plans, it is possible to spread the risk of vacancies even further. Depending on the ingenuity, stable rental income can be maintained, so it can be said that it is a promising option as a diversified investment destination other than virtual currency.
3-2.High degree of operational freedom
With apartment investment, you own the entire building, so there is no relationship with the lender, and it can be said that the high degree of freedom in management is also attractive. Specifically, it is possible to manage the management and repair of the property and the selection of tenants by yourself.
On the other hand, studio apartments are managed by the operating company, so even if a tenant requests, for example, to install a delivery box or change to an auto-lock, they cannot freely renovate. However, in the case of a single building investment, you can handle it at your own discretion, so you can increase the satisfaction of the tenants and freely implement measures that lead to continuous residence.
3-3. Alternative to life insurance
Apartment investment also serves as an alternative to life insurance because the actual apartment, land, and rental income are inherited by the family.
Also, even if you have a loan for investment, by taking out group credit life insurance in advance, you can repay the loan with the insurance money even if the repayer becomes unable to repay the loan due to death or other reasons. Therefore, even if you inherit the property while leaving the loan, you can leave the property to your family with peace of mind.
In this way, apartment investment is not only a source of long-term income, but it is also a great attraction that you can leave assets to your family.
3-4. High tax efficiency
In addition, the investment in apartments is also attractive because of the large tax savings.
First of all, it is possible to reduce the taxable amount in the final tax return of income tax and resident tax by including the expenses incurred for investment in the apartment at the time of final tax return, and to reduce the tax that occurs.
For example, the purchase cost of an apartment can be recorded as “depreciation expense”, and the repair cost of an apartment is also an expense.
Also, when gifting or inheriting property, it is important to know that inheritance tax and gift tax can be greatly reduced by transferring property in the form of real estate such as an apartment of the same value instead of cash.
In addition, from a tax point of view, building an apartment on land has the effect of reducing the “fixed asset tax” and the “city planning tax” separately incurred for real estate in urbanized areas.
4. Two Disadvantages of Apartment Investment
On the other hand, there are two disadvantages to apartment investment: “high initial cost” and “repair due to aging is required”.
4-1.High initial and maintenance costs
Buying a land and an apartment naturally entails high purchase costs. In addition, there are various costs such as insurance premiums, taxes, brokerage fees, application fees, etc., so it is necessary to be careful that the initial cost tends to be high.
Even if you buy a property with a relatively low initial cost, such as a second-hand apartment, you may need to pay for renovation later.
If you get a loan from a bank to purchase, you don’t have to pay the purchase cost in a lump sum, but you should carefully consider whether you can realistically make long-term continuous loan payments.
In addition to these initial costs, there are also daily maintenance costs. Therefore, it is important to consider investment after estimating maintenance costs and fully considering investment yields, profitability, and loan repayment simulations.
When considering the initial cost of starting an apartment investment, keep in mind that the following costs will be incurred separately from the purchase price of the apartment and the down payment for the loan.
For example, when using a real estate investment loan, the following initial costs may occur apart from the down payment.
- stamp duty
- Mortgage administration fee
- Guarantor company guarantee fee
- Mortgage registration setup fee, its fee
- Group credit life insurance premium
- Fire insurance/earthquake insurance
- real estate acquisition tax
- Real estate brokerage fee (when purchasing a second-hand apartment)
In particular, the real estate acquisition tax will be billed after half a year of the real estate acquisition, so let’s plan to make room in the cash flow in anticipation of the billing period.
As for the specific amount of the initial cost, it is said that about 7 to 8% for new properties and about 10% for second-hand properties will be incurred separately from the purchase cost. For example, if you buy a second-hand apartment for 30 million yen, you should choose a property in anticipation of the various expenses and taxes of about 3 million yen.
4-2. Regular repairs due to aging are required
Since the apartment will be used for a long period of time, repairs due to aging are essential. In addition to the daily regular maintenance mentioned above, the owner must also bear the full repair costs due to the deterioration of the outer wall and roof, and the aging of the equipment.
The aging of buildings due to such deterioration over time is unavoidable, and if left unattended, it may lead to the risk of vacancies and lower rents.
If you own an entire apartment building, you can carry out repairs at the owner’s timing, so it is important to make a long-term financial plan and schedule, make a rough forecast at the purchase stage and start preparing.
5. How to start investing in an apartment and points to note
Finally, let’s explain how to actually start apartment investment and what to watch out for.
5-1. Collect basic knowledge and information
First of all, it is important to acquire basic knowledge about apartment investment. Learn from books, websites, seminars, etc. about apartment investment, and learn about the income structure and property selection methods.
After acquiring the basic knowledge, you can investigate “area and age group” and “property market price” by yourself to clarify the target of tenants. Also, by understanding the amount of money you can prepare yourself and making a financial plan, it will be easier to decide whether to purchase from the land or whether to purchase a new or second-hand apartment.
However, second-hand properties can be purchased cheaper than new properties, but depending on the age of the building, large-scale repairs may be required immediately after purchase. Therefore, it is necessary to consider the future investment period and judge the investment effect on repair costs.
5-2. Utilize a real estate company
It is more efficient to entrust the selection of land and property to a real estate professional than to do it personally. Some real estate companies provide not only property selection but also support for investors, such as market research, fund procurement, and property management.
Consult a real estate company that hosts seminars or use the Internet to consult with a real estate company that is familiar with apartment investment. However, some real estate companies are unreliable, so it is important to check reviews, reputation, achievements, and qualifications.
Therefore, in order to judge whether the information provided by the real estate company is correct, let’s acquire the basic knowledge of apartment investment.
5-3. Make a financial plan
Once you have decided which land or property to purchase, you will need to figure out the actual costs and create a financial plan. At this time, clarify the “target profit” and “target achievement period” and make a long-term plan.
Financial institutions are unlikely to finance apartments that do not generate income, so it is important to have a viable and profitable financing plan.
In addition, there are two ways to find a financial institution to receive a loan, or to have a financial institution affiliated with a real estate company introduce you. In the case of a referral, you may be able to receive a loan with more favorable terms than usual, but you must be careful as you may be presented with unfavorable terms.
5-4.Contract and purchase land and property
After passing the examination of the financial institution, we will proceed to purchase the land and property. In addition, when concluding a sales contract, you must receive an explanation of important matters related to the transaction from a real estate broker.
In addition, many procedures and documents are required from the contract to the delivery of the property, so it is important to understand the necessary procedures before proceeding so that you will not be forced to contract on unfavorable terms.
5-5. Start renting an apartment
Once the contract for the apartment is completed, it is necessary to recruit and select tenants and perform daily management tasks. You can do this yourself, or outsource it to a management company.
If your main business is apartment investment, it is realistic to manage it yourself, but if you do it as a side business, it is generally recommended to entrust it to a management company.
When outsourcing, you need to pay a few percent of the rent as a management fee, but you don’t have to do daily tasks such as “selecting tenants from recruiting”, “collecting rent”, and “cleaning when you move out”.
In addition, since management work requires not only knowledge of real estate management, but also knowledge of repairs and renovations, it is desirable to outsource to a management company when investing in an apartment for the first time.
6. Securing long-term returns with apartment investment
In this article, I explained the advantages and disadvantages of apartment investment, the difference between condominium investment and detached house investment, and how to start.
When investing in an apartment, it is basic to purchase from one building, and due to its size, the purchase cost tends to be high. However, by renting multiple rooms, you can spread the risk of vacancies and earn stable income.
In addition, as a risk countermeasure against the loss of loan repayment ability due to the death of the repayer, let’s take out group credit life insurance. By taking out a group credit life insurance, you can pay back the loan with the insurance money in the event that the repayer dies.
It can be said that the appeal of apartment investment is not only to secure long-term income, but also to bequeath assets such as land and apartments to the family.