Question Buy/build a property and rent as share-house for income?

[franck.f]

Hi,
Currently waiting for the outcome of my PR application and in case of success I'm planning to quit my job and then rely on incomes from share-house renting (the idea is to live in that house and offer rooms/studios on a different floor). For this to happen, I will have to either buy or build a house. I have 12 mil. yens only as savings. Single, no kids, no pet. Not really into rural life but might accept compromise if only remaining option.
1. Is it a realistic plan?
2. How can I lower the initial costs as much as possible?
Thanks!

 

[Majestic]

It doesn't feel realistic. JPY12,000,000 isn't enough to purchase someplace that can be used as both a residence AND a property that will provide passive income. Its barely enough to buy a property for yourself. Think about the kinds of locations and units that will attract casual renters...they will be in high-traffic areas with easy access to public transportation. In other words, expensive places. For a rural experience, you'll have to provide a proper rural Japanese experience, which means, again, a significant expense.

You'd need something more like 50,000,000+ at least. And then I think you'd struggle to get a livable income from casual renters.

Plus, the regulations concerning short-term renters (vs long-term renters) vary by location, and they can be quite onerous. Basically Japan tends to try to discourage very short-term casual rentals of the Air BNB type. It competes with the hotel/motel/ryokan businesses.

Passive income from real estate in Japan is a tough game, and 12M isn't enough to get your foot in the door, I'm afraid.

 

[Lomaster]

Let me disagree with Majestic. There is a huge selection of spacious real estate for lower budgets in the boonies. Go browse some akiya banks. You can even find something for 0 yen.
The big question is whether you will be able to find tenants for such remote properties.

 

[Petaris]

Let me disagree with Majestic. There is a huge selection of spacious real estate for lower budgets in the boonies. Go browse some akiya banks. You can even find something for 0 yen.
The big question is whether you will be able to find tenants for such remote properties.

Sure, you could find cheap or free* properties, but how much will it cost to get them into decent condition? A lot of those places need a significant amount of work and even if you do most/all of it yourself there are still the costs for materials.

* "free" is a bit misleading as there will certianly be costs involved even if you are given the property outright.

 

[Majestic]

You can even find something for 0 yen.
The big question is whether you will be able to find tenants for such remote properties.

Yes I think we're both in agreement here (and also with @Petaris above). If the OP is looking for a bargain property, he would do well to browse some of the "akiya banks" of towns that are offering distressed properties for free or for very low prices. And certainly any real estate, not just distressed properties, becomes super cheap the farther away from Tokyo you get.

The problem is that the OP is looking to generate rental income. So the first hurdle is getting a property suitable to live in himself, plus one that is suitable to accommodate paying lodgers. Many of the free houses or low price properties come with structural issues and conditions. This could eat up a large chunk of the 12M capital he/she already has. Let's say it would take 5M JPY to bring these places to a livable condition.

The second thing is that these kinds of properties are often way off the beaten path, and far from public transportation, which means they will be tough to rent out. Now I think there might be an opportunity to offer a super remote place as an "authentic inaka Japanese experience" type of accommodation, but this again is going to require significant upgrades and probably a good bit of marketing in order to attract renters. Bear in mind the OP also has to live here, so the more remote it becomes, the more potentially difficult and expensive it becomes to live. I'm thinking about places like the Iya Valley property that Alex Kerr rents out. Its a lovely-looking place, but man is it ever remote. And of course its been vacant for a while due to covid, so the OP also should factor in a certain amount of time when the property will be vacant and there will be no income coming in.

篪庵 ちいおり

名古屋市でWordPressのテーマ＆プラグインの開発・販売をしています。

www.chiiori-stay.jp

And taking another step further in this analysis: the farther away the property is from public transport, the less likely it will be able to be let out as a residence, so it becomes exclusively a vacation type of rental. Nobody wants to live in a place that is isolated from services. (People live in isolated places when they work the land, but not typically as a lifestyle choice unless its a very specific lifestyle). So here too I think @Lomaster and I are in agreement.

And just another thought on this for the OP, its important to figure out how much income you need to live in the way you want to live. How much will you need for insurance, property tax, repairs, etc., in addition to how much you'll need to support yourself. I'm just spitballing here, but I reckon you'll need at least 500,000 a month - so you have to kind of reverse-engineer the plan by figuring out what kind of properties can generate 500,000 yen/month in rental income.

 

[Majestic]

Maybe the TLDR version of all of this is: 12,000,000 JPY is nowhere near enough capital to become self-sufficient. Its probably barely 1/10th of the amount of capital needed to generate enough passive income to survive.