This is an article that explains the mortgage loan for purchasing a house in Japan where you or your relatives live. For Japanese home loans, the applicable interest rate is calculated by subtracting the reduction amount according to the contract terms from the standard interest rate displayed at the store, so it is not possible to compare repayment terms just by looking at the low number advertised. Unlike the common view overseas of ``comparing the displayed interest rates themselves'', it is necessary to check the base interest rate, reduction amount, and conditions after the end of the period as a set. Furthermore, residential mortgage loans in Japan cannot be used for investment properties in principle, and the screening and product characteristics are different from loans for income-generating properties.
How to start investing in vacant house renovations | Systems, demands, and rebuilding risks to check before monetizing
Even if you can acquire a vacant house at a low price, it doesn't necessarily mean that you can rent it out if you fix it up. It is impossible to rebuild, there is no rental demand in the area, and the necessary procedures for changing the use are overlooked. When investing in a vacant house, there are certain conditions to check before considering construction costs.
In this article, we will explain how to check the system, building, and local demand before renting, selling, or using a vacant house for business. Renovation is not a goal, but a means to achieve the chosen method of use.
Key points of this article
- Check the road access, reconstruction, zoning, and legal restrictions before acquiring the property.
- When inspecting a building, we not only look at the frame, leaks, ant damage, and equipment, but also the exits if it is demolished.
- Rental, sale, and business use are selected based on local demand and management structure.
- Depending on the condition and location of the vacant house, the local government system, assistance, and notification location will change.
What should I consider when deciding whether to invest in renovating a vacant house?
The first thing to decide is not the content of the work, but who will use it and for what purpose. The necessary equipment, operational effort, and legal confirmation items differ for long-term rentals, short-term stays, stores/offices, and sales. We look at nearby properties, demographics, transportation, and lifestyle convenience to form a picture of potential renters and users.
Just because it's a vacant house so it's cheap is not a basis for monetization. Put the estimated rent, recruitment period, management fees, repairs, fixed asset tax, and acquisition/sale costs into a single balance, and check whether you can keep the property even if the rent goes down.
Why do I need to check the reconstruction/access road/use zone first?
For older buildings, demolishing and rebuilding may not be an option. Before purchasing, please check with the local government and experts about how the property approaches the road, whether the road is compliant with the Building Standards Act, road access conditions, zoning, building coverage ratio/floor area ratio, and area-specific ordinances.
Being able to use an existing building and being able to rebuild it in the future with the same size and purpose are two different things. Even when selling at exit, the ability of the next buyer to rebuild will affect price and liquidity. When confirming laws and regulations, we do not leave it to the explanations of the intermediary personnel alone; we also check documents from government investigations.
How much should I look at in a building inspection?
Even if a vacant house looks clean inside, there may be problems with the roof, exterior walls, rainwater intrusion, under the floor, ant damage, water supply and drainage, or electrical capacity. An existing home inspection is a clue to understanding the condition of the home at the time of transaction and identifying areas that require additional investigation.
The results of the investigation will be reflected not only in determining whether it can be fixed, but also in terms of construction period, fixed costs during construction, and time until recruitment begins. When it comes to detached houses, comparing the idea of repairing the building and the idea of demolishing or selling the building at the same time makes it difficult to make a mistake in judgment.
How do you choose whether to rent, sell, or use for business?
Long-term rentals are based on continuous demand and management structure. When selling, it is important to have records that can explain the condition of the land and buildings and whether they can be rebuilt. When considering business use such as a store or private lodging, it may be necessary to check the zoning, construction/fire protection, Hotel Business Law, and Private Lodging Business Law.
The more uses you have, the more opportunities for profit, but you also have to deal with more operations such as permits, dealing with neighbors, cleaning, and key management. Rather than expanding the usage too much from the beginning, decide on one usage that is actually preferred in the area and then calculate the necessary renovations backwards.
How does the vacant house countermeasure system relate to investment decisions?
Based on the Act on Special Measures Concerning Promotion of Measures against Vacant Houses, etc., local governments are responsible for responding to poorly managed vacant buildings, etc. and specified vacant buildings. Depending on the condition and location, you may be subject to advice, guidance, recommendations, etc., so we will check the management status of the vacant house and the local government's system before acquiring it.
The requirements and recruitment period for subsidy systems and vacant house banks vary depending on the local government. Rather than making your income and expenditures based on the assumption that you will receive assistance, please check with the official counter about the target construction, application period, owner requirements, and whether or not construction can begin before the grant is decided.
INA's opinion｜Choose a property that can explain how it will be used rather than a cheap property
When investing in vacant properties, the bigger risk than the fact that the building itself is old is that it is not possible to explain who will use it after it is repaired. Renovation costs become an investment only when local demands, laws and regulations, the condition of the building, and the operational structure are all in place.
Don't rush into purchasing; instead, conduct a government office survey, building survey, and rent survey in order. If you cannot narrow down the usage method to a single property, it is worth holding off on making a decision even if the price is low.
summary
- When investing in vacant properties, determine regional demand and usage before construction begins.
- Check the road access, reconstruction, and zone of use before purchasing.
- Organize additional investigation and construction period assumptions through inspection.
- Business use will be determined by taking into account permits and administrative burden.
- Check the local government system for each property at the official counter.
Frequently asked questions
Is a vacant house suitable for investment if it is cheap?
It doesn't necessarily mean it's suitable for you. We check rebuildability, building condition, local demand, post-renovation use and operating costs, and make decisions based on the total investment amount and projected income.
Is it easy to make money by turning a vacant house into a private lodging or store?
Depending on the use, permits, fire protection, neighborhood support, and management systems are required. Don't make a decision based on demand alone; check the laws and ordinances of your location as well as operating costs.
What do you request during a building inspection of a vacant property?
Starting from an existing home inspection, we work with experts to consider additional investigations tailored to the property, such as leaks, the structure, underfloor, ant damage, equipment, water supply and drainage, etc.
I also want to read
- Risks of renovating used properties
- Vacant house property tax and specific vacant house risk
Citations/References
