Real estate investment, which can generate stable income on an ongoing basis, is also popular as a side business. However, many people still hesitate to take the first step because they lack capital or feel uncertain about management knowledge. That is why small-amount real estate investment, which can be started with limited funds, is attracting attention. Some options require only tens of thousands of yen per month, making them popular with first-time investors as well. In this article, we explain the types, features, advantages, and risks of small-amount real estate investment in detail.
What types of small-amount real estate investment are available? Comparing the four main options
There are four types of small-amount real estate investment: REITs, fractional real estate products, crowdfunding, and direct real estate investment. Let us review how each one works and what makes it distinct.
REITs (real estate investment trusts)
A REIT (real estate investment trust) is an investment fund focused on real estate. A real estate investment company manages properties using funds collected from investors and distributes gains from property sales and rental income as dividends. A typical investment amount starts at several tens of thousands of yen, so it is relatively easy to begin with a modest budget. One feature of REITs is that investors do not become property owners even after investing, and all property and asset management can be left to the real estate investment company. Because large amounts of capital can be pooled, REITs can invest in a wide range of assets, including not only apartment buildings but also commercial facilities and hotels.
Fractional real estate products
Fractional real estate products are a structure in which a single property is jointly owned by multiple investors. This makes it possible to invest even in high-value buildings and apartment properties that would be difficult for an individual to purchase alone. The major difference from REITs is that all investors become owners of the property. Because real estate acquisition tax, fixed asset tax, and city planning tax apply, many investors also use this approach as part of inheritance tax planning. A budget of around 1 million yen is a common benchmark.
Crowdfunding
Real estate crowdfunding is an investment method in which individuals or organizations seeking funds raise money from an unspecified number of investors over the internet. Investors contribute to a real estate investment company, the collected funds are used to manage real estate, and operating profits are distributed to investors. It is similar to fractional real estate products, but it differs in that purchases can be made online and investments are made on a project-by-project basis.
Direct real estate investment
If you want to obtain actual ownership rights, direct real estate investment is a practical option. With condominium unit investment, it is possible to get started with monthly costs of around 10,000 yen. However, because there are still some initial costs, it is wise to prepare funds of around 1 million yen.
What are the advantages of small-amount real estate investment? Three key points
Small-amount real estate investment offers several advantages beyond the funding aspect alone. Use these points as a reference when evaluating your investment decision.
It is easy to get started
Some options can be started with only several tens of thousands of yen, and because there is no need to take out a loan, the barrier to entry is much lower. In most small-amount real estate investment models, investors do not become owners and can leave the process to a real estate investment company, which makes it easy to begin.
You can increase the amount gradually
You can start with several tens of thousands of yen and increase the investment amount gradually as you become more comfortable. Because you do not handle operations or management yourself, the workload does not increase even when you invest more.
Tax benefits may be available
Income earned from your main job is classified as employment income, while profits from real estate investment are classified as "real estate income," and profits earned through capital contributions are classified as "miscellaneous income." If you engage in real estate investment as a side business, losses may be deductible to that extent. By combining tax benefits and an asset management strategy, it becomes possible to build assets more efficiently.
Why is risk management important even with small investments?
Even when the amount is small, investment always involves risk. Because these products are easy to access, there are often restrictions on where you can invest, and popular or high-priced properties may be excluded. REITs do not guarantee principal or profit, and even when returns are generated, fees still apply, so it is important to recognize that yields are not especially high. Keep in mind that achieving higher returns still requires a certain level of investment.
Recommended related reading
- Is real estate investment difficult because comprehensive capability is lacking? Explaining the three barriers of tax, legal, and construction knowledge
- Reduce risk in real estate investment with a second opinion｜How expert support helps prevent failure
- Four essential rules for avoiding overpaying in real estate investment｜From fair rent evaluation to understanding leasing costs
Frequently Asked Questions (FAQ)
How much money do I need to start small-amount real estate investment?
With REITs or crowdfunding, you can start with several tens of thousands of yen. For fractional real estate products and direct real estate investment, about 1 million yen in initial funds is a common benchmark.
Do I need to file a tax return for small-amount real estate investment?
If your real estate income or miscellaneous income exceeds a certain amount, you will need to file a tax return. If you earn this income as a side business, consulting a tax accountant is advisable.
What is the difference between REITs and fractional real estate products?
The biggest difference is ownership. With REITs, investors do not become owners, while with fractional real estate products, all investors become owners of the property. As a result, the tax treatment also differs.
How can I reduce the risks of small-amount real estate investment?
It is important to diversify across multiple products and avoid concentration risk in any single project. You should also invest only within the range of surplus funds after understanding that these products do not guarantee principal.
What are the advantages of investing in real estate through crowdfunding?
It is appealing because it is easy to start online and allows project-based investment in small units. However, you should also understand the risk that a project may be canceled if it does not reach its target amount.
