When you become interested in real estate investment,
“You get monthly rental income,”
“Once the loan is paid off, it becomes your own asset in the future,”
“If you leave it to a management company, you can operate it even if your main job is busy.”
Some people might have such an image.
Certainly, real estate investment has its appeal.
This is because there is a possibility of aiming for long-term asset formation while earning rental income.
However, there is one thing to consider here.
Does real estate investment end once you buy a property?
Once you purchase a property, the rent just comes in.
If you start with just that image, there are things you might overlook.
That is the fact that rental management continues even after purchasing the property.
This time, we will consider real estate investment not only from the perspective of “owning a property,” but also from the perspective of
“operating a business.”
1. Is a high yield a good property?
When considering real estate investment, “yield” is something you often see.
For example, suppose you can earn 1.2 million yen in annual rental income from a 20 million yen property.
In this case, the gross yield is 6%.
Looking only at the numbers, it might feel attractive.
However, there is something to be careful about here.
Gross yield does not indicate the money that actually remains in your hands.
In rental management, there are various expenses other than rental income.
For example,
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Fixed asset tax and city planning tax
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Management fees paid to the management company
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Repair costs for buildings and facilities
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Restoration costs incurred after a tenant moves out
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Costs for recruiting new tenants
You need to take these expenses into account.
Furthermore, if a vacancy occurs, you may not be able to earn the expected rental income.
In other words, just because the gross yield is high does not necessarily mean it will be a highly profitable business.
So, what should you look at?
It is not just the yield figure, but checking the conditions under which that figure is based.
And, can you continue to operate even if you don’t attract as many tenants as expected?
Only by thinking that far can you judge the profitability of a property.
2. Having rental income is different from having money left over
In real estate investment, some people may feel a sense of security because rent comes in every month.
However, having rental income is not the same as having money left over.
For example, suppose you have a monthly rental income of 100,000 yen.
From that, you pay management fees, taxes, repair costs, and so on.
If you are using a loan, you also need to make repayments.
After deducting these expenses, how much money is left?
There is one more thing to be careful about here.
That means the profit on the books is not the same as the cash remaining in your hand.
For example, the principal portion of a loan repayment generally does not count as an accounting expense.
On the other hand, depreciation of buildings and similar assets becomes an accounting expense even if no cash actually leaves your pocket that year.
Therefore, a situation can arise where you have a profit on paper but no surplus cash on hand.
Conversely, just because you have cash on hand does not mean you can use it all freely.
This is because you need to secure funds for future repairs and vacancies.
What is important is not just the amount of rental income.
How much money can you keep after deducting necessary expenses?
And can you continue to manage the business while also preparing for future expenses?
This perspective is essential.
3. Management decisions continue even after purchasing a property
From the term “real estate investment,” some people might have the image that once you buy a property and find a tenant, all that’s left is to receive rental income.
Certainly, if the property is in good condition and tenants are stable, daily effort may be minimal.
However, rental management does not always go smoothly forever.
For example,
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A tenant moves out and the next tenant is not decided
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Competing properties in the area increase, making it necessary to review rent
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Buildings or equipment break down, incurring repair costs
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The building ages, making renovations necessary
These things are all possibilities.
How will you respond when that happens?
Will you lower the rent to attract tenants?
Will you spend money to upgrade the facilities?
Or will you consider selling the property?
You must make decisions based on the situation.
Of course, you cannot predict every problem before purchasing.
However, the possibility of problems occurring can be considered even before the purchase.
What is important here is not to feel at ease just because of the income and expenditure plan at the time of purchase.
How will you respond when things do not go according to plan?
Thinking that far ahead is required for rental management.
Purchasing a property is one major decision.
On the other hand, after the purchase, small decisions will continue to follow one after another.
If you are considering real estate investment, you should understand this difference.
4. Is it safe to leave it to a management company?
When considering real estate investment,
‘If you leave it to a management company, you don’t have to do anything yourself’
You might hear such an explanation.
Certainly, if you outsource tasks to a management company, you may be able to reduce the burden of tenant relations and rent management.
Not having to perform all tasks yourself is a major benefit.
However, there is something I would like to distinguish here.
Entrusting management is not the same as eliminating management risks.
For example, if vacancies continue.
Should you review the recruitment conditions or lower the rent?
If major repairs become necessary.
Should you spend the money to continue holding it, or consider selling it?
Such decisions involve the owner’s own financial plan and way of thinking.
Even if you can receive proposals from a management company, they cannot take on all the economic risks associated with owning the property.
Also, the tasks they can handle and the contract terms differ depending on the management company.
What can be entrusted?
At what point does it become your own decision?
These points also need to be confirmed before signing a contract.
Utilizing a management company itself is not the problem.
The problem is stopping thinking about management because you are leaving it to the management company.
You can reduce the effort.
However, that does not mean the risks disappear.
This is a distinction you want to keep in mind.
5. What to think about before purchasing is not just whether it will be profitable
As we have seen so far, in real estate investment, there are things that cannot be judged solely by yield or rental income.
So, what should you think about before purchasing a property?
What is important is to consider not only the expected returns but also what to do if things do not go as planned.
For example, consider the following points.
1. Can you continue to make repayments even if vacancies persist?
Are you calculating your balance based only on rental income when the property is fully occupied?
You should check whether you can pay loan repayments and maintenance costs even if vacancies occur or if you need to lower the rent.
This is something you want to confirm.
2. Can you secure funds for repair costs?
Even if no major repairs are needed immediately after purchase, it does not mean that future expenses will disappear.
If you create a financial plan without considering repair costs, you may run out of funds when they are needed.
3. Can you handle unexpected expenses?
In rental management, unforeseen expenses can sometimes arise.
If you have to dip into your living expenses or savings for the future every time this happens, there may be room to review your financial plan.
4. Can you secure the time and knowledge necessary for management?
Even if you outsource tasks to a management company, it does not mean that checking the balance or making important decisions becomes unnecessary.
Will you handle it yourself, or will you consult with a professional?
You should also consider the time and costs required for that.
5. Have you considered how to respond when the situation worsens?
If your balance deteriorates, can you invest additional funds?
Will you review the conditions and continue to hold the property?
Or will you consider selling it?
If you think about these options in advance, it will be easier to make decisions when the situation changes.
Of course, it is impossible to predict every situation before purchasing.
Even so, you can grasp the assumed risks and think about countermeasures.
When considering real estate investment,
not only the question of
‘how much profit can I expect?’
but also the question of
‘how will I respond if things do not go as planned?’ is something you should keep in mind.
6. Summary
Real estate investment has the appeal of allowing you to aim for asset formation while earning rental income.
On the other hand, just buying a property does not mean you will automatically earn a profit.
The contents of this article can be summarized as follows:
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A high gross yield does not necessarily mean money will remain in your hands
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Think of rental income, accounting profit, and cash on hand separately
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Even after purchase, you will need to deal with vacancies and repairs
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Even if you leave it to a management company, management risks do not disappear
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Before purchasing, think about how to respond to unexpected situations
It is important to compare property conditions and yields.
However, if you judge based solely on that, you may overlook the burdens that will be required after purchase.
It is important to think not only about the appeal of the property itself, but also whether continuing to own it is a reasonable choice for you.
Thinking that far ahead is essential.
Conclusion
The term “real estate investment” might give the impression of earning income simply by owning assets.
However, owning rental property also means providing housing for tenants, maintaining the building, and managing income and expenses.
When circumstances change, you must make decisions accordingly.
In other words, purchasing a property is not the goal.
That is where the business of rental management begins.
When considering whether real estate investment is right for you, it is essential to look not only at the expected returns but also at whether you can accept the risks and responsibilities that come with the business.
Don’t just ask, “Will this property be profitable?”
Also ask, “Can I operate this property as a business?”
Asking such questions may serve as a standard for deciding whether or not to make a purchase.
Moving forward, I will continue to organize information about money—such as household finances, asset formation, and home purchases—as clearly as possible from the perspective of an independent financial planner.
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