Blog Archives

Two Successful Real-World Cases to Study

Case No. 2 Getting permanent residency, setting up your own property management entity, and securing a bigger credit line

Another investor, also American, is 37 years old and works for a leading global investment banking, securities and investment management firm. He’s been living in Japan for eleven years. He’s an IT guy, not a trader. This investor has bought three properties, one for 200 million (US$2 million) and two others for 100 million (US$1 million) apiece, again through Suruga Bank.


Apparently he heard about buying property from a colleague doing those deals. When he started investing, he didn’t have permanent residency in Japan, although he did obtain it later. Without permanent residency, only Suruga Bank will deal with you; now he can deal with other Japanese banks. Some of the megabanks like Mizuho or Mitsui may lend you money if you have permanent residency in Japan.


What he’s considering is establishing an entity to manage his properties, which would also save on taxes. This entity can hire him as an employee, and pay him a salary. The costs this entity incurs will also reduce his tax. This is a completely legal strategy. He can hire someone else to help run it, including his wife. She doesn’t need to take an active role, but she can still earn money.


At the moment he owns the three properties under his own name. He may sell out, exit those three properties, and buy other properties under the new entity.


The other financial benefit he would get from starting this management company is a bigger credit line. Even if he is the sole owner of this entity, banks see it as an independent legal entity. He may even be able to double his credit line. He can then buy twice as much as he could as an individual.


As in the first case, he was asking questions only about cash flow, and he didn’t see any of the three properties before he bought them, only the spreadsheets.


To Be Continued


Case No. 1 Countering high tax bills, finding a bilingual property management firm and more

The first investor I’ll talk about is an American working in a very senior position at a British investment bank. He is 54 years old, has been living in Tokyo for eight years, and is married to a Japanese national and has two kids.


He had purchased properties in the UK and U.S. before coming to Japan, so he knew how real property investment works. His CPA introduced him to my friend, a Japanese real estate agent.


This gentleman earns about 50 million yen (US$500,000) as a base salary plus some bonuses and stock options, and his income runs as high as 100 million yen (US$1 million). Consequently, he has to pay a lot of tax. He went into this investment mainly to save on taxes, and also wants some outside cash flow.


As a senior executive in a huge firm, he also knows he’s at risk of being let go, so he wants income-bearing investments in hand just in case that occurs. He’s bought three buildings in Japan so far. The first building, in Chiba, was 200 million yen (US$2 million)—five stories, 29 units, studio apartments only, and two minutes from Higashi-Chiba Station.


It’s been a good investment. The gross yield is between 8.5 and 9 percent. (Gross yield refers to everything before expenses. It is calculated as a percentage based on the property’s cost or market value divided by the income generated by the property.) His borrowing cost was 4 percent, so the spread is about 4 to 5 percent. That created good cash flow, and allowed him to take a lot of tax deductions because those buildings can be depreciated for tax accounting, as well as for repairs, incurred costs and things like that.


To Be Continued