How the investment in a local city works ? : Opportunity to invest in center of Sapporo residential building. No down payment is needed


(Night life Susukino in Sapporo)      (Odoori koen)
No down payment is needed.
Remarkable opportunity in Sapporo is up for sale in Sapporo.
One of my business partners has come across a pretty good property in Sapporo in northern Japan.We don’t usually deal with a property in Sapporo.
However, as the project already has passed the provisional review by 
a premier Japanese bank, I am introducing it on his behalf.
Let’s find out how viable it is.
Oh, by the way, If you seek investment that can expect the appreciation of 20% over next 3 years,
Japan is not your destination. Please go and find a property in countries like Thailand or Vietnam.

But don’t forget that the laws and regulations in
these countries are not usually robust enough to protect your investments.
Real estate in Japan is different from most other investments in that you
could borrow (finance) the entire cost of the asset, plus all of the significant associated
purchase costs (such as stamp duty and registration cost)
Before you start looking for a property to invest, you need to find a bank for your financing and understands their criteria.
We have already established the good relationship with a few banks who are active in the financing the real estate investments.
The loan can often amount to as much as 110 per cent of the
actual purchase cost of the property. For this Sapporo property, the bank already pre-approved 100% financing.

Case study (crude projection)

(property in Sapporo)

(location of the property in Hokkaido)

(more detailed location in Sapporo)

Sapporo city
Sapporo (札幌市 Sapporo-shi) is the fifth largest city of Japan by population, and the largest city on the northern Japanese island of Hokkaido. It is the capital city of Hokkaido Prefecture, and is an ordinance-designated city.Sapporo hosted the 1972 Winter Olympics (the first ever held in Asia). Its annual Sapporo Snow Festival draws more than 2 million tourists from abroad.
Population is about 2 million and it has been slightly increasing over several years. Hokkaido is famous for beautiful powder snow during winter for skiing and superb food produce all year around especially fish, crabs and Sapporo ramen.
In general, the price of real estate in Sapporo is showing the very steady move (up 2-5 %) and some of the central areas are seeing the appreciation of 20% from the previous year.

(Crab in morning market)

Sapporo city official web site

Property
Residential building with 4 stories  33 apartments RC structure
Built : 1986

Location : Toyohira-ku, Sapporo city (札幌市豊平区), Hokkaido
Station : Gakuen-mae station (学園前駅)Toho line (東豊線)
(5 min walk from the station)
From Gakuen-mae station:
Only 6 mins subway ride to Sapporo station (busiest station in Hokkaido)
There are several Universities and vocational schools close to the property.

Land    : 669 m2
Building: 1216 m2
33 apartment units and 8 parking lots

Price
188 million yen (U$1.88 million)
Finance (mortgage loan)
b
y a prime Japanese bank

190 million yen (U$1.90 million)
Mortgage rate
% pa for 25 years
The bank finance shall cover the 100% property cost plus some initial transaction cost.
Initial cost
9.5 million yen (We can arrange the loan for this initial transaction cost subject to the financial status of the applicant)
Gross Yield (basis 100% occupied): 8.34%
Currently 100 % rooms occupied except the one parking lot out of eight lots.
Crude monthly cash flow projection  (basis 100% occupied)
Rent                                       : 1,306,500 yen
Mortgage repayment              : 805,323 yen
Building management fee       : 84,960 yen

Rental management fee        : 56,441 yen

Free Loan repayment to cover initial cost   : 53,032 yen (But loan is subject to the status of applicant)

——

Balance                               : 306,744 yen
Yearly cash flow : 3,680,928 yen (US$36,800) before tax and maintenance cost
It is not easy to estimate the maintenance cost but let’s project it would be 500,000 yen to 1,000,000 yen per year.

Summary of cost to keep the property per year
————

Property tax                           : 1,217,368 yen (yearly, tax-deductible)
Management                         : 1,696,812 yen
Plus occasional repair cost (maintenance cost)  :  500,000 yen-1,000,000 yen (est.)


(current rent roll)

(Initial transaction cost)

Bottom lines
Case study
Pros
Location is very good (Sapporo is regarded as one of few hopeful candidates in local cities)
Many potential tenants (students) are dwelling around the property
RC structure (long period of time of depreciation for tax sheltering)
Studios for single-households are meeting market demands (students) 
Yield is pretty good
Full financing at very low interest rate is available
No down payment is possible including the initial cost
Monthly cash flow is quite strong

Cons
Age of building
Despite the potential free loan for the initial cost, such cost is high. 

Long term strategy remains to be seen (shrinking population, economy etc)
Energy cost in winter
Removing snow in winter

It is not too good to be true but becoming a landlord isn’t without its risks.
A good property like this one does not require your cash down payment.
By taking full advantage of your ability to leverage, you could comfortably buy a property to rent in Japan for your wealth-building strategy.
If you are interested, please do not hesitate to contact us. We will provide more details and some other listings.

Other Helpful Articles 

Inheritance tax in Japan
Real Case Study : How viable is buying a property to rent in Japan ? : How to get Financing and Tax implication

(Jozankei onsen-hot springs- in Sapporo)

Toshihiko Yamamoto
Real estate investing consultant and author.
Founder of Yamamoto Property Advisory in Tokyo.
International property Investment consultant and licensed
real estate broker (Japan).
He serves the foreign companies and individuals to buy and sell
the real estates in Japan as well as own homes.
He holds a Bachelor’s degree in Economics from
Osaka Prefecture University in Japan
and an MBA from Bond University in Australia

Toshihiko’s book, “The Savvy Foreign Investor’s Guide to Japanese Properties: How to Expertly Buy, Manage and Sell Real Estate in Japan”is now out on Amazon, iBooks (iTunes, Apple) and Google Play.
About the book 
Amazon.com Link

 

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