“Gaijin to Gaijin”​ – Investing in US Army & Navy Rentals

19 Nov, 2020 –

The Premise

Japan Properties

Japan Real Estate

At any given time, there are over 50,000 US army & navy troops stationed all around Japan, in 24 different bases & related military facilities – from the tropical islands of Okinawa in the South-West, and all the way up to Aomori, in the North-East.

Taking into account dependents, such as spouses and children, and another 5-6,000 non-enlisted US expat civilians working at the bases, this amounts to approximately 100,000 foreigners, spread all around the country, who all need a place to live.

The Opportunity

The vast majority of these tenants are extremely well behaved, and take good care of the properties they reside in – they have to, since any misbehavior on their part would be reported to the base’s housing office, which is in charge of approving their rent allowance – and any “monkey business” they’d get up to would reflect badly on them and endanger said allowance, as well as their continued stationing here in Japan.

Furthermore, said housing office’s rent allowances are extremely generous in Japanese standards – often twice or even three times the average rent obtainable from a “standard” Japanese tenant for those same properties – and since the recipients cannot use any of these funds for any other purpose aside from paying their rents, they will of course choose to get the best property they can get for said allowance – which is why the few Japanese landlords who do not have an issue leasing their properties to foreigners (who are still a rarity in Japan’s highly ethno-centric environment), are making a killing on these rentals.

The Challenges

A few challenges, however, are facing foreigner landlords who also wish to cash in on this opportunity – all of them easy to mitigate, but ones which would-be investors should be aware of –

1. With most bases located in small to medium sized towns, and with Japan’s less-than-ideal capital gains trend – or lack thereof – as it is, there is very little incentive to purchase properties in the vast majority of these locations – ASIDE from cashing in on said generous rent allowance – which means, essentially, that you’ll always want base personnel to be renting these properties from you. Otherwise, and considering that the average rent for local Japanese tenants would be half or a third of said allowance, there’s really no justification for purchasing in these areas, barring a spectacular deal indeed. Such spectacular deals wouldn’t be the norm, with the exception being, perhaps, a run-down property, sold at a heavily discounted price, which a buyer who is DIY inclined may be able to renovate on their own.

In all other cases, you’d want that cashflow to kick in from day one, and set the rent as high as that rent allowance would allow, in order to mitigate the potential risk of the base moving away or shutting down – which would leave you with average rents, an older property requiring frequent maintenance, and a location which does not stand to gain in value in the vast majority of cases. You should aim to reimburse your investment capital through the bloated rental income as quickly as possible, so that any further income would be pure profit – which isn’t too difficult, considering these bloated rent amounts could easily slip into double digit yield territory, as opposed to most other Japanese property investments, which would rarely net anything above 7-8% at best, and usually even less than that.

2. Each base’s housing office would have its own criteria and stipulation for which properties qualify for which amount of rent allowance – and you’d want to review said criteria ahead of any purchase, to make sure you’re buying a property that DOES, in fact, qualify and would attract those base personnel wanting to rent it from you. In the case of some bases, these criteria are rather easy to satisfy (“maximum X kilometers from the base”, “minimum Y square metres in size”, etc) – and in other cases, they’re a bit more stringent (“minimum doors width must accommodate standard issue US military appliances”, “must have a designated car parking space”), and so forth – so best be prepared before pulling the trigger.

3. Lastly, while the large number of base personnel looking for rentals around these towns has led to foreigner-oriented solutions, either in the form of local property management companies who can provide some level of English services, or native Japanese base staffers who can assist in dealing with non-English speaking property management agencies– for some reason the vast majority of US army & navy personnel in Japan have no real interest in buying and owning real estate in the land of the rising sun (most likely because they’re mainly focused on saving up for their existing or future mortgage payments back home). For this reason, and because almost all landlords in these areas are native Japanese, there are no real estate agencies in these locations who can provide purchase-related services to interested non-Japanese buyers. The solution to this challenge is to either find a reliable, English speaking realtor in one of Japan’s bigger metropolitan centres (Tokyo is usually your best bet, but not all Tokyo realtors will be interested in facilitating sales of these cheaper properties around the bases, since their commission in these cases would be rather low as well) – or, alternatively, to hire the services of a buyers’ agent and proxy such as ourselves, who can provide you with access to the entire national market.

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In any case, the upside of this potential market – which is, as of yet, almost 100% unknown to and untapped by non-Japanese investors – is phenomenal. Japan is closely linked to the US, both economically and militarily, a relationship which isn’t going anywhere – and neither are the US’ army & navy bases all around the country.

So far, it’s been strictly the locals – savvy Japanese investors – who have been cashing in on the “gaijins” – it may be high time for a bit of “gaijin to gaijin” business in the land of the rising sun – at least as far as these bases, their personnel, and the generous rent allowance they come with is concerned. To watch/listen to an informative business call with two entrepreneurial young investors who are themselves serving in the army & in the process of capitalizing on this business plan, and are also planning to scale it to other investors, click here.

 

(Source – Nippon Tradings, Pic – Gaijin to Gaijin / “Ziv Nakjima-Magen“)

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