Win-Win Financing for New Investors and Low-stress Income for Seasoned Cash Buyers

I want to get my feet wet in the Japanese property market, but I want a loan to start…

A question that arises as often as the sun is… “Can I get a loan for real estate investment in Japan?” Unfortunately, there is a severe lack of financing options for foreigners without residency. Some restrictions were more firmly put in place after a loan scandal from Suruga Bank occurred some years ago. Financing options are really only available to long-term residents of Japan with documented and stable income history of at least a few years, or to Japanese companies or Japanese-registered companies with documented and stable income history. Aside from these situations, there are little to no chances of obtaining a mortgage loan for Japanese property investments. It actually seems easier even for resident foreigners that meet the criteria to instead get a home loan specifically to live in rather than for property investment purposes. 


Now, you may be asking, “Well, why can’t I just get a regular home loan and rent out my property as an investment then?” In Japan, home loans and investment loans are strictly separate, and a bank can demand full repayment of a loan if someone begins renting out a property without first asking permission from the bank and converting the loan. The interest is, of course, higher for investment loans, so that would end up lowering your yield and sometimes negating the reason for investing in the first place. 

Stuck between a rock and a hard place…

Some exceptions to obtain any kind of financing without residency are normally only for very large loans ranging in the millions of dollars from one of the Japanese “mega-banks.” In such cases, the upfront payment required is usually up to 50-60 percent of the purchase value. This makes such options extremely impractical. 

For individuals with existing accounts in certain international banks, such as the Bank of China, financing may be available through them, although the criteria is usually very strict regarding property profiles. This, once again, makes the option quite impractical. 

After learning all of this, many first-time hopeful investors become very frustrated. About 50% or more of our own potential investors as a buyer’s agent usually get filtered out upon hearing their limited options for financing. Worse yet, those who can afford to buy their properties in cash are also greatly limited in their budget and selection due to the haste of the Japanese market (being the world’s 2nd biggest property investment market by transaction size). 

I have the cash, but I’m growing tired of hands-on property investment….

For such cash buyers, an option for your own investment may be to provide financing options to other potential global investors interested in delving into the Japanese property market. If a cash buyer has an interest in diversifying their portfolios beyond standard property investments but without straying too far from the real estate arena that boasts reasonable security and low-risk levels, consider lending to buyers seeking to expand their portfolios into Japan. Not only would this save a cash buyer from the hands-on involvement sometimes required for direct ownership, but earning a reliable and stable monthly income without depending on vacancies would also be a sweet selling point. 

Night Street

If you happen to be an able cash buyer with funds around $20,000 USD and upwards (the minimum amount usually required for a small condo unit investment property), perhaps consider lending to another foreigner seeking investment financing. As a lender, you would be receiving monthly to annual payments regardless of vacancies or maintenance needs, and you would have the security of the property itself if the owner defaults. Being able to dictate your own reasonable terms as a lender, including interest rate and length of loan, as well as payment frequency, and perhaps even specifying an equity gain profit section, are all great aspects of the agreement to consider. You could also limit lending to residents within your own country, making legal recourse even easier, although having the property as collateral should is probably more than enough. Furthermore, at least part of the loan would have been paid by the time anyone could potentially default in most cases. 

We have dozens of existing clients who have been wishing to double and triple their portfolios, as well as many potential clients that are unable to purchase in cash up front, mainly due to lack of those reserves on hand, but are waiting for the opportunity to invest. It would be a real win-win scenario if a cash buyer could lend to such borrowers, resulting in an added hands-off and low-stress asset in your own portfolio with reliable income. It still gives access to the APAC market for both parties. 


Therefore, if you are a cash buyer with any interest in becoming a private lender in a very safe and highly regulated environment with full security legal recourse and stability of income, please feel free to reach out to us here at NTI. We have potential and reliable clients for you and we’ll be more than happy to help organize the documents required to get started. This would result in a win-win case for investors wanting to finance without other options and for cash buyers to diversify in a low-stress and hands-off deal, making a tidy profit for all involved. Happy investing!

(Source: Financing for Japan Real Estate Investments – Call to Action! / Photos: Flikr)



Related Articles

General, Investors/Business
A new wave of big private equity players is moving in on Japan's property market, drawn by attractive yield spreads with Japan's low interest rates and by prospective deals with companies that hold under-utilized assets. "The Japanese market presents a huge opportunity," David Cheong, managing director at KKR, told Reuters. He noted wide scope to help corporations bolster their property-related operations and boost returns on property assets. "Investment demand is strong but the number of properties for sale is relatively limited..."
General, Investors/Business
Imagine if you could put an ultra-thin, transparent solar sheet on your window to generate energy, not just from sunlight but also artificial lights from inside your room? Seen as the most promising next-generation solar cell, this technology, called perovskite, is exactly what Japanese start-up Enecoat Technologies is trying to develop. Start-ups such as this are called "deep tech". They are small firms who are merging high-tech engineering innovation with scientific discovery. The hope is that it will lead to the development of transformational products.
With Tokyo & Osaka approaching their pre-1990's property bubble peak, and yields in other investment hot-spots such as Fukuoka, Kyoto and Nagoya also gaining in price and becoming more compressed, opportunity-seeking investors are on the lookout for smaller cities that may still provide higher, yet stable and reliable rental returns. However, in a country as insular as Japan, where cities other than those already frequented by international visitors remain veiled in language and cultural isolation, the quest for attractive investment destinations can be difficult.
Information, News
Many properties are remodeled homes or company dormitories that had been left vacant or become dilapidated, and with bookings accepted from only one party for the entire facility per day, they make unique retreats for people seeking seclusion.The facilities are quietly gaining popularity, mainly among families making steady requests for reservations, with users able to enjoy their privacy and avoid physical contact with strangers in these pandemic-hit times.