In the search of diversification and performance, I have decided to consider other global markets than Australia.
I have had people contacting asking for some more details about my investing approach so I have made the decision to cover more of hard figures, not only theory. Last article about my personal experience seem to get more people interested…
If you’ve been researching on personal finance for a while, you will now know that it is important to diversify. Diversification comes into two flavors: Asset class and geography.
It appears to me that it is very important, when you invest in real estate, to get exposed to different markets. In Australia, many people would invest interstate as an example, but, to me, this is not enough: You’re still applying your risk to one economy which represents only more or less 2% on a global scale.
When I started to research for the next investment in real estate, I wanted the following criteria:
– Safe large economy
– Regulated economy
– Rental demand
– Highest possible returns
– Minimal risks with vacancies, tenants, etc..
Japan appealed to me as the third largest economy, with a population driven to move to big cities (sustaining long term demand), with low rate of ownership (around 60%). The Japanese culture makes it a real safe investment: Japanese people are stable in nature, would stay in the same unit for 10 – 15 years. Lastly, the returns (around 8% outside Tokyo and Osaka) and low entry tickets (around $40k to $80k AUD per unit) helping me to make Japan in the target list.
Few issues arose with language barrier, the impossibility to open local bank accounts, exchange rate, quakes, etc… And due diligence is once again key to find local contacts you can count on – More on this as I progress.
We also traveled there last year and it appealed to me that there is a potential and that the language barrier would stop many foreigners to invest there. I saw this as an opportunity.
Where am I at now?
I’ve found a local agent, Australian background, who’s been running his business for a few years now. I have done extensive research and connected to many reference clients.
My strategy is to buy one or two full tenanted units, for around $30 to $40k each. I don’t plan to buy more as I consider this still as high risk and you shouldn’t put more than 10% in risking investments.
My plan is to keep no more than $5k AUD equivalent in Japan in case, and transfer half the funds to secure the first unit and the other half on settlement. Again, this would help me feeling more confident not having $100k out of the bank at once!
What is next?
Now that I have found the agent, I’m comparing his fees with other local agents and listings.
I’ve narrowed down my research with 3 regions in Japan, and I will also ask the help of a japanese colleague on what he believes on the regions and the deals.
I have concentrated my efforts on tier 2 and tier 3 cities with long term growth, and no more than 3 hours by bullet train from Tokyo.
I will continue to monitor the region at suburb level and then start to make my research on deals, using local websites and/or realestate.co.jp.