Real Estate Investment for Beginners: An Introduction to the Appeal, Preparation, and Getting Started Guide

Real estate investment is an attractive investment strategy suitable for long-term asset accumulation. As a tangible asset, real estate is less susceptible to market fluctuations compared to stocks, and regular rental income (income gain) can be expected to provide stable returns. By selecting properties in prime locations and of high quality, vacancy risks can be kept low over the long term, enabling monthly rental income to cover loan repayments and ensure profitability. Additionally, if the value of the property increases, you can realize capital gains (appreciation gains) at the time of sale, potentially achieving high returns when combined with income gains. Furthermore, real estate can serve as an inflation hedge. During periods of inflation, real estate prices and rents generally rise, making it easier to preserve the value of your assets by holding physical assets, which is another significant advantage of real estate investment.

Furthermore, many real estate investment loans in Japan include group credit life insurance, which means that if the borrower passes away, the remaining loan balance is paid off by the insurance, offering the benefit of serving as an alternative to life insurance. As such, real estate investment is a powerful tool for long-term, stable asset management and is often included in the portfolios of high-net-worth individuals.

However, real estate investment is not without risks. For example, if a property becomes vacant, rental income ceases, and maintenance costs and loan repayments must be covered by the owner. Even if tenants are present, there is a risk of rental arrears, and the obligation to pay loans and management fees continues during the arrears period. Additionally, purchasing real estate requires a significant amount of capital, and there is a risk that property values may decline or loan repayment amounts may increase depending on market conditions or interest rate trends. It is important to properly understand these risks and take appropriate measures to mitigate them in order to fully leverage the benefits of real estate investment.

Common misconceptions and failure examples among beginners

Beginners in real estate investment often hold misconceptions such as “real estate is safe and anyone can succeed” or “just buying a property will generate rental income.” However, starting without proper preparation increases the likelihood of failure. Below are typical examples of mistakes commonly made by beginners.

• Starting without a clear purpose or strategy: Purchasing a property without a clear investment purpose or strategy, such as “it seems like a good idea,” may result in acquiring a property that does not align with your asset management goals. For example, buying a property suited for short-term resale instead of one intended for long-term rental income. Without a clear purpose, it becomes difficult to determine whether to prioritize income or capital gains, leaving you vulnerable to market fluctuations and the risk of failing to achieve expected returns. Countermeasure: Before investing, set clear goals such as “I want to create retirement funds through stable income” or “I want to achieve a certain amount of capital gains by a specific date,” and establish a strategy aligned with those goals (e.g., long-term holding or short-term sale). With clear objectives and strategies, you can make decisions that remain steadfast even in the face of temporary market fluctuations.
• Insufficient market research and due diligence: Failing to conduct adequate market research or property investigations is another major cause of failure. Purchasing without researching market prices can result in buying at an inflated price or acquiring a non-performing property that generates no income. Signing a contract without verifying the rental market rates in the area, demand trends, structural defects of the property, compliance with laws and regulations, or past maintenance history is extremely risky. Countermeasures: Successful investors conduct thorough market research and property due diligence before purchasing. Research the economic conditions and population trends in the surrounding area, as well as the rental rates and occupancy rates of nearby competing properties. Have a professional inspect the property itself to check its condition and compliance with laws and regulations. Having a lawyer or tax accountant review the contract terms and financial projections will provide additional peace of mind. It is essential to approach the process with a cool head, avoiding blindly believing advertising claims and considering pessimistic scenarios as well.
• Excessive leverage (borrowing) and careless financial planning: Investing with excessive reliance on borrowing, such as taking out a full loan with minimal equity, significantly increases risk. Even a slight vacancy, rent decrease, or interest rate increase can quickly lead to difficulties in meeting monthly repayment obligations. In the worst case, cash flow may grind to a halt, leaving only debt behind, forcing you to sell the property. Countermeasures: Set borrowing amounts conservatively and ensure sufficient margin in the debt service ratio relative to rental income. It is crucial to keep the impact of any vacancies within a range that does not disrupt repayment. Additionally, consider risk hedging measures such as opting for fixed-rate loans or maintaining flexibility for early repayment to prepare for future interest rate hikes. Do not blindly believe advertisements such as “OK with zero down payment starting from an annual income of XX million yen.” The golden rule is to invest only with surplus funds. A realistic financial plan is the key to success.
• Neglecting cash flow management and overlooking costs: Focusing solely on high surface yields or future appreciation expectations while neglecting actual cash flow calculations can lead to failure. If you do not accurately track your net cash flow—the amount remaining after deducting monthly rent income from loan principal and interest payments, management fees, property taxes, repair reserves, and fire insurance premiums—you may end up with less money than expected and fall into a deficit. Especially with used properties, it is essential to factor in future major repair costs and equipment replacement expenses when planning your cash flow. Countermeasure: Before purchasing, conduct a cash flow simulation to confirm that the cash flow remains positive even under pessimistic scenarios. Calculate multiple scenarios, such as a vacancy rate of X%, a rent decrease of X%, and an interest rate increase of X%, and verify that the plan can withstand any of these scenarios. Additionally, when estimating expenses, be sure to include initial costs such as real estate acquisition tax and registration fees, as well as annual fixed expenses like property tax and urban planning tax. Make a careful plan based on numbers to determine whether the property can maintain “income > expenses” in the long term.
• Neglecting property management and human networks: Real estate investment does not end with the purchase; subsequent management and operation determine profitability. However, it is a major mistake to assume that “once you buy it, you can just leave it alone.” In rental management, tasks such as tenant recruitment, rent collection, handling complaints, and restoring the property to its original condition upon move-out or renovations are essential. Neglecting management can lead to decreased tenant satisfaction, resulting in vacancies and reduced income. Additionally, ahuman network (human capital) with real estate companies or management firms is crucial. Without advice from trusted experts or experienced individuals, you may overlook risks that you would not notice on your own. Countermeasure: Consider your management structure before purchasing. If self-management is difficult, entrust it to a reputable management company and ensure regular cleaning and equipment inspections. Building trust with tenants and promptly addressing complaints are also effective in preventing vacancies. Additionally, network with experienced landlords and experts to exchange information and seek advice. Building a human network and deepening your own knowledge will lead to long-term investment success.
• Focusing too much on short-term profits: Impatience to “make money quickly” or “see results immediately” can lead to risky short-term actions such as selling at an unreasonably high price or making excessive renovations. While it is possible to profit from the difference between buying and selling real estate, it is not easy for beginners to time the market correctly, and misjudging market trends can result in losses. Additionally, from a tax perspective, short-term sales are subject to higher tax rates, making it difficult to retain profits. Countermeasures: Real estate investment requires a long-term perspective to succeed. Avoid chasing short-term gains and instead focus on steadily building stable rental income. Even when aiming for short-term capital gains, it is essential to develop an exit strategy in advance and make decisions calmly by identifying the appropriate timing.

Based on the above examples of failure, beginners should approach real estate investment with the mindset that “80% is preparation and 20% is execution.” In the next chapter, we will explain the specific steps and preparations for starting real estate investment.

Types and Characteristics of Real Estate Investment

Real estate investment encompasses a wide range of investment targets and methods. Each has different initial investment amounts, risks, returns, and management requirements, so it is important to choose a style that suits you. Here, we will briefly introduce the most common types of real estate investment and their characteristics.

Condominium Investment

Condominium investment involves purchasing one unit (one room) in a condominium building and renting it out. The appeal of this type of investment is that it can be started with a relatively small amount of capital, ranging from several million yen to tens of millions of yen, regardless of whether the property is new or used. Since only one unit is purchased, the initial costs are lower than when purchasing an entire building, making it a good option for beginners. Additionally, in the case of condominiums, the management of common areas is handled by a homeowners' association or management company, so the owner is primarily responsible for maintaining the interior of the unit, which is relatively low-maintenance. Liquidity is also relatively high, making it easier to sell the property and convert it into cash, which is another advantage.

On the other hand, the main drawback is the high risk of vacancies. If only one unit is owned, income will drop to zero if that unit becomes vacant. Since income is derived from a single source, the impact of vacancies is direct, so it is essential to assess whether the area has stable tenant demand and whether the property has sufficient competitiveness. Additionally, condominium units generally have lower yields (typically around 5–6% surface yield) compared to investing in an entire building. This is due to costs such as management fees and repair reserves, as well as cases where the purchase price includes the management association's reserve fund. However, this varies by property, so it cannot be generalized as low yield. For beginners, starting with condominium unit investment and gaining experience is a viable option.

Single-building apartment/condominium investment

Single-building investment involves purchasing an entire apartment or condominium building and renting out all units. Property prices range from tens of millions to hundreds of millions of yen, requiring a significant amount of capital even with a loan. However, this comes with the advantage of larger revenue scale and higher yields. The surface yield for single-building properties is generally higher than for condominium units, often reaching around 8% or more. Since multiple units are owned together, even if one unit is vacant, the rental income from other units can cover the loss, thereby dispersing the risk of zero income.

In single-building properties, the owner becomes the sole owner of the entire building, which is a key feature offering high operational flexibility. For example, the owner can decide on rent settings, recruitment policies, and the timing of building repairs, among other decisions, to implement strategies to enhance the property's value. On the other hand, the owner is responsible for maintaining the entire building, which means that management efforts and costs are significantly higher. This includes repairs to the roof and exterior walls, updating shared facilities, and handling issues with all tenants—tasks that would be handled by a management association in a condominium but are the responsibility of the owner (or a contracted management company) in a single-building property. Additionally, since a significant amount of capital is invested in a single property, concentration of location risk is a key consideration. If the demand for the property location declines or becomes unfavorable due to regional factors, all units will be affected. Single-building investment is a method where significant profit opportunities and risks go hand in hand.

While it may be challenging for beginners, it is worth considering for those aiming to expand their real estate business in the future. It is important to assess your financial capacity and experience and challenge yourself within a reasonable scope.

Single-family home investment

Single-family home investment involves purchasing used single-family homes and renting them out. Unlike apartments, there are no common areas, so management is simple, and depending on the location, it is possible to find bargains at low prices. In particular, in regional cities and suburbs, used single-family homes are available for several million yen, and there are cases where it is possible to target a return on investment of over 10% by renovating and renting them out. Another appeal of single-family home investment is the ability to own land, which may offer the potential for future capital gains from land sales.

On the other hand, single-family homes are typically rented to a single family, so like condominiums, there is a risk of zero income during vacancies. Additionally, the primary tenant demographic for single-family home rentals is families, so it may take longer to find tenants compared to single-person apartments. Location is also crucial, as in suburban areas where a car is necessary for daily life, the pool of potential tenants is limited. Therefore, accurate demand assessment is essential. Furthermore, older buildings may require significant maintenance costs, and renovation expenses for roofs, exterior walls, and plumbing must be factored into the budget. Single-family home investment requires knowledge of renovation and management due to the lower property prices.

Investing in Real Estate Investment Trusts (REITs)

REIT (Real Estate Investment Trust) is an investment in real estate investment trusts traded on the stock market. Rather than investing in real estate itself, investors purchase shares (securities) of an investment corporation that manages multiple properties. It can be started with a small amount and traded like stocks through a securities company's account, making it significantly more convenient and liquid compared to directly purchasing properties. Through professional management, investors can earn dividend income from a diversified portfolio of real estate assets such as office buildings, commercial facilities, and residential properties, thereby enjoying the benefits of diversification. Additionally, since REIT shares can be bought and sold daily in the market, they offer the advantage of being easily liquidated when cash is needed.

However, REITs are financial instruments, and investors do not become owners of the underlying real estate. Investors have no control over the management and do not gain expertise in property selection or rental operations. The dividend yield varies by investment trust but is generally around 3–5%. Compared to directly purchasing real estate, it is difficult to leverage (you cannot take out a loan yourself), so there is a lower potential for significant returns. Additionally, market prices fluctuate with economic conditions and interest rate trends, so there is a risk of principal loss. REITs are best used as an entry point to try real estate investment or to stabilize a portfolio by combining them with physical real estate.

The above are the main types of real estate investment and their characteristics. Each has its own advantages and disadvantages, so it is important to choose the appropriate method based on your investment objectives, amount of capital, and tolerance for effort and risk.

How to choose an investment style that suits you

As seen in the previous section, there are various styles of real estate investment. So, how should beginners choose an investment method that suits them? The key is to consider your own attributes (financial strength, creditworthiness, experience, how busy you are with your main job, etc.) and your investment objectives.

First, determine the amount of capital you can allocate to investment and the amount you can borrow. For example, if you have several million yen in capital, it would be realistic to start with a condominium unit or a small used house. On the other hand, if you have several tens of millions of yen in capital or a loan limit and a clear intention to generate significant income from real estate in the future, investing in an apartment building or condominium complex is worth considering. The methods available will naturally narrow down based on your financial conditions.

Next, it is important to consider how much effort you are willing to put in. If you are busy with work and cannot dedicate much time to management, options like condominium units or REITs that require minimal effort are suitable. On the other hand, if you want to actively engage in property management and gain experience, you could consider investing in a single-building property or attempting self-management. Risk tolerance is also a key factor in choosing a style. If you are cautious and want to minimize the risk of capital loss or vacancies, relatively stable investment options such as condominium units in urban areas or REITs may be suitable. If you are willing to take on some risk in pursuit of higher returns, high-yield properties in rural areas or single-family home renovation investments may also be options.

Additionally, consider the purpose of your investment. If your goal is to secure long-term income as a pension replacement, newer condominium units or family-oriented properties that can be managed stably over the long term may be suitable. If inheritance tax planning is the primary objective, single-building apartments or apartment management with significant depreciation benefits may be chosen. On the other hand, if the goal is to quickly sell for profit, an active strategy such as renovating undervalued properties in redevelopment areas and selling them may be necessary. However, since it is difficult for beginners to achieve results through short-term trading, it is safer to start with stable management based on the premise of long-term holding.

In short, there is no one-size-fits-all answer that is absolutely recommended for beginners. It is important to choose a style that suits your situation and goals. If you are unsure, it may be helpful to utilize free consultations with real estate companies and seek the opinions of experts. Receiving advice from a third-party perspective may help you discover suitability that you were not aware of. Take your time, gather information carefully, and identify an investment style that you can maintain without strain.

Funding Plan and Preparation Methods

Developing a funding plan is one of the most critical preparations when starting real estate investment. The amount of self-capital required varies significantly depending on property prices and loan conditions, and the success or failure of the investment can hinge on the funding plan. Below, we explain the key points for funding preparation that beginners should keep in mind.

Determining the Estimated Self-Capital Required

Generally, the initial costs (down payment + miscellaneous expenses) for real estate investment are said to be around 15% of the property price. For example, if the property price is 30 million yen, the initial costs would be approximately 4.5 million yen, including registration fees, brokerage fees, real estate acquisition tax, and fire insurance premiums. These costs must generally be covered by your own funds, so start by preparing your own funds with the goal of “15% of the property price”.

However, having just enough funds to cover the initial costs is insufficient. If you invest all your assets into the initial costs, you may be unable to handle unexpected expenses (such as reduced rental income due to vacancies or sudden repair costs) after purchase, which could lead to financial instability. Therefore, experts advise starting with “approximately twice the amount of the initial costs” as self-funded capital. This amount is equivalent to approximately 30% of the property price. By securing initial costs (15%) plus contingency funds (an additional 15%), you can handle emergencies with flexibility and maintain mental stability while continuing your investment.

Based on the above, for example, if you aim to purchase a single-building apartment worth 100 million yen, you should prepare approximately 30 million yen in self-funded capital, and for a condominium unit worth 20 million yen, approximately 6 million yen in self-funded capital would be a good guideline. Of course, this may vary depending on the property price and loan conditions, but it is advisable to prepare with “30% of the property price” as a safety margin.

Utilizing Loans and Loan Planning

The portion that cannot be covered by your own funds is typically financed through a loan from a financial institution. Real estate investment loans are determined based on factors such as the borrower's annual income, creditworthiness, and the profitability of the property being purchased. It is advisable to consult with a financial institution in advance to determine the approximate amount you can borrow. Banks have their own criteria, such as the ratio of loan repayments to annual income and the ratio of loan repayments to expected rental income from the property. The loan amount will be determined within these criteria.

When taking out a loan, choosing the interest rate type is also important. While Japan has maintained extremely low interest rates for an extended period, there is a risk that payments will increase if interest rates rise in the future with variable-rate loans. Do not become complacent just because current repayment amounts are manageable; simulate future scenarios with higher interest rates as well. If you are concerned about interest rate risk, selecting a fixed-rate product allows you to keep repayment amounts constant during the loan period. Additionally, consider incorporating a plan for early repayment, and actively use any surplus funds to reduce the total interest paid.

When taking out a loan, be sure to check whether group credit life insurance (GCLI) is included. Most real estate investment loans include GCLI, which covers the remaining loan balance in the event of death or severe disability during the loan repayment period. This system can serve as an alternative to life insurance, providing peace of mind by ensuring that no debt is left behind for family members. However, in the case of real estate investment loans, GCLI may be optional and require additional premiums, so be sure to confirm this in advance.

Cash flow planning and risk management

In your financial plan, it is important to create a long-term cash flow simulation, not just for the time of purchase. Confirm that the net cash flow, which is the monthly rental income minus expenses such as loan repayments, management fees, property taxes, and insurance premiums, remains positive. Additionally, verify that the cash flow can withstand stress scenarios such as a vacancy rate of X%, a rent decrease of Y%, and an interest rate increase of X%. For example, check whether the plan remains profitable even under a scenario of a 10% annual vacancy rate, a 5% decrease in rent, and a 1% increase in interest rates. If the plan can withstand such pessimistic scenarios, it will be more stable and profitable under normal conditions.

Pay attention to the equity ratio. Investing more of your own funds reduces monthly repayment burdens and stabilizes cash flow, but it also lowers the leverage effect (return on equity). Conversely, minimizing equity and maximizing loans increases the leverage effect, raising the return on equity, but this comes at the cost of heavier repayment burdens and unstable cash flow. For beginners, we recommend a conservative funding plan prioritizing cash flow stability, with a higher equity ratio and lower debt. Even if returns are slightly lower, starting small within a manageable repayment range and expanding gradually as you gain experience is safer.

Finally, don't forget to ensure liquidity. Unexpected expenses are inevitable after purchasing a property. It is important to set aside some cash that can be used immediately for things like air conditioner repairs, water leaks, repairs when tenants move out, or temporary expenses in case of disasters. It is generally recommended to keep at least several months' to half a year's worth of rent as working capital. By implementing these safety measures, you can continue stable rental operations without being financially strained.

Key Points for Property Search and Area Selection

To make a good real estate investment, it is extremely important to determine what type of property to buy and where to buy it. The value and profitability of real estate are said to be determined by location, with area selection being the key factor in success or failure. Here, we will explain the main points to consider when searching for properties and selecting areas.

How to Gather Property Information

First, it is important to familiarize yourself with the properties currently on the market and develop a sense of the market. Real estate investment portals (such as Rakumachi and Kenbika) list income-generating properties nationwide. By registering for free, you can receive email notifications of new listings, allowing you to gather information such as “what types of properties are being sold in which areas and at what prices” and “what the yield is.” For example, you might notice trends like “city center apartments near stations have yields around ○%” or “suburban apartments in older buildings can have yields in the ○% range, but they come with leasehold rights.” By developing this sense of the market, you'll have a benchmark to judge whether a property is overpriced or reasonable when a salesperson presents it to you.

When gathering property information, it is also important not to be swayed solely by the yield. Even if the surface yield is high, properties with high vacancy rates or those requiring major repairs in the future will have a lower actual yield. Additionally, the yields listed in advertisements are calculated based on full occupancy, so there are many cases where the actual results do not match the assumptions. Develop the ability to make comprehensive judgments by considering factors such as the property's age, structure, size, and location conditions in addition to the yield.

Key points for selecting an area

Area selection is the lifeblood of real estate investment. Beginners tend to be drawn to high yields, but properties with high yields often have their reasons (risks). When selecting an area, pay attention to the following points.

• Population trends and demand: It is best to avoid areas with declining populations or aging populations where rental demand is expected to decline. Instead, target areas with growing populations or slow population decline, such as urban areas with a high influx of young people and single individuals, where rental demand is strong. For example, the central areas of Tokyo's 23 wards and designated cities have stable demand. Even in rural areas, there are locations with specific demand, such as cities with universities or industrial parks. In real estate investment, the supply-demand balance is crucial, as “demand is everything.”
• Transportation convenience: The distance from the nearest station and the convenience of public transportation directly impact tenant occupancy. Ideally, the property should be within walking distance (preferably within 10 minutes) of the nearest station, and access to multiple transportation lines is a plus. Avoid areas with extremely early last trains or routes with very few trains. Additionally, good access to the city center and convenience for commuting to universities or office districts are important. For example, properties such as “5-minute walk from the station, one train to the city center” are popular among a wide range of people and can expect high occupancy rates. On the other hand, properties such as “20-minute walk from the station, only bus access” may struggle to attract tenants.
• Convenience and environment: Check the quality of the surrounding environment. It is important to walk around the area to get a feel for the local atmosphere, such as whether there are convenience stores, supermarkets, hospitals, and other amenities within walking distance, whether the area is safe, and whether there are too few people at night. Areas with few streetlights, dark streets, or litter are best avoided. If the area is safe for women and families, you can attract a wider range of tenants without limiting your target audience. Additionally, if there are universities or companies nearby, you can identify specific demand groups such as students or working professionals, while areas with factories may attract single workers on assignment.
• Disaster risk: In Japan, it is essential to consider disaster risks such as earthquakes, typhoons, and floods. Check hazard maps to ensure the area is not designated as a flood-prone zone or a landslide-prone area. High-risk areas not only pose a higher risk of damage to the building itself but can also lead to increased insurance premiums and potential depreciation of property value in the future. It is advisable to choose areas with the lowest possible disaster risk.
• Future potential: The future potential of an area is also an important point to consider. Areas undergoing redevelopment or with new stations scheduled to open are likely to become popular and see an increase in property values in the future. If redevelopment results in a more attractive cityscape or the construction of large commercial facilities, the brand value of the area will increase and it will be highly regarded as a desirable place to live. Keeping an eye on municipal urban planning and news is also a good strategy for finding areas with growth potential.

In summary, the ideal area is one with high demand, good convenience, and few risk factors. For example, areas that meet conditions such as “low disaster risk and good safety,” “close to a station with good access to the city center,” and “revitalized through redevelopment” can be expected to have high occupancy rates and stable income. On the other hand, areas with “low population and lack of amenities,” “far from stations with poor transportation,” or “high disaster risk” should be avoided by beginners. Of course, there may be exceptions depending on the property, but it is recommended to start by considering stable areas that are considered safe bets.

Property Selection Criteria

After narrowing down the area, the next step is to select individual properties. When choosing a property, consider the following points.

• Profitability and yield: Whether the property can generate appropriate rental income relative to the purchase price (i.e., yield) is fundamental. However, as mentioned earlier, do not judge solely based on surface yield; calculate the actual yield after deducting expenses. Compare the set rent with the surrounding market rates to ensure it is not significantly different from the market average.
• Age and building structure: Older properties tend to have higher yields, but also carry higher maintenance risks. Newer properties have lower yields but offer peace of mind as major repairs are not required in the near term. In terms of structure, reinforced concrete (RC) is more durable than wooden or light steel frame construction, but it is also more expensive. Earthquake resistance standards are also important, and properties compliant with the new earthquake resistance standards implemented after 1981 are preferable.
• Floor plan and demand suitability: The target demographic differs depending on whether the property is suited for singles (studio or 1K) or families (2LDK or larger). We will assess whether the floor plan aligns with the primary tenant demographic in the target area. For example, studio units are advantageous near universities, while areas near industrial zones may suit a mix of singles and families depending on the situation.
• Property Management Status: For used properties, check the current management status. Properties that are well-maintained, such as clean garbage disposal areas, functioning light bulbs in common areas, and mailboxes not overflowing with flyers, are more likely to maintain high tenant satisfaction in the future. On the other hand, properties with poor management are more prone to vacancies and require careful attention.
• Exit Strategy: Consider an exit strategy before purchasing. Imagine whether the property will be easy to sell in the market and whether it can be sold at the expected price when you decide to sell it in the future. Real estate investment ultimately determines the total profit or loss only when the property is sold. To avoid situations where the property cannot be sold at the expected price or cannot be sold at all, it is safer to avoid properties with low liquidity (such as those with unique floor plans or located in small areas).

Evaluate properties from multiple angles and prioritize whether you would personally want to live there as a tenant. Once you find a property that meets your criteria, be sure to conduct an on-site inspection to confirm details that cannot be seen in photos or floor plans.

How to find a reliable partner

To succeed in real estate investment, it is essential to have a reliable partner (such as a real estate company, property management company, or financial institution representative). There are limits to what one person can achieve alone, and with the assistance of skilled professionals, the likelihood of investment success increases significantly. Here, we will explain how to choose real estate companies and property management companies, which are particularly important.

How to Choose a Real Estate Company

Selecting a real estate company (brokerage or sales company) that can support property introductions and purchase procedures is crucial to the success of real estate investment. It is often said that finding the right real estate company can almost guarantee success. However, in reality, the industry is a mix of good and bad companies, and some unscrupulous operators exist. Beginners should keep in mind the key points for selecting a trustworthy company.

• Track Record and Expertise: Choose a company with extensive experience in brokerage of investment properties and a good understanding of investors' perspectives. Ideally, the company should be able to provide advice that goes beyond simply selling properties, such as guidance on post-purchase rental management. Companies that publicly disclose the number of past transactions and success stories of their clients are generally more trustworthy. Additionally, selecting a company with expertise in specific areas, such as single-building properties or downtown apartments, can increase the likelihood of being introduced to properties that align with your goals.
• Company size and structure: Companies with a certain scale, such as a certain number of employees or branches, tend to have access to a wealth of information and strong connections with financial institutions. However, even smaller companies may have a solid track record, so this is not always the case. What is important is whether the company as a whole has a robust support system, not just the individual staff members. Other key points to check include their ability to arrange loans and the thoroughness of their contract procedures.
• Quality of income-generating property information: The better the company, the more high-quality properties they have that are not listed online. Building a relationship where you can be introduced to unlisted properties that do not appear on general portal sites is a significant advantage. To achieve this, it is important to clearly communicate your investment objectives and conditions during the initial inquiry and demonstrate your seriousness. Many companies will introduce properties that match your conditions through their email membership service, so be sure to take advantage of this.
• Customer-oriented approach: A trustworthy company will clearly explain both the disadvantages and risks. Be cautious of agents who emphasize only the benefits and avoid mentioning risks. Additionally, avoid companies that do not listen to your needs and instead engage in one-sided sales pitches. Choose a company with a consulting-oriented mindset that aims to achieve success alongside its clients.
• Company investment and after-sales service: Companies where the staff members themselves engage in real estate investment or provide one-stop services including post-purchase rental management can offer advice based on real-world experience and long-term support. It is reassuring to work with a company that continues to provide support even after the purchase, such as assisting with rental management or sale consultations.

It is also important to contact multiple companies, listen to their proposals, and compare them. Pay attention to the impression you get from meetings or phone calls, the content of their proposals, and try to identify a representative you can trust. Additionally, there are specialized companies like INA that support beginners in real estate investment. We provide beginner-friendly information through our own online media and offer free consultation services, making us an example of a reliable partner company for first-time investors. Consulting with such specialized companies can also be an effective approach.

How to Choose a Property Management Company

After purchasing a property, a property management company that will handle the rental operations is also an indispensable element for success. The success of the management company can significantly impact occupancy rates and revenue, so it is important to choose carefully. Key points to consider when selecting a management company are as follows:

• Occupancy rate and tenant placement ability: The most important factor is whether the company can maintain a high occupancy rate. As a general guideline, it is advisable to confirm that the company's average occupancy rate is 95% or higher. Companies with a strong track record in tenant recruitment have their own recruitment channels and advertising strategies, enabling them to quickly find new tenants when vacancies arise. In fact, there are cases where properties with an occupancy rate of 50% or below under previous management achieved full occupancy within six months after switching management companies.
• Proposal and Response Capabilities: A management company that only suggests lowering the rent when units remain vacant is problematic. It is preferable to choose a company that can propose concrete solutions such as adjusting advertising methods, revising recruitment conditions, or suggesting renovations. Additionally, it is important to verify whether the company has a 24/7 response system to handle tenant complaints or equipment malfunctions. Companies with a support desk available even during nights and holidays, or those with a network of contracted repair services, are more reliable.
• Number of properties managed and experience: Companies with a large number of properties under management and a proven track record have accumulated expertise. While it is difficult to generalize, companies managing thousands of properties are likely to have a high level of experience. However, overly large companies may risk neglecting individual properties, so it is important to balance experience with agility. Check the experience and knowledge of individual staff members as well.
• Management fees and service scope: Management fees typically amount to around 5% of the rent, though some companies offer rates as low as 2–3%. However, extremely low fees may indicate limited service content or additional costs under other headings, so caution is advised. Do not choose solely based on management fees. Compare the comprehensive service offerings, such as tenant recruitment fees (AD or advertising costs), regular inspections, renewal procedures, and assistance with move-out inspections and security deposit settlements. It is important to select a company that offers good value for money overall.
• Owner Support: The relationship with the management company is long-term. It is important to assess whether the assigned representative is attentive, responds promptly, and maintains open communication. Before signing a contract, take the time to discuss these matters thoroughly to determine if you can build a trusting relationship. In some cases, it may be beneficial to request quotes from multiple companies and compare their responses.

By selecting the appropriate management company and working together to enhance the value of the property, owners can focus on their core business while maintaining stable operations. Conversely, choosing the wrong management company can lead to vacant units, delinquent payments, and deteriorating revenue. Finding a management company that you can trust is an important step toward successful real estate investment.

Steps to purchasing your first property

To actually start real estate investment, you need to go through several stages, from gathering information to signing a contract and starting operations. Here, we will outline the general process for beginners purchasing their first property.

1. Gather knowledge (study): Start by acquiring basic knowledge about real estate investment. Learn the fundamentals through books and introductory websites, and attend seminars or study sessions to gain the latest information and practical know-how. Blogs and YouTube videos by experienced investors can also be helpful, but be sure to select reliable sources as there is a mix of quality content. If necessary, consulting with a financial planner or real estate consultant on an individual basis can also be effective. Simultaneously, start saving your own funds during this stage.
2. Goal Setting and Strategy Development: Once you have gained knowledge, clarify your investment objectives and goals. Set specific goals such as “I want to earn monthly rental income of △ million yen in ○ years” or “I want to secure a stable income source for retirement.” Based on these goals, establish a general investment strategy, such as whether to start with a single unit or a whole building, and which areas to focus on. Once your goals and strategy are set, the required property size and yield will become clearer, making the next step of searching for properties more efficient.
3. Develop a funding plan: Finalize the funding plan discussed in the previous chapter. Determine how much of your own funds you can prepare and how much you can borrow from financial institutions, and calculate the “affordable property price range.” For example, if you have 5 million yen in equity and an annual income of 6 million yen, you might target properties priced between 20 million and 30 million yen. It is advisable to visit banks or conduct preliminary mortgage reviews to confirm the approximate loan amount you can secure in advance. At this stage, we will verify that the plan is realistic and that the cash flow is sustainable.
4. Property search and market research: Based on the conditions set in the financial plan, we begin the search for specific properties. We search for properties that meet the conditions on investment property websites such as Kenbiya and Rakumachi, and collect detailed information on promising properties. Simultaneously, we browse portal sites to get a sense of price trends and yield rates. At this stage, the focus is on understanding what types of properties are available in the market rather than deciding on a specific property to purchase. As you compare multiple properties, your priorities (such as yield, location, or age of the building) will become clearer.
5. Contacting Real Estate Companies: Once you find a real estate company you trust, reach out to them. You can start by sharing your preferences over the phone or via email and ask if they have any properties that match your criteria. Depending on your conditions, they may suggest “unlisted properties that align with your preferences.” If the company seems reliable, visit their office and meet with the agent. During the meeting, clearly communicate your investment objectives and conditions, and listen to their proposals. If you feel they are trustworthy, request specific property recommendations. It is also effective to contact multiple companies and compare their offerings.
6. Property recommendations and site visits: Once you receive property recommendations that match your conditions from the real estate company, thoroughly review the materials and perform a cash flow simulation. If there is a property that stands out, schedule a site visit. During the visit, inspect not only the condition of the property but also the surrounding environment with your own eyes. It is advisable to visit at different times of the day, as the atmosphere may vary between daytime and nighttime. Additionally, investigate legal restrictions (such as zoning regulations or the possibility of reconstruction) at the local government office, and check the management status and tenant demographics. At this stage, it is important to consider your exit strategy. Think about who could buy the property in the future and at what price, and if you feel the risk is too high, have the courage to walk away.
7. Purchase Application and Negotiation: Once you have found a property you wish to purchase, submit a purchase application (purchase offer) through the real estate company. Price negotiations and other terms will also be discussed at this stage. When making an offer (price reduction negotiation), consider the surrounding market conditions and the seller's situation to make an appropriate proposal. Presenting proposals that also benefit the seller (e.g., early settlement, higher cash ratio) can help facilitate negotiations. In addition to price, you should clarify and agree on other important matters such as the scope of warranty for defects, the delivery date, and the handling of ancillary facilities.
8. Loan Procedures: Once the application is accepted and an agreement is reached as a prerequisite for the sales contract, promptly request a formal loan review from the financial institution. Submit property documents, income and expenditure plans, and personal income and asset information to the financial institution, and await the property appraisal and loan review. Upon loan approval, the terms (interest rate, loan amount, and term) will be presented. Based on these terms, make the final decision to purchase the property (if the loan is denied or the amount is insufficient, the contract may be canceled).
9. Execution of the Purchase Agreement: Once the loan is approved, the real estate purchase agreement is executed. You will receive an explanation of important matters from a real estate broker, and after fully understanding the property rights, facility conditions, and contract terms, you will sign and stamp the agreement. At the time of signing, you will pay a deposit (approximately 5–10% of the property price), and the contract is concluded. The contract and important matters explanation documents should be kept for future reference.
10. Final Payment and Property Handover: Property handover typically occurs approximately one month after the contract is signed. On the settlement date, the buyer, seller, brokerage company, and financial institution gather to complete the final payment and property handover. The loan disbursement is also paid at this time, and the judicial scrivener handles the procedures for transferring ownership and registering the mortgage. The buyer receives the keys and all relevant documents from the seller, thereby transferring ownership of the property.
11. Preparing for Rental Operations: After receiving the property, if there are already tenants, we will handle the procedures for transferring the lease agreement (notifying tenants of the change in ownership, etc.). If the property is vacant, we will immediately begin recruiting tenants. We will enter into a contract with a property management company and request them to set the rental conditions and arrange advertising. If necessary, we will also conduct interior cleaning or renovations. We will also ensure that fire insurance is obtained (mandatory if financing is used).
12. Start of operations: Once a tenant is secured, the lease agreement is signed, and rental income begins to be generated. Set up systems for bank transfers or rent collection services, and begin monthly income and expense management. This marks the transition to the property investment management phase. Congratulations on completing the process of purchasing your first property.

The above is a general overview of the process up to purchase. Once you have experienced it once, the second and subsequent properties will become much easier. While the first time may be overwhelming with many unknowns, seek advice from real estate companies, financial institutions, property management companies, and other professionals around you, and proceed step by step.

Importance of Post-Purchase Management and Exit Strategy

Even after purchasing a property and starting rental operations, it is important to maintain proper management and consider future exit strategies without complacency. This is because real estate investment does not end with the purchase of a property; it is only when the sale is completed that one investment cycle is complete. Finally, we will discuss the management tasks and exit strategies to keep in mind after purchase.

Rental management and asset value maintenance

Rental management is an ongoing task for property owners. Even if you have outsourced management to a management company, do not leave everything to them; receive regular reports and stay informed of the situation. Specifically, pay attention to the following points.

• Tenant relations: Respond promptly to reports of equipment malfunctions or complaints from tenants. If repairs are necessary, arrange for a contractor promptly and do not allow the situation to drag on. Delayed responses can lead to tenant dissatisfaction and potentially result in them moving out. Ensure that the management company provides 24-hour support, and be prepared to make decisions yourself in emergencies.
• Rent management: Check that monthly rent is paid on time. If any payments are overdue, follow up promptly and take measures to prevent the situation from escalating (e.g., contact the guarantor or rent guarantee company). Failing to address overdue payments can disrupt cash flow and potentially lead to issues with other tenants.
• Building and facility maintenance: Conduct regular inspections of the building to identify any abnormalities. Pay attention to details such as cleaning conditions, trash disposal areas, and the status of common area lighting. Promptly repair deteriorated areas to maintain aesthetics and enhance tenant satisfaction. Additionally, equipment such as air conditioners and water heaters has a limited lifespan, so it is advisable to set aside a budget for planned replacements. Consider major renovations based on the building's age.
• Rent Review: It is necessary to review rental rates for new tenants and renewal contracts based on market trends and changes in demand. If a unit remains vacant for an extended period, consider lowering the rental rate to a reasonable level. Conversely, if the property is fully occupied and surrounding rental rates are increasing, negotiate a rent increase during renewal. By adjusting rental rates flexibly to market conditions, you can balance revenue maximization and vacancy reduction.
• Communication: Building good relationships with tenants is also important. Some owners respond politely to tenant concerns during their tenancy or send thank-you letters to long-term tenants. An owner's honest attitude builds tenant trust and can lead to tenants taking better care of the property.

Proper rental management can help maintain and improve the property's profitability and asset value. Conversely, poor management can lead to increased vacancies and building deterioration, which can lower asset value and negatively impact the sale price at exit. Approach daily management and operations with the mindset that “income-generating real estate is a living entity.”

Regular operational reviews

After several years of operation, there may be discrepancies between the initial plan and actual results. It is important to review performance on a regular basis (approximately once a year) and make strategic adjustments as needed.

For example, if the property is performing better than expected and you have accumulated more capital than anticipated, it may be a good time to consider additional investments. On the other hand, if the property is not generating the expected income, you may want to consider improvements (such as renovations or adding amenities) or, in some cases, selling the property and investing in another one. If interest rates change and loan rates rise, consider refinancing with another bank to reduce interest rates.

Real estate market conditions are constantly changing, so stay informed about the latest market trends and economic developments, and regularly assess whether to hold, sell, or expand your portfolio by comparing it with the current state of your properties. It is important to adopt a mindset of constantly seeking the optimal position rather than passively holding onto properties.

Exit Strategy Planning

Finally, the exit strategy. The results of real estate investment are only realized upon sale. To avoid future regrets, it is important to simulate the exit strategy early on.

• Guidelines for selling: Based on the age of the property, the balance of outstanding loans, and market price forecasts, set a guideline such as “consider selling in X years.” For example, wooden apartment buildings typically require major repairs after 20–25 years, so one strategy is to sell before that time to lock in profits. Another approach is to target a timing when the remaining loan balance is significantly reduced (remaining debt < sale price).
• Estimated sale price: Based on current land value and income-based valuation, estimate the sale price for a certain number of years in the future. It is crucial to estimate conservatively to avoid being surprised later by how much lower the price might be. In areas where demand is expected to decline, consider the possibility of a sharper price drop than anticipated. You can request an appraisal from a real estate company to get an estimate of the current market sale price, which can serve as a reference.
• Multiple exit scenarios: It is reassuring to consider multiple exit patterns in addition to the basic scenario. For example, “Sell if the property can be sold at a high price after X years, or continue holding it and maintaining rental income if it cannot be sold,” or “Liquidate the property when children become independent and use the proceeds for education expenses.” These options should be aligned with your personal life plan. Some may choose to “hold the property indefinitely and pass it on to heirs,” but in such cases, it is essential to maintain the property's condition to ensure future generations do not face difficulties.
• Points to consider when selling: When actually selling, various costs such as brokerage fees and capital gains tax will apply. The tax rate on capital gains varies significantly depending on the holding period—approximately 20% for holdings over five years and approximately 39% for holdings of five years or less—so timing is crucial. Additionally, the price may vary depending on whether the property is sold while occupied or sold as vacant land or an empty unit. It is essential to request appraisals from multiple real estate companies to determine the appropriate price when selling.

Considering an exit strategy can help you make more appropriate investment decisions in the present. As the saying goes, “Those who cannot imagine the end should not begin,” which underscores the importance of having an exit strategy. From the outset, keep the exit in mind and prepare to exit at the optimal timing by adapting to changes in market conditions during the investment period.

In conclusion

Real estate investment differs from stocks or FX trading in that it involves tangible assets, requiring both time and capital. However, it is an attractive means of building assets steadily. For beginners, there are many technical terms and complex procedures, which may initially be daunting. However, as explained in this article, by mastering the basics and proceeding steadily, there is no need to feel intimidated.

The key is to plan with a long-term perspective and proceed cautiously with the help of trusted experts. As mentioned earlier, by enhancing your human capital through networking and knowledge, and by focusing on the long term rather than short-term gains, real estate investment can become a reliable ally in your asset building journey.

The joy of purchasing your first property and receiving your first rent payment is indescribable. It takes a lot of learning and effort to get there, but the experience itself will be a valuable asset for the future. Take a cautious approach to risk management, and take that first step. We hope that real estate investment will become a source of security in your life and lead you to the next stage of asset growth.

Finally, I encourage you to make use of companies like INA, which support beginners in real estate investment, and strive to build a healthy and fruitful real estate investment lifestyle. I hope the content of this article will be of some assistance. Best of luck, and I wish you success in your real estate investment endeavors.