Is Real Estate Investment a Viable Side Business? Here's What to Know

In recent years, there has been growing interest in having multiple sources of income on the side. Among the various side business options, real estate investment is often mentioned as a strong candidate. In fact, many companies allow real estate investment as a side business, and as more attention is focused on asset management, more people are interested in real estate investment. But is real estate investment really suitable as a side business? To answer this question, this article explains the background of real estate investment as a side hustle, its merits as a side hustle, points to keep in mind when engaging in it, the significance and future potential of making it a full-fledged business, and finally, the importance of a sincere attitude and continuous learning.

Background of Real Estate Investment as a Side Business

The reason why real estate investment is attracting attention as a side business is because of its high profitability andincome stability. Investing in real estate for rent provides a stable income in the form of monthly rent, and as long as tenants continue to live in the property, it can be a long-term source of additional income. This ability to secure a source of income separate from your core business is a major attraction. Another advantage is that it is less susceptible to the effects of the economy compared to stock investments or FX (foreign exchange trading). Even if the economy is somewhat unstable, you will be able to generate a relatively stable rental income through appropriate area selection and property management. In some cases, asset value can be expected to increase if the property is held for a long period of time. In fact, real estate prices have been rising in recent years, especially in urban areas, and depending on the timing, there is a chance to make a large profit (capital gain). Real estate investment stands out in that you can earn income continuously once you acquire a property and put it under management, whereas most other side jobs require you to spend time and effort to earn income on your own. For this reason, real estate investment is often listed high in popularity rankings of side hustles, and is highly regarded for its stability and its ability to build assets.

Another reason is that the ban on side jobs is being lifted in society, creating an environment that makes it easier for company employees to earn additional income. Many companies consider real estate investment as personal asset management rather than a "side job," and tend to treat it as exempt from regulations prohibiting side jobs. For example, even companies that prohibit side jobs often allow stock investments and investment trusts, and if real estate investment is considered a type of asset management, there is a high possibility that it will be permitted as well. In this way, real estate investment is a relatively stable and promising source of additional income, and is not easily regarded as a side job by companies, making it an easy side job for company employees.

Advantages of Real Estate Investment as a Side Job

There are many advantages to real estate investment as a side business. The main points are summarized below.

• Ease of balancing your main job (time flexibility and risk hedging): Real estate investment does not usually require much time commitment, making it an easy side hustle to balance your busy main job. You don't have to constantly check the market like you do with stock investments or work regular hours like you do with a part-time job. Property management services only need to be handled on a regular basis and can be outsourced to a management company as needed. If left to a management company, they can handle everything from tenant recruitment to rent collection and complaint handling on your behalf, allowing even those with busy day jobs to continue their side hustles with peace of mind. By delegating these tasks to a professional company, you can concentrate on your main job, minimizing the disruption to your main job while earning additional income. In addition, having a second income can be a risk hedge in the event that your main job income becomes unstable. Even if your income declines due to a downturn in your core business or restructuring, having a pillar of rental income will make it easier to maintain your livelihood. In particular, long-term rental properties are less likely to be affected by the economy, and can be expected to continue generating stable cash flow. Engaging in real estate investment as a side business will help diversify your income sources and build a financial safety net.

• Favorable financing by leveraging the creditworthiness of a salaried employee: The stable income and social credibility of your main job as a salaried employee can be a great advantage when starting to invest in real estate. Loans from financial institutions are generally used to purchase real estate, and the stability of annual income is an important factor in determining the ability to repay the loan. In general, company employees tend to receive loans from banks more easily because their income is stable. In other words, working steadily at your main job itself encourages you to invest in real estate on the side. Even if one's own savings are not that large, a bank loan allows one to purchase an expensive property and use the rental income to pay off the loan while building assets. The leverage effect (principle of leverage) makes it possible to start a relatively large investment with a small amount of personal funds, which is an attractive feature of real estate investment. In other types of investments, the size of your earnings is directly related to the amount of capital you have available, but in the case of real estate, you can borrow money to finance your investment and repay the loan with rental income while building up your assets. The ability to efficiently expand assets by leveraging your creditworthiness as a salaried worker is a major advantage of investing in real estate as a side business.

• Long-term security through asset building and stable income: Real estate investment is directly related to future asset building. Once the loan is paid off, you will be left with a debt-free real estate asset. In the meantime, you will continue to receive monthly rental income, providing a means of generating stable cash flow now and into the future. This stable income can also serve as a supplement to your pension in retirement or as a substitute for insurance in case of emergency. In fact, real estate is a real asset that is resistant to inflation (price increases), and real estate asset values and rents tend to increase during periods of inflation. Even in a situation where the value of cash is diminishing, holding an asset in the form of real estate makes it relatively easy to protect its value. Therefore, from a long-term perspective, real estate investment is beneficial for both asset preservation and asset growth. The double benefit of being able to keep your assets while steadily paying off your mortgage with monthly rent is a major attraction not found in other side hustles.

With these advantages, real estate investment is highly regarded as a side business that is easy for busy businesspeople to engage in and that can help them prepare for the future.

Points to keep in mind when engaging in real estate investment as a side business

On the other hand, there are many points to keep in mind when starting real estate investment as a side business. The main points are listed below.

• Large initial expenses and careful financial planning: To start investing in real estate, you will need a large initial capital to purchase a property. Although some advertisements claim that it is possible to start with zero personal funds, in most cases, a down payment is made on a portion of the property price and the remainder is covered by a loan. Depending on the price of the property, a financial plan in the range of several million yen to several tens of millions of yen is required. In addition, there are registration fees, real estate acquisition taxes, and other expenses at the time of purchase, as well as ongoing expenses such as fixed property taxes and insurance premiums after purchase. It is important to have sufficient funds on hand, especially immediately after purchase, to cover unexpected expenses (repair costs, etc.). If you take out an excessive amount of loans and run out of cash reserves, you may not have enough to cover such expenses as vacancies and repairs. You must carefully plan your income and expenditure (cash flow calculation), and carefully consider the balance between your own funds, the amount of borrowing, and rental income. As pointed out in the article, "Properties in central Tokyo offer high yields but require a large amount of capital to acquire," so be aware that attractive investments require a reasonable amount of capital.

• Property management and time cost: Real estate investment does not mean "leave it alone" and do nothing. As an owner (landlord), you are responsible for the management of your rental property. For example, there are a wide variety of tasks such as recruiting new tenants, contracting with tenants, collecting rent, collecting late payments, responding to complaints, attending to tenants when they move out, and arranging for restoration work. Since these tasks require a certain amount of time and effort when performed by oneself, time management is important in order to handle them without adversely affecting one's core business. As mentioned above, there is also the option of outsourcing to a management company, but in this case, a management fee (generally around 5-10% of the rent) is deducted from the monthly rent, which reduces the profit. In addition, even when management is entrusted to a company, the final decision-making and approval (e.g., how much to spend on expensive repairs) must be done by the owner himself, so he cannot be completely left out of the decision-making process. In addition, buildings and facilities deteriorate over time, so periodic maintenance and repairs are inevitable. This means that the aspect of rental management cannot be separated. When investing in real estate as a side business, while devising ways to reduce the hassle of such management (e.g., outsourcing to a reliable management company, entrusting tasks to others, etc.), you need to be aware that you are ultimately responsible for the property.

• Importance of managing risks such as vacancy and disasters: Real estate investment involves various risks. One of the most common is vacancy risk. While rental income ceases after a tenant moves out and until a new tenant is found, loan repayments, management fees, and other expenses continue to be incurred. If the vacancy period is prolonged, the income and expenditure will worsen, and in some cases, it may be necessary to make up the loan with income from the main business. To prepare for this risk, it is important to select a location and a property that is not prone to vacancy (e.g., choose an area with high demand, set the facilities and rent appropriately, etc.). It is also a good idea to have enough margin in your financial plan to withstand a period of no income for several months, assuming that a certain level of vacancy is "within expectations. Next, disaster risk must also be considered. If the property is damaged by earthquake, typhoon, or fire, a large loss will be incurred. It is important to purchase fire and earthquake insurance to be prepared to rebuild or repair the property with the insurance proceeds in the event of such a disaster. In addition, there are operational risks such as unexpected repair costs due to aging, neighborhood problems, tenants' rent arrears, and nighttime flight. These risks can be minimized by preparing in advance, for example, by conducting regular facility inspections, using a guarantee company to reduce the risk of nonpayment, and acquiring knowledge of legal procedures to deal with them appropriately. In general, real estate investment requires the attitude of "assuming the worst and taking all possible measures. Fortunately, many risks can be mitigated by taking measures in advance. The secret to stable management is to identify possible risks in advance and prepare for each one.

• Check legal restrictions and compliance: When investing in real estate on the side, you need to pay attention to laws and regulations as well as the rules of your employer. First, check the work rules of your employer. As mentioned above, many companies consider real estate investment to be asset management and tacitly approve it, but there are also cases where the side business itself is explicitly prohibited. Even in cases where it is tacitly approved, there is a possibility of problems if the size of the investment becomes too large. Remember that under tax law, a real estate rental business is considered to be of a business scale if it owns "five or more buildings or 10 or more rooms," and if this line is exceeded, the rule prohibiting side jobs may apply. As you continue to invest, you may want to establish a corporation (company) to run your real estate business. However, if you incorporate, you will receive a salary from the company you represent, which is separate from your main business. Since receiving a salary from another company is clearly considered a side business, it is important for company employees to consult with and obtain permission from their company before considering incorporation as a real estate investment company. Thus, the basic premise of real estate investment as a company employee is to do so within the rules of the company to which you belong.

Next, you should also pay attention to tax and other legal procedures. In some cases, you may be required to file a tax return for income earned from side hustles. Company employees are required to file an income tax return if their income from side jobs other than salaried work exceeds 200,000 yen per year. Real estate income earned from real estate investment minus expenses is combined with other income and taxed. Since the year-end adjustment at the main business alone is not sufficient to complete the process, the owner must file an income tax return (kakutei shinkoku) and pay the tax on his/her own. Failure to do so can lead to tax problems (e.g., additional taxes due to undeclared income), so please be careful. In the real estate leasing business, you are also responsible for complying with various laws related to lease contracts and building management (Land and Building Lease Law, Building Standards Law, Fire Service Law, etc.). Illegal alterations to the property or failure to fulfill contractual obligations (e.g., statutory inspections of facilities and settlement of security deposits) can lead to major problems, so it is important to operate with an awareness of compliance. Furthermore, in some professions, such as public servants, there are cases in which side jobs themselves are strictly restricted by law. It is recommended that you confirm in advance whether real estate investment is allowed in your position.

As mentioned above, there are various points to consider when starting a real estate investment as a side business. By understanding these points and taking measures in advance, you will be able to enjoy the benefits while avoiding any negative impact on your main business or major mistakes.

Significance and Future Prospects of Commercializing Real Estate Investment as a Serious Business

So, what is the significance of expanding real estate investment from a side business to a full-fledged business?

First, there is the possibility of maximizing profits by taking advantage of economies of scale. In the scope of a side business, investments are limited to small-scale investments, but by taking on a full-fledged business venture, it is possible to manage multiple properties and invest in larger-scale real estate. The more properties you have, the more risk you can diversify, and the easier it will be to deal with fluctuations in income per property. Operational know-how will also be accumulated, and efficient management will be realized as the scale of the business expands. In addition, by incorporating and operating a real estate business, you may be able to enjoy various advantages that you could not obtain as an individual. For example, as a corporation, you can expand your line of credit, making it easier to acquire large properties; you can save on taxes by expanding the range of expenses that can be recorded; you can carry over losses and offset them over time; and you can smoothly pass on your assets at the time of inheritance. In some cases, incorporation can reduce the tax burden by applying the corporate tax rate when the size of the company exceeds a certain level and the individual income tax burden becomes too large. However, incorporation requires establishment and maintenance costs, and as mentioned above, there is the issue of sideline regulations while you are still a company employee, so timing and judgment are important. In general, it is advisable to consider incorporation when after-tax profits exceed the cost of incorporation or when you decide to shift from a side business to your main business.

Second, it is also significant from the perspective of self-fulfillment and career. Real estate investment as a side business is just that, a side business, but by making it your main business and turning it into a business, you begin to take on entrepreneurial challenges. You will experience the real thrill of growing your business at your own discretion, and you will change your mindset from simply earning a side income to becoming a "lord of the land. Some people find satisfaction in the real estate business itself: purchasing quality properties, increasing their value, and providing tenants with a comfortable home. By putting your mind to it, you may find self-fulfillment andsocial contribution that go beyond simply earning money.

So, what are the prospects for commercializing real estate investment? Looking at Japan, some people are concerned about the future of the real estate market due to the declining population caused by the falling birthrate and aging population. On the other hand, however, the need for housing itself will not disappear, and demand for housing remains strong, especially in urban areas. New business opportunities are emerging, such as renovation of aging housing, utilization of vacant houses, provision of properties that suit new lifestyles (e.g., improved floor plans for teleworkers, shared houses, housing for the elderly, etc.), and even the use of real estate tech (technology). In addition, from a macroeconomic perspective, real estate, as a real asset, has the advantage of easily maintaining and improving its asset value amidst a continuing inflationary trend. This means that long-term real estate holdings can contribute to wealth preservation. With proper property selection and management, the real estate business has a good chance of overcoming economic fluctuations and building a stable revenue base.

However, once commercialized, the business will be more directly affected by competition and economic fluctuations. The real estate market goes through cycles, so it is necessary to expect not only phases of expansion but also phases of stagnation and decline. However, the real estate business remains a promising area if it is managed from a medium- to long-term perspective with such phases in mind. This is because the business deals with "housing," which is a corner of food, clothing, and shelter, and thus continues to be indispensable to people's lives.

In short, even real estate investment, which started as a side business, can be greatly developed as your own business if you put your mind to it. This will be a meaningful challenge not only in terms of financial wealth, but also in terms of personal growth and contribution to society.

The Importance of Integrity and Continuous Learning

Finally, it is important to emphasize that whether real estate investment is a sideline or a core business, integrity andcontinuous learning are the keys to success.

Trust is extremely important in the real estate business. By building trust with the real estate companies that broker properties, the financial institutions that lend funds, and the tenants who actually rent rooms, real estate investment can be managed stably for the first time. On the other hand, once trust is undermined, it can lead to major problems. It is important to be honest and courteous on a daily basis, and to operate in a fair and transparent manner. For example, it is important to comply with the terms of the contract with tenants (e.g., promptly address any defective equipment, properly settle security deposits, etc.), as well as to pay respect to all people involved in the business, such as by being considerate of neighbors and being grateful to subcontractors. As the saying goes, "Trust is not built overnight; it is built up day by day." By keeping even the smallest of promises and being diligent in each and every transaction, you will eventually earn the trust of those around you, which is an irreplaceable asset.

It is also essential to have an attitude of continuous learning. The real estate market is constantly moving, and laws and taxation systems are subject to change. For example, over a period of several years, factors that may affect the success or failure of an investment include changes in popular areas, fluctuations in financing rates, and changes in rental demand trends (e.g., changes in floor plan needs due to the spread of teleworking). In order to respond to such changes, it is important to keep up with information gathering and study. In addition to reading real estate news and specialist magazines, it is a good idea to broaden your knowledge by listening to successful investors and attending real estate seminars. Real estate investment is a field that requires specialized knowledge, so don't rely solely on self-study. Fortunately, there are more and more online learning resources and opportunities for investors to exchange information with each other. If you take advantage of these opportunities and continue to learn, you will be more flexible and adaptable to changes in the market and the system. Continuous learning is also directly related to risk management. If you are unaware of the latest legal changes, you run the risk of committing violations, and if you misread market trends, you will not be able to properly respond to situations such as vacancies or falling prices. On the other hand, a well-studied investor always has multiple options and can calmly respond in a pinch.

Ultimately, those who work steadily with integrity andambition achieve long-term success in the side business of real estate investing. Do not try to make easy money in a short period of time, do not jump at easy profit opportunities, and steadily accumulate experience and knowledge. It may seem like a roundabout way, but in fact it is a shortcut to success. Real estate investment is a suitable side business, and with hard work you can achieve great results. However, it requires a down-to-earth attitude. Please remember to be sincere and keep learning, and take on the challenge of real estate investment as a side business. We sincerely hope that your side business will be fruitful and lead to future prosperity.