Why do wealthy people choose to invest in single-unit apartments?

Investing in an entire apartment building has clear reasons why it is supported by high-net-worth individuals. The main points are listed below.

• Stable cash flow and diversification effect: An apartment building has multiple rooms, so rental income is diversified. Even if some rooms are vacant, income from other rooms continues to flow in, so the risk of zero income due to vacancies is low, and stable rental income can be obtained. Residential demand is less susceptible to extreme economic fluctuations, as it is supported by people's fundamental need for housing, making it less prone to sharp fluctuations like stocks.
• High profitability and leverage effect: A single-building apartment allows you to earn rent from multiple units with a single investment, resulting in higher total income and the potential for high returns. In particular, used apartments in rural areas or suburbs tend to have higher surface yields than urban one-bedroom apartments, making them an efficient investment option for affluent individuals with sufficient capital. Additionally, access to bank loans is another advantage for affluent individuals. By combining self-funded capital with loans to leverage, you can manage large assets with minimal self-funded capital and accelerate asset growth. However, excessive borrowing increases the risk of reduced income during periods of rising interest rates, so careful planning is necessary when utilizing loans.
• Achieve large-scale asset formation with minimal effort: When aiming for assets worth hundreds of millions of yen, acquiring several single-building properties is more efficient than purchasing dozens of one-room units, as it reduces the number of transactions. Even when purchasing a single building, the processes such as sales contracts and loan procedures are similar to those for condominium units, so for the same asset size, a single-building property requires less effort. For example, high-income individuals earning over 12 million yen annually with financial assets of 30 million yen or more tend to choose single-building investments from the start rather than gradually increasing their holdings of condominium units, as this is more time-efficient and successful investors often opt for this approach.
• Owners can enhance asset value at their discretion: Unlike condominiums, owners of single-building apartments can manage the entire building according to their own judgment. For example, they can decide on rent settings, renovations, improvements to common facilities, and the timing of major repairs at their discretion. By implementing measures to increase occupancy rates or investing in rent increases, owners can enhance the asset value and profitability of the property over the medium to long term. This is an area where decisions are made by the homeowners' association in condominiums, making it a unique advantage of single-building ownership.

For these reasons, it is often said that “those who are making money tend to invest in single-building apartments.” For high-income, busy professionals, single-building apartment investment is an attractive option that allows them to enjoy stable income and tax benefits while minimizing the hassle.

Advantages of single-building apartments compared to other real estate investments

Real estate investment includes various forms such as single-family apartment buildings, condominium unit investments, and single-family home rentals. Why do affluent individuals choose single-family apartment buildings over these options? Let's examine the advantages of single-family apartment buildings compared to other investment methods.

Comparison with condominium unit investments

• Differences in yield: Generally, the investment yield is higher for single-family apartment buildings. If the location and age are comparable, single-family homes tend to be valued more affordably due to the larger total investment amount and limited number of buyers, resulting in higher yields. On the other hand, condominium units face intense competition, especially in popular areas, leading to compressed yields. Additionally, the risk of vacancy is more direct compared to single-family homes, as income ceases entirely when units are vacant.
• Differences in liquidity (ease of sale): The ability to establish an exit strategy for sale is an advantage of condominium units. With a larger pool of potential buyers and easier access to financing, they tend to be more liquid and easier to convert into cash when desired. Single-family apartments, however, have lower liquidity due to their higher price tags and limited pool of buyers. However, it is important to note that if the property cannot be sold for a price lower than the remaining loan balance, it cannot be sold even as a condominium unit. This is particularly true for newly constructed one-bedroom units purchased with a full loan, which may fall into a situation where they cannot be sold due to the remaining loan balance exceeding the property value, known as “unsellable.” Therefore, careful property selection is essential from the outset to ensure an exit strategy.
• Management and operational discretion: In condominium ownership, decisions regarding the management of common areas and building repairs are delegated to the homeowners' association. With a single-building ownership, you can control the entire building's operations at your discretion, allowing you to freely implement strategies to attract tenants and enhance value. For example, you can update outdated facilities at your discretion to enhance appeal or implement flexible measures to address vacancies. This is a strength not found in unit investments, and the ability to create opportunities for revenue improvement is a key advantage of single-building properties.
• Efficiency in scaling up: In terms of efficiency in expanding asset scale, single-building apartments have the upper hand. Condominium units can only be increased one unit at a time, and with the same investment amount, the drawback is that there are many transactions and it is time-consuming. With a single-building property, you can increase the number of units in one purchase, allowing even busy affluent individuals to efficiently expand their portfolio.
• Tax savings through depreciation: In terms of tax savings, single-building apartments are more advantageous due to their higher proportion of wooden structures. Wooden buildings (with a statutory useful life of 22 years) can be depreciated over a shorter period, resulting in larger annual expense deductions and higher income compression effects. On the other hand, condominiums are mostly reinforced concrete structures with a useful life of 47 years, leading to smaller annual depreciation amounts and limited tax savings. Therefore, for high-income individuals, single-family apartments are more suitable for income tax planning.

In summary, if you have the financial strength to pass loan reviews and are looking for long-term investment, single-family apartments offer greater overall benefits. However, the convenience of condominium investments, such as starting with a small amount and being able to sell quickly, is also a fact, so the choice should be made based on your asset size and experience.

Comparison with single-family home investments

In recent years, a method of purchasing inexpensive used single-family homes (so-called “run-down single-family homes”) in rural areas, renovating them, and renting them out at high yields has become popular among individual investors. The main differences from single-building apartments are the investment scale and the effort required.

• Yield and profitability: Single-family home rentals can achieve astonishingly high yields depending on the property. If you can purchase an old single-family home in a rural area at a low price and renovate it, you may even achieve a surface yield of over 50%, making the upper limit of yields higher than that of single-unit apartments. While there are certainly single-family homes with yields exceeding 20%, the number of such properties is far greater than that of apartments. However, such properties are highly competitive, and it is not easy for beginners to find them. Additionally, the rental income per unit is small, so even with a high yield, the annual profit is often limited to several hundred thousand dollars. On the other hand, single-family apartments have more units, resulting in larger absolute cash flow, making it easier to achieve the return levels sought by high-net-worth investors.
• Required effort and operational difficulty: Single-family home investment requires a significant amount of effort, as many aspects—from property search to renovation arrangements—must be handled independently. This makes it more akin to a business than real estate investment. The lack of a developed secondary market means that relying on brokers may not yield good properties, and construction costs can be high for smaller projects, making it difficult to achieve a balanced budget without taking proactive steps. These factors present a high barrier to entry for beginners. In contrast, single-building apartments are easier to obtain information about from real estate companies and can be more easily outsourced for management, making them more accessible for those with busy main careers. In fact, apartment management is often more suitable for high-income company employees and business owners than single-family homes.
• Liquidity (ease of sale): Single-family rentals can be sold not only as investment properties but also as primary residences, making them relatively easier to find buyers. They also have a lower price range, making them easier to liquidate, and generally, single-family homes have higher liquidity. However, due to the immaturity of the market, there are many cases where “high liquidity coincides with high yields,” and there are unique opportunities for single-family homes where there is demand and good yields. Single-building apartments can also be sold relatively easily depending on their location, but buyers are generally limited to investors, so they are slightly less liquid than single-family homes. However, as mentioned earlier, single-building apartments are often held long-term for inheritance planning purposes, so liquidity may not be a top priority in such cases.
• Differences in tax benefits: Tax benefits from depreciation and other factors are more advantageous for single-building apartments due to their larger property prices. To achieve the same tax benefits with single-family homes, you would need to increase the number of properties, which becomes inefficient when considering the procedures and management burdens for each transaction. For high-income individuals, who can maximize the benefits of depreciation, it is more advantageous to deduct a lump sum as expenses through a single-building property.

Based on the above comparison, single-family home investment is suitable for those who can treat real estate investment as a hobby or business, while single-building apartment investment is suitable for those who want to pursue asset management effects even if they are busy. For affluent individuals with sufficient capital who want to advance their investments efficiently, single-building apartments are likely to be a better fit.

Advantages and Disadvantages of Single-Building Apartment Investment

Single-building apartment investment has many advantages, but of course, there are also risks and disadvantages to consider. Here, we will summarize the main advantages and disadvantages.

Advantages (Pros)

• Stable and substantial rental income: As mentioned earlier, single-building properties generate stable cash flow from multiple tenants. Even if one unit is vacant, rental income from other units continues, so the risk of zero revenue is low, which is a significant reassurance. Additionally, the total monthly rental income increases proportionally to the number of units, making it easier to achieve a substantial passive income.
• High profitability and potential for asset value appreciation: Purchasing an entire building is an investment that offers the potential for high returns, and with proper management, it is possible to further increase the return on investment. By actively managing and operating the entire property, owners can improve occupancy rates and increase rent, thereby enhancing the asset's value. For example, by renovating vacant units or adding amenities to enhance their appeal, owners can strategically increase long-term returns.
• Tax savings and inheritance planning: High-income earners can benefit significantly from tax savings through depreciation. Single-building apartments have a high proportion of wooden structures, allowing for significant annual depreciation expenses, which can be used to offset real estate income and reduce income tax and resident tax by offsetting gains and losses with other income. This effect is particularly significant for high-income earners subject to progressive tax rates. Additionally, as mentioned earlier, the inheritance tax appraisal value of real estate is significantly lower than the market value, allowing for lower inheritance tax liabilities compared to holding cash. In this way, single-family apartments contribute to asset preservation not only in terms of income but also in terms of tax burdens.
• Inflation-resistant tangible assets: Real estate is a tangible asset that retains its value even during inflation. As prices and construction costs rise, rental income and property values tend to increase, offering an inflation hedge effect. Even when financial assets lose value due to inflation, rental income tends to maintain its real value relatively well, making real estate an attractive option for high-net-worth individuals to hold a portion of their assets.
• Ease of scaling up: Single-building properties also offer the advantage of efficiently scaling up asset size. For example, if you have 100 million yen to invest, purchasing a single building for 100 million yen is simpler than buying 10 units of 10 million yen each. Owning multiple buildings further increases revenue streams, making this an advantageous option for affluent individuals seeking to build assets quickly due to time constraints.
• Support from specialized professionals: Another advantage of single-building investments is the ease of accessing support from real estate companies, property management firms, and other specialized professionals throughout the process, from property search to management. Many companies specialize in introducing and consulting on single-building income properties tailored to high-net-worth individuals, enabling investors to delegate operational details to professionals. The ability to manage assets efficiently even with a busy schedule is likely another reason why successful investors leverage this approach.

Disadvantages (Drawbacks/Risks)

• High initial costs and investment amounts: Single-building apartments can cost tens of millions to hundreds of millions of yen, resulting in a significant initial investment. Even affluent individuals who can secure financing from financial institutions need a substantial amount of cash for the down payment and various fees. Additionally, at the time of purchase, there are initial costs of several million yen, including real estate acquisition tax, registration fees, and brokerage commissions, in addition to the property price. Without a solid financial plan and careful management of loan amounts, there is a risk of becoming financially constrained by repayment burdens.
• Time-consuming management and maintenance: Owners of single-building properties are responsible for managing the entire property. Management tasks can be diverse, including cleaning common areas, inspecting facilities, and handling tenant inquiries. Even if management is outsourced to a company, the owner remains responsible for final decisions and costs, and the complexity increases with the number of tenants. As the building ages, the number of areas requiring repairs increases, making it essential to prepare for the risk of deterioration. Generally, major repairs such as exterior painting and roof repairs become necessary around 12 to 15 years after construction, requiring expenses of several hundred thousand dollars. It is important to set aside a portion of the monthly rent for maintenance and conduct repairs in a planned manner.
• Vacancy risk and income fluctuations: The more units you have, the greater the difference in income between when the property is fully occupied and when there are vacancies. For example, if two out of ten units are vacant, this results in a 20% reduction in income, which can significantly reduce the net income depending on the balance with loan repayments. It is also important to note that a decline in rental demand in the area can affect the entire building. Since assets are concentrated in specific areas, selecting the wrong location carries the risk of high vacancy rates and rental income falling below expectations. To avoid this, thorough market research before purchase and proactive vacancy prevention measures after purchase are essential.
• Low liquidity and difficulty in selling: Single-building properties have high transaction prices, limiting the pool of individual investors, and it is difficult to sell quickly and convert to cash at the desired timing. Suburban properties, in particular, tend to take longer to find buyers. Additionally, since the buyer must have high creditworthiness to assume the loan, exit strategies must be carefully considered. The inability to respond to sudden cash needs is a unique risk of real estate investment compared to liquid assets such as cash or listed stocks. To make the property easier to sell, it is important to maintain the property in good condition and keep occupancy rates high to highlight its asset value.
• Financial risks (borrowing interest rates and credit risks): Since many single-building investments require loans, there is interest rate risk. If you have a variable-rate loan, an increase in market interest rates could raise repayment amounts and put pressure on profits. Additionally, if the buyer's creditworthiness deteriorates, it may become difficult to obtain additional financing or refinance the loan. Fortunately, in the current low-interest-rate environment, this is unlikely to become a major issue. However, it is advisable to consider a repayment plan with sufficient flexibility and measures to address interest rate increases (such as switching to a fixed-rate loan).

As such, single-building apartment investments have both advantages and disadvantages. The key is to fully understand these factors and implement appropriate strategies while managing the investment. By implementing proper risk management and a well-planned asset management strategy, you can minimize disadvantages while maximizing advantages, which is the key to success.

Common mistakes made by beginners and how to avoid them

Even affluent individuals with ample assets may make unexpected mistakes if they are new to real estate investment. Here, we introduce typical mistakes made by beginners in single-building apartment investments and how to avoid them.

• Don't jump in based on surface yield alone: Beginners tend to be attracted by high yield figures in property advertisements, but it is essential not to judge based on surface yield alone. For example, even if a suburban apartment building is advertised with an “expected yield of 15%,” the actual net income may be significantly reduced when vacancy periods and maintenance costs are factored in. To address this, calculate the net yield (net return) by factoring in vacancy rates and expenses, and conduct a detailed cash flow simulation. The rental income estimates in property documents may also be overly optimistic, so research the local market rates to verify their validity. Additionally, be skeptical of properties with extremely high yields, as they likely have corresponding reasons (such as poor location or deterioration), and conduct a thorough investigation.
• Do not underestimate the importance of location: Purchasing a property in an area with low demand simply because it offers a high yield is a common mistake made by beginners. In rental property management, it is no exaggeration to say that location selection is the most important factor. Areas with significant population decline, extreme distance from the nearest station, or lack of nearby universities or companies to support demand are at higher risk of vacancies. As a precaution, it is essential to thoroughly research the demographic trends, rental demand, and occupancy rates of competing properties in the surrounding area before purchasing. Utilize municipal statistics and real estate portal sites to determine whether the area is likely to maintain rental demand in the future and whether there is excessive competition. If there are concerns about the location, it may be necessary to make the difficult decision to pass on the property, even if it is otherwise attractive.
• Overlooking maintenance costs and repair plans: Real estate deteriorates over time, and repair costs are inevitable. Beginners often overlook future repair costs in their income and expense plans. Depending on the age of the property, repairs such as air conditioner and water heater replacements, exterior painting, roof waterproofing, and plumbing updates may require hundreds of thousands of dollars in construction costs. If you make a overly optimistic estimate such as “rental income – loan repayment = profit” without considering these factors, you may face a cash shortfall due to major repairs in the future. The solution is to set aside a maintenance reserve fund from monthly cash flow and establish a long-term maintenance plan. Before purchasing, have a professional building inspection (inspection) conducted to identify areas that may require repairs in the near future and estimate the associated costs. Additionally, it is crucial to factor in vacancy risks and conduct a cash flow simulation based on a certain vacancy rate rather than assuming full occupancy.
• Overborrowing and inadequate funding plans: While real estate investment loans offer leverage, excessive borrowing is risky. A common mistake made by beginners is to put all their own funds into the down payment and take out a full loan, leaving no contingency funds. In the event of unexpected vacancies or interest rate hikes that worsen cash flow, insufficient funds can lead to repayment difficulties. As a countermeasure, it is important to secure sufficient equity (approximately 20% of the property price plus contingency funds) and limit borrowing to a manageable amount. Additionally, taking out loans for multiple properties in quick succession can lead to debt overload, so when purchasing new properties, consider the balance with existing loans. Maintaining a healthy financial status will also make it easier to secure additional financing in the future.
• Mistakes due to lack of knowledge: Real estate investment requires extensive knowledge of law, taxation, and financing. Beginners may proceed without sufficient knowledge, relying on agents, and later discover unfavorable contract terms. For example, overlooking clauses regarding rent reduction risks in sublease agreements, or signing loan contracts without understanding the interest rate type. The solution is for investors to adopt a mindset of continuous learning and seek advice from trusted experts. Attend real estate investment seminars, read books, and ask real estate companies or tax accountants any questions you may have. Delegate tasks that can be entrusted to a management company and focus on strategic decisions. It is wise to manage risks in collaboration with professionals.
• The misconception of “starting small”: Some beginners hesitate to invest in high-priced single-family homes and think, “Let's start with a small condominium unit.” However, as mentioned earlier, condominium unit investments have poor cash flow and are disadvantageous in loan evaluations, so even if you try to switch to a single-family home later, you may fail the loan review. In reality, there are cases where investors who purchased low-yield condominium units with full financing ended up having their rental income consumed by loan repayments, leading to the conclusion that their rental business was not viable, and they were unable to secure new financing. Additionally, condominium units may become difficult to sell due to negative equity, leaving investors unable to take action. For those with the financial means to purchase, choosing a single-building apartment from the start is a healthier path to asset growth.

To avoid such failures, thorough preparation and planning are essential. Taking the time to study the market and properties, consulting with experts, and conducting simulations to anticipate various scenarios are cautious steps that can lead to success. If you can manage your first single-building apartment property steadily, it is entirely possible to leverage your wealth to pursue further investment opportunities.

How to Start and Strategize Single-Building Apartment Investments

Finally, we will outline the basic steps and strategies for affluent beginners to start investing in single-unit apartments. The following steps are recommended to minimize the risk of failure, even for first-time investors.

1. Clarify your investment objectives and goals: First, clearly define why you want to invest in real estate. Is your goal short-term rental income, long-term asset accumulation, tax savings, or estate planning? Your goals will determine the appropriate property type and management strategy, so it is important to set clear objectives. At the same time, consider your risk tolerance. Determine the amount of loss you can withstand and calculate a reasonable investment budget based on your available capital and borrowing capacity. Even for high-net-worth individuals, it is important to consider risk scenarios to ensure sound management.
2. Market Research and Property Selection: The key to successful investment is selecting the right area. First, identify regions with strong domestic rental demand. Generally, areas with growing populations, such as urban centers, regions with universities and companies attracting young people, and areas undergoing redevelopment with future potential are promising targets. Specifically, properties near major city stations, around universities and hospitals, and industrial parks or company towns tend to have stable demand. Once you have narrowed down the area, gather information on income-generating properties for sale in that area. Use real estate company income-generating property websites or bulk inquiry services to list properties that meet your criteria, such as used apartments (owner-change properties). When selecting properties, in addition to basic indicators such as age, structure, floor plan, and yield, also check whether the property has facilities that meet current needs. For example, verify if the property has separate bathrooms and toilets or free internet access, which are features preferred by tenants. Even if the property is old, consider renovation or remodeling costs when making an investment decision.
3. Create a cash flow simulation: Once you have found a candidate property, be sure to create a detailed cash flow plan before purchasing. Real estate companies may be able to help you with the calculations. Estimate realistic income by subtracting the expected vacancy rate and delinquency rate from the annual rental income (assuming full occupancy). Next, calculate maintenance costs. We calculate all expenses, including property taxes, fire insurance premiums, management fees (approximately 5% of rent), future repair reserves, and loan repayment amounts. Based on these figures, we confirm whether the net cash flow is positive and whether the return meets your target level. We focus not only on the surface yield but also on the return on invested capital (ROI) after loan repayment. If the simulation is too optimistic, you may end up with lower-than-expected returns once the property is in operation. It is better to err on the side of caution and verify the cash flow under multiple scenarios.
4. Selection and Approach of Lenders: If you plan to finance a significant portion of the purchase price through loans, selecting the right financial institution is critical. Start by consulting with your main bank or banks that are proactive in real estate lending to determine the maximum loan amount and terms you can secure.
5. For high-net-worth individuals, multiple banks such as megabanks, regional banks, and credit unions may compete, so compare interest rates and loan terms to select the financial institution offering the most favorable conditions. Regional banks and credit unions may offer flexible review processes depending on the case. In such cases, having at least 10–20% (preferably 30%) of the property price as equity can strengthen your negotiation position. Provide the financial institution with property documents, income and expenditure plans, and your own financial documents (income verification and asset status) to secure a positive lending stance. The ability to secure favorable loan terms is a strength of high-net-worth individuals with high income and a solid asset background. However, there are many specialized aspects such as interest rate negotiations and collateral evaluations, so it is advisable to proceed with the cooperation of a real estate company's loan specialist for peace of mind.
6. Detailed property investigation and purchase agreement: Once you have decided on a property to purchase, you will proceed with the purchase agreement process after submitting a purchase offer. Before signing the agreement, you will receive an explanation of important matters and thoroughly verify the property's legal status (ownership and mortgage conditions), legal restrictions, the condition of facilities, past maintenance history, and property boundaries. If there are any unclear points, ask questions until you are satisfied, and conduct additional investigations (such as building inspections or boundary confirmations) if necessary.
7. If a real estate company is acting as an intermediary, they may point out risks from the buyer's perspective, but it is essential to thoroughly review the contract and important matters explanation document to protect your interests. At the time of signing the contract, we will check important matters such as the purchase price, down payment, payment schedule, existence of loan terms, and handling of warranty for defects (liability for non-conformity). Especially for used apartments, it is common that the property is handed over “as-is,” and any defects discovered later may not be compensated, so it is important to thoroughly understand the contract terms. If there are no issues, we will sign the purchase contract with the seller, pay the down payment, and the contract will be finalized.
8. Property handover and preparation for operation: After the purchase contract is signed, once the financing is in place, the process moves to settlement and handover. The remaining purchase price is paid, and the ownership transfer registration is completed, after which you receive the keys to the property. At the time of handover, confirm that the property is in the condition specified in the contract, check for any damage to the facilities or common areas, and verify that all drawings and documents are complete. Simultaneously, begin establishing the property management system.
9. Before property handover, select a reliable management company and enter into a property management contract. The management company will handle tenant recruitment and screening, contract procedures, rent collection, complaint handling, and arrangements for cleaning and inspections, making them a valuable ally for busy owners. Generally, property management fees are around 5% of rental income, but it is important to clarify what is included in the fee (e.g., tenant management only or building management as well) before signing the contract.
10. For high-net-worth individuals, you may negotiate for more comprehensive support by entrusting multiple properties to the management company. Ensure that the management company has a system in place for regular inspections and reporting of issues, allowing you to monitor the overall situation as the owner and make necessary decisions.
11. Long-term management plan and improvements: After operations begin, regularly check whether revenues are increasing as planned. If there are unexpected vacancies or expenses, analyze the causes and take measures early on. For example, if vacancies cannot be filled, consider revising rent settings or recruitment conditions, or investing in interior upgrades. It is also essential to implement repairs in a planned manner to maintain and enhance asset value. Additionally, we will monitor changes in interest rates and real estate market conditions and consider refinancing or selling as needed. By continuously striving to enhance the property's profitability from a management perspective, we can create a positive cycle where asset value increases over time, leading to opportunities for further investments.

The above outlines the basic approach and process for starting a single-building apartment investment. Especially for high-net-worth individuals, there is an opportunity to secure promising properties by leveraging their financial strength and creditworthiness. Actively incorporate expert insights and begin strategic management. If you successfully secure your first single-family home, you can enjoy stable cash flow and tax benefits while also exploring opportunities for further real estate investments or other asset management strategies. Partner with a reliable advisor and aim for steady wealth growth and preservation through single-family home investment.