[Archive Edition] A Complete Guide to Getting Started in Real Estate Investment for Beginners | How to Avoid Failure

Preserving and steadily increasing assets—that is the essence of real estate investment for the affluent. However, if you choose the wrong exit strategy, there is a possibility that you will incur significant losses. In this article, we will cover the “key points for getting started without failure” for wealthy individuals who wish to manage their assets, and systematically explain the process from setting goals to property management. We will also provide the best approach for increasing asset value over the long term, incorporating proposals based on the practical experience and unique network cultivated by INA&Associates Inc.

1. Benefits and background of real estate investment for affluent individuals

Real estate investment is a powerful asset management option for affluent individuals. It is generally said that affluent individuals tend to actively engage in real estate investment. This is due to the following benefits.

• High stability of asset value: Real estate is not subject to the same price fluctuations as stocks and is considered to have a lower risk of sudden devaluation. For example, during the 2008 financial crisis, while stock prices plummeted by more than half, residential real estate rents declined by an average of approximately 5%. As such, real estate is categorized as a “middle-risk, middle-return asset,” making it a reliable asset for high-net-worth individuals with significant cash holdings.
• Stable income gains and capital gains: Real estate investment provides monthly rental income as income gains, and capital gains can also be targeted when selling the property in the future. While stock investment also offers dividends and capital gains, real estate has smaller fluctuations in rent and asset value, making it appealing to the wealthy for its ability to pursue two types of gains with stability.
• Portfolio diversification: Wealthy individuals often already own various assets such as stocks and bonds, and incorporating real estate into their portfolio allows them to diversify their investments across different asset classes. As the old saying goes, “Don't put all your eggs in one basket.” Adding real estate, a tangible asset, to a portfolio helps diversify the overall risk of the portfolio.
• Inflation hedge: Real estate is a tangible asset and has the advantage of being resistant to inflation. Even when prices rise, real estate values and rents tend to increase, potentially offsetting the erosion of currency value caused by inflation.
• Tax benefits: A significant advantage for the affluent is the tax savings effect. By deducting depreciation expenses from real estate investments and offsetting them against other income, it is possible to reduce income tax and resident tax burdens in some cases. Especially for high-income individuals, who face significant annual tax burdens, the tax benefits of depreciation from rental operations and inheritance tax planning through reducing the assessed value of real estate are significant advantages that should not be overlooked. However, tax laws may change, and recent developments include new rules to revise the inheritance tax assessment of high-value apartments (aimed at curbing so-called “apartment tax avoidance”) set to take effect in 2024. It is crucial to stay informed about the latest regulations.
• Favorable financing terms and leverage effect: Wealthy individuals with strong financial resources tend to have higher creditworthiness with financial institutions and are more likely to secure loans on favorable terms. By effectively utilizing bank loans in addition to their own funds, they can leverage (the principle of a lever) even large investment projects and enhance their return on equity. The ability to expand assets while maintaining cash on hand is one of the major reasons why wealthy individuals engage in real estate investment.
• Access to high-quality investment information: It is said that wealthy individuals have easier access to promising off-market property information through real estate agents and personal networks. Having financial resources increases the chances of being introduced to competitive properties, allowing them to start their investments from a advantageous position.

As outlined above, the reasons why the affluent begin real estate investment include stable asset formation, tax planning, and inheritance strategies, as well as unique advantages not found in other asset classes. The affluent can start real estate investment under favorable conditions and efficiently grow their assets, making real estate an attractive investment option for them.

2. Basic Steps for Beginners in Real Estate Investment

Even if you are attracted to the benefits of real estate investment, beginners may often feel unsure about where to start. Here, we will explain the basic steps that beginners should take in real estate investment in a step-by-step manner. By thoroughly understanding the process, you can reduce anxiety and take your first step with confidence.

2-1. Goal Setting and Preliminary Learning

First, start by clearly defining why you want to start real estate investing. Everyone has their own motivations, such as building retirement funds, increasing assets, or securing a stable income. These motivations will determine the appropriate investment methods and property types. For example, the strategy will differ depending on whether you want “a stable monthly income” or “long-term appreciation of asset value.”

It is also important to assess your risk tolerance in line with your goals. Do you want to take on some risk to pursue higher returns, or prioritize stability and avoid significant losses? This will influence the type of property you choose. Those with a higher risk tolerance may consider aggressive investments such as single-family apartments or high-yield properties in rural areas, while those with a lower risk tolerance may opt for more conservative options like condominium units in urban areas.

Once you have set your goals, the next step is to learn the basics of real estate investment. Gather information from books, specialized websites, and seminars on real estate investment to study the mechanisms, terminology, and risk factors. At a minimum, you should understand how to calculate yields (the difference between surface yield and net yield), the structure of loans, and the legal aspects of rental management (such as lease agreements and the basics of the Land and Building Lease Act). Building knowledge serves as a form of self-defense to avoid being taken advantage of. This is because beginners who rely solely on agents without any knowledge run the risk of being sold unfavorable properties or entering into incorrect contracts.

2-2. Funding Plan and Loan Preparation

Next, establish your investment budget and financial plan. Determine how much capital you have available and how much additional financing you can obtain from financial institutions. While you may see advertisements claiming that real estate investment can be started with zero capital, even affluent individuals should avoid relying solely on full financing. It is important to balance the proportion of your own capital and the amount borrowed, and to establish a repayment plan that is manageable.

Specifically, first calculate how much capital you can allocate to investment and how much you can afford to repay each month. Then consult with a real estate company or bank and obtain a pre-approval for financing. Once you have an estimate of the loan amount you can obtain from a financial institution, you will have a clearer idea of the price range of properties you can purchase.

Simulate various loan conditions, such as the interest rate type (fixed or variable), repayment period, and repayment method (equal principal and interest or equal principal). Consider interest rate risk and conduct a stress test (to verify that repayments can be made even if interest rates rise in the future) for peace of mind. Additionally, one advantage of being affluent is the ability to secure long-term loans at low interest rates, so it is advisable to approach multiple financial institutions to find the best terms.

2-3. Selecting investment properties and conducting on-site surveys

Once you have a rough idea of your budget, it's time to start looking for properties. First, browse properties listed on real estate investment websites and magazines to get a sense of the price range and average yield. At the same time, narrow down the types of properties that align with your investment strategy. For example,

• Should you own several condominium units in the city center or manage a single-building apartment complex in a regional area?
• aim for low-maintenance management with new construction properties or target high yields with used properties
• residential or commercial properties, domestic or overseas, etc.

Each option has its own advantages and considerations, so choose the one that aligns with your goals. For beginners, it is common to start with domestic residential properties (apartments or houses) as they are easier to secure financing for.

While property information can be extensively gathered online, high-quality properties often remain off-market and are transacted through non-public listings. Therefore, it is effective to communicate your preferences to a reputable real estate company or agent and receive property recommendations.

Once you find a property of interest, it is essential to conduct on-site inspections (property viewings) and due diligence. Visit the site to assess the surrounding environment (distance from the station, availability of commercial facilities, schools, and hospitals, and neighborhood safety), the condition of the building (maintenance of common areas, building structure, and age), and the condition of the interior (age of facilities and need for renovation). Additionally, it is important to check legal restrictions at the local government office and verify disaster risks through seismic resistance assessments and hazard maps.

At this stage, you should also conduct a detailed cash flow simulation. Research the rental market rate for the property, calculate the expected rent with full occupancy, and then calculate the revenue under various scenarios, such as a vacancy rate of X% or a rent decrease of X%. Estimate annual expenses such as property taxes, management fees, maintenance costs, and fire insurance premiums, and check whether the property would remain profitable even under the worst-case scenario. Such thorough simulations are essential to avoid failure.

2-4. How to proceed with the purchase contract

Once you have decided on the property you wish to purchase, submit a purchase application to the seller (or broker) and begin negotiations on the price and conditions. Price negotiations and adjustments to contract terms are often handled by professional brokers, but in the case of high-end properties targeting affluent buyers, direct negotiations with the seller may occur. In any case, it is advisable to proceed with the support of a real estate company.

Once the terms are finalized, the parties proceed to the important matters explanation and then to the signing of the purchase and sale contract. The contract contains legal terminology and can be difficult to understand, so it is important to review every detail to prevent future disputes. Particular attention should be paid to key points such as property rights (existence of mortgages, etc.) and property conditions (hidden defects, confirmation of disclosed matters). If there are any unclear points, it is important to ask a professional for clarification.

A reliable company will have a specialized department to review contract-related procedures and ensure safety. For example, at INA & Associates, a specialized investigation team thoroughly investigates property rights and defects, and contract drafting and review are handled by specialized staff to protect customers' valuable assets. Having a partner who thoroughly manages risks during the contract stage can provide peace of mind.

At the time of contract signing, a deposit payment is required, followed by the final payment, property handover, and transfer of ownership on the settlement date. Real estate transactions involve large amounts of money and are legally complex, so it is important to proceed with caution and ensure all procedures are completed properly.

2-5. Post-Purchase Property Management

After receiving the property and becoming the owner, you enter the rental management (property management) phase. This involves a wide range of tasks, including tenant recruitment, signing lease agreements with tenants, monthly rent collection, building maintenance, and handling property restoration upon tenant move-out.

For beginners, it is common to outsource property management to a specialized management company. Management fees typically amount to a few percent of the monthly rent, but they cover tenant communication, 24/7 emergency response, complaint handling, and rent collection, making it a valuable service for busy high-net-worth individuals. When selecting a management company, key factors to consider include their management track record, tenant recruitment capabilities (ability to quickly find tenants during vacancies), clarity of reporting procedures, and the reasonableness of fees.

Regular building inspections and maintenance plans are also essential for property management. Neglecting scheduled repairs such as air conditioning and plumbing inspections, exterior painting every few years, or roof waterproofing can lead to a decline in property value and rent. Maintaining the building from a long-term perspective and keeping it in a comfortable condition for tenants is key to stable operations.

Additionally, prepare for various risks associated with rental property management. If vacancies persist, consider measures such as adjusting rent, strengthening advertising, or renovating to enhance value. Preparations such as joining fire and earthquake insurance to prepare for disaster risks, and setting aside a repair reserve fund to cover unexpected expenses, are also important. Even after purchase, regularly monitor income and expenses and adjust strategies as needed to maximize returns over the long term.

3. Key points to keep in mind to avoid failure in real estate investment

Following the steps above will give you an overview of real estate investment, but to achieve success, there are several key points to keep in mind. Pay particular attention to the following points, which are common pitfalls for beginners, especially those from affluent backgrounds.

• Location is the top priority: As the saying goes, “Location is everything in real estate,” the choice of location can make or break your investment. Consider factors such as whether the area has high rental demand, ongoing population growth, proximity to stations, and surrounding environment, and choose a location where the property value is likely to be maintained or increased over the long term. Even if the property price is low and the yield seems high, areas with low demand carry a high risk of vacancies. Beginners are advised to start with properties in established urban areas or near stations.
• Don't be swayed by yields—conduct thorough cash flow simulations: Jumping at a surface yield of X% is risky. It's essential to assess the net yield after deducting loan repayments and other expenses, and to include future rent declines and maintenance costs in your cash flow simulations. By creating multiple detailed cash flow plans before purchase and confirming that you can withstand the worst-case scenario, you can significantly reduce the risk of failure.
• Consider an exit strategy: Since this is an investment, it is important to have an exit strategy (goal) in mind, such as selling to realize profits or preparing for inheritance. Before purchasing, consider scenarios such as “Can this property be sold for at least ◯ million yen in ◯ years?” or “How will it be divided at the time of inheritance?” While market conditions may not always align with your expectations, having an exit strategy in place can serve as a deterrent against overpaying and help maintain a long-term strategic focus.
• Establishing a rental management system: The goal is not just purchasing the property, but ensuring that the rental business runs smoothly afterward. Especially when managing multiple properties, the workload increases, so it is important to establish a system by partnering with a reliable rental management company or entrusting the task to family members or trusted staff. Neglecting management can lead to decreased tenant satisfaction, increased vacancies, and a tarnished reputation, which may ultimately result in reduced revenue and a decline in asset value. Establishing a system for regular communication and reporting, as well as pre-determined swift response measures for emergencies, can provide peace of mind.
• Avoid being taken advantage of due to lack of knowledge: Lack of knowledge is the greatest weakness for beginners. Unfortunately, some real estate agents may take advantage of beginners by providing misleading explanations and pressuring them into signing contracts. Additionally, it is said that the wealthy are often targeted by scammers, and those with limited real estate knowledge are particularly vulnerable. Be cautious of suspicious investment offers or promises like “this is a limited-time opportunity” or “you're guaranteed to make money,” and ensure you fully understand the contract terms before signing. As a precaution, it is important to educate yourself and build up your knowledge. If there is anything you do not understand, ask an expert and do not proceed with any ambiguity.

By keeping the above points in mind, you can avoid major mistakes and make sound real estate investments. Especially for high-net-worth individuals, who tend to invest larger amounts per transaction, it is crucial to make careful decisions and thoroughly manage risks.

4. The Importance of Trustworthy Professional Partners and How to Choose Them

Finding reliable experts and partners is extremely important for successful real estate investment. As mentioned earlier, partnering with a good real estate company or financial institution can significantly increase the success rate of your investment. Real estate is a highly specialized field that requires extensive knowledge, and receiving advice from experienced professionals can make it easier for even beginners to make accurate decisions.

The following are some of the qualities of an excellent partner.

• Customer-oriented and values trust: Some real estate companies prioritize their own profits and engage in aggressive sales tactics, but reliable companies prioritize the customer and value long-term relationships. For wealthy customers, it is even more important to have a partner who can propose the optimization of their overall assets through ongoing relationships rather than short-term transactions.
• Comprehensive support from a specialized team: Companies with a team structure that includes legal and tax experts, property survey specialists, and other professionals, rather than relying on a single sales representative, offer greater peace of mind. For example, companies with dedicated departments for legal checks during contract negotiations and property surveys can identify defects that individuals might overlook, enhancing safety. INA&Associates Inc., a comprehensive real estate company for high net worth individuals, is committed to protecting our clients' valuable assets through thorough research and contract support by our specialized departments.
• Integration of technology and human expertise: Recently, technology such as AI has been incorporated into the real estate field for property proposals. At INA&Associates, AI quickly lists properties that match your preferences, and dedicated consultants then propose the optimal property, including off-market information, through a combination of data utilization and customized proposals. Companies that leverage the latest technology while providing the meticulous attention to detail that only humans can offer are worthy of trust.
• Dedicated service for high-net-worth individuals: High-net-worth clients demand a high level of service. Choose a company that can provide flexible proposals tailored to each individual's situation, as well as prompt and confidential responses, demonstrating attentive consideration and high-quality communication. As mentioned above, the core of the real estate business is the trust between people, and even with the advancement of digitalization, human touch and responsiveness are indispensable. It is also important to build a relationship with your agent where you can consult them about anything.
• Provides sustainable value: It is also important to choose a partner that will continue to increase the value of your assets in the long term, rather than focusing on short-term profits. For example, a company that provides follow-up support for rental management and sales after the purchase of a property and offers advice in response to market changes is trustworthy. A representative who always provides the latest information and is committed to growing your assets together with you will be a strong ally. Companies that are mindful of SDGs and social responsibility as a corporate citizen and have sustainable growth as their philosophy tend to support solid asset formation rather than short-term speculation.

As a specific example, INA&Associates Inc. strives to improve customer satisfaction by refining the expertise of each employee based on a human resource-oriented approach that positions people as the company's greatest asset. Additionally, while adopting the latest technology, they prioritize human relationships and provide “careful and sustainable value” to high-net-worth clients as their management philosophy. By partnering with such a firm, even beginners can leverage advanced expertise and networks, significantly reducing the risk of failure in real estate investment.

Choosing the right partner is crucial to the success or failure of real estate investment. Consider factors such as track record, reviews, and the character of the person in charge, and find a trustworthy professional who can align with your goals.

5. Summary: Start real estate investment without failure to protect and grow your assets

We have comprehensively explained the basics of real estate investment for affluent beginners, covering benefits, specific steps. The key points of this article are as follows:

• The appeal of real estate investment for the wealthy lies in its various benefits, such as stable asset management, passive income, asset expansion, and tax advantages. They also have the advantage of being able to start investing under favorable conditions by leveraging their financial strength.
• The first step for beginners is to create a plan and study. By setting goals, acquiring knowledge, and following the basic process of financial planning, property selection, contract signing, and management, you will not stray far from the right path.
• Follow the steps outlined above and proceed steadily, one step at a time.
• The key points to avoid failure include location, yield, exit strategy, management structure, and knowledge. Especially for affluent beginners, it is crucial to be vigilant against fraud and unscrupulous operators. Take your time, make careful decisions, and implement strategies to diversify and minimize risks.
• Having a reliable professional partner is the key to success. By leveraging the expertise of real estate professionals, you can gain valuable information and accurate judgment criteria that you would not be able to obtain on your own. Building long-term relationships based on trust will ultimately yield significant rewards.

Finally, real estate investment is a long-term endeavor. It is important to approach it with the mindset of building assets steadily over time, rather than seeking quick gains. Fortunately, affluent individuals have financial flexibility, so by planning with a margin of error, you can build a robust portfolio capable of withstanding economic fluctuations. We hope this article serves as a reference for making sound real estate investments that protect and grow your valuable assets.