Jan 15, 2018 (Japan Times) - It was said of the California Gold Rush of the mid-19th century that the ones who made the money were those who sold the shovels. Today’s shovel sellers in Tokyo are the service providers, agents and brokers eager to entice clients with tales of gold in the hills.
Recently there has been a spate of real estate investment seminars targeting average salarymen and expats in Tokyo. A common opportunity presented is the whole-apartment-building investment, and the idea is simple: Find a building producing a healthy rental yield and organize financing from a willing institution.
Many banks have relaxed their lending requirements to enable anyone with a salary of over ¥7 million and in full-time employment to get an investment mortgage. Throw in permanent residency, a Japanese spouse and some capital, and mortgages of over 10 times an applicant’s salary covering 90-100 percent of the property value at a fairly modest interest rates over 30-plus years can be easily arranged. Create a spreadsheet and make sure your rental yield is comfortably higher than your mortgage repayments and expenses and, hey presto, a cash-flow-positive investment, using little or none of your own capital. Sound too good to be true? Perhaps it is.
Property investment seminars echo the advice given in Robert Kiyosaki’s hugely influential book on personal finance “Rich Dad Poor Dad.†While traditional financial advice counseled living within your means, staying out of debt and investing in a diversified portfolio of asset classes, Kiyosaki argues that this approach is out of date. Instead, he says, use debt (or the more appealing euphemistic term OPM — other people’s money) to your advantage to buy assets that will generate positive cash flow.
Debt that can be used to generate positive cash flow is referred to as “good debt,†as opposed to “bad debt,†which is used to buy something that will depreciate in value and does not produce any cash flow — a car loan, for example. The goal is to achieve financial freedom — the point at which passive income becomes equal to living expenses — and the successful investor can hand in their notice, leave the rat race and is free forever to pursue their own interests.
The underlying theory may well have merit, but it is dependent on finding assets that will consistently generate positive cash flow over time. Whether apartment buildings in Tokyo fit the bill is questionable.
