How AI Legalese Decoder Can Simplify the Homebuying Process with USD and Bank Loans
- May 24, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Exploring Options for Real Estate Investment in Tokyo
Hello Japan Financiers
I have been shopping around for a house in the Tokyo area, and was originally planning to max out the bank loan (around 70 – 80 mil) as my budget.
But with the yen being so weak, I am considering putting an extra $150 – 200k (¥20 – 30 mil) down on top and get a larger place closer to downtown / better access area. It would be an improved lifestyle (spare room, bigger house, better access) but I am wondering how this works if / when the yen balances out again.
I know the general rule of thumb was to max out the bank loan and keep your $ making $ in brokerage accounts but the exchange rate is crazy now and the extra space is very tempting…
If in 5 or 10 years the yen gets stronger and I decide to sell or rent out does that mean that I just made a bunch of $ by putting $ in to start? I am having a bit of trouble conceptualizing this and it’s such a big purchase and would use a good amount of my savings…. So I would appreciate any thoughts or experiences you guys could share on this subject. Thanks very much.
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****** just grabbed a
Depends what you value most:
* Making as much money as possible for your retirement fund
* Living an enjoyable and comfortable life in a nice house/apartment
Either strategy is valid. I’m not really the frugal type so I’d probably go with having nicer living conditions for the next 20-30 years knowing that I most likely still have 20 years of high earning potential in me.
You’re betting on the yen getting stronger in the future, which is impossible to predict. If you’ve run the numbers and you’re happy with them, why not.
But if you invest the down payment money in the stock market (S&P 500 has a yearly 8% rate of return adjusted for inflation) you’ll likely end up with more money in the end, especially considering the interest rates in Japan at the moment.
In short, it all depends on the type of risk you prefer and what will help you sleep at night better. If you have a lot of cash and feel comfortable with a large down payment, then the current rate is arguably not bad.
If your goal is to become as wealthy as possible and optimize your investment returns, then you’d need to run the numbers more.
Just look at the opportunity cost of investing that $200k usd over life of the loan.
$200k at 10% for 35 years is $5.6 mil
Even if the value of the property went up by an astounding 5x Do you get $4.6 mil of enjoyment over 35 years?
At 10 years is about $518k
Will the yen strengthen enough to cover over 2.6x to 59 yen to $1? That’s the bet you’re talking about.
It’s perfectly valid to look at the opportunity cost and say yes I understand but my lifestyle is more important. I would be seriously considering it if I were you as well. But I wouldn’t try and convince myself it’s a good financial decision. I did the opposite and decided to pay higher rent and get nicer larger place while my nest egg grows.
> If in 5 or 10 years the yen gets stronger and I decide to sell or rent out does that mean that I just made a bunch of $ by putting $ in to start?
If it’s “in brokerage accounts” then it’s presumably not really $ but company shares, so you don’t necessarily gain if the yen goes up against that $, you only gain if the yen goes up against those company shares, which is much rarer. Or rather you gain if the value of the house you bought goes up against those company shares, which is a whole other bet to be making.
It’s important to think properly about risk-adjusted return – company shares are far from risk-free. But a house’s value is not risk-free either. I definitely wouldn’t buy a big house as an investment. Rather I’d say buy it if the lifestyle benefits are worth what you’re going to pay, and if you end up wanting or needing to sell or rent out then let that do what it will.
Buying a home for your own use is a mixture of consumption and investment, so it’s hard to evaluate purely in terms of investment return.
As long as withdrawing the money won’t jeopardize your retirement planning – a big if – then I think this is a good bet. If the yen strengthens, you make a decent “return” (predicated on selling the place and transferring back to USD at some point). If Tokyo central property continues to strengthen, you do well (and buying in the centre increases the odds of that happening). And all the time you are enjoying the quality of life returns of living in a nicer place with a shorter commute and extra room.
Around 1 oku yen can still get you a nice 4LDK detached house inside the Yamanote if you shop carefully.
You can’t live in a brokerage account. But if you can lock down a good sized apartment in amazing location, that can be your home forever, which also gives you a sense of security. Also, let’s not forget, if it’s your residence, the bank requires life insurance – so if something happens to you, your wife and kids get a free place haha