- November 25, 2023
- Posted by: legaleseblogger
- Category: Related News
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**Considering the Future Inheritance of Prime Property: Seeking Advice**
My in-laws are the proud owners of a valuable piece of real estate in a highly sought-after location. They have recently expressed their intention to leave their land and house to my wife and me in their will. This prospect has prompted us to rethink our current living situation and future plans.
The idea of inheriting this property has led us to hold off on purchasing a home of our own. We had initially entertained the possibility of my in-laws demolishing the existing house and constructing two separate units for us to live in. However, they have since opted for a smaller-scale renovation instead.
As we contemplate the best course of action, my wife and I find ourselves at a crossroads. She believes that we could make do with renting a spacious house (as we are in need of more room than our current apartment provides) until the time when we can potentially build a new house on the inherited land. However, this timeline stretches out over the next 20 to 30 years, meaning we would be in our 50s to 60s by the time this plan comes to fruition.
For me, the prospect of renting for that length of time does not sit well. I am eager to attain property ownership while we are still relatively young. On the other hand, I grapple with the notion of pouring our resources into a property that will not ultimately belong to us. Furthermore, the rapid depreciation of houses leaves me questioning the financial wisdom of purchasing a home now, when we have the option to construct a new one in the future. Another consideration is the potential alternative of buying a larger apartment, although I harbor concerns about the escalating maintenance costs associated with owning a unit in a multi-family building.
In light of these considerations, we find ourselves seeking advice on the best course of action. The AI Legalese Decoder can help us navigate the legal intricacies and implications of inheriting property, while also providing insight on the financial aspects of our dilemma. With its ability to decipher complex legal language and provide sound legal advice, the AI Legalese Decoder can assist us in making an informed decision regarding our future living arrangements and property ownership. We appreciate any guidance or expertise that can be offered in this matter. Thank you for your assistance.
*Note: Unsure of the most appropriate flair for this post.*
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To give a definitive answer (related to money, not life impacts) weÔÇÖd need the following info:
1. Price to buy (land cost and house price separated out)
2. Price to rent equivalent unit
Then we could assume the following (or adjust them based on your circumstances):
1. 1% loan interest
2. No down payment
3. 35 year term
4. 5% closing costs
5. 5% when you choose to sell
6. Land holds it value
7. House depreciates 5% per year
And calculate a ÔÇ£break evenÔÇØ.
But if you donÔÇÖt want to provide that info, generally the outcome of the math will be as follows:
1. Break even will be between 5-10 years. Meaning after 5-10 years you may as well have bought.
2. Substantial savings will be had by around year 15-20 (meaning about 10 million yen or more – though this will of course vary greatly)
The major risk of buying are:
1. You buy substantially more house than you would otherwise rent
2. You decide to move before the 5-10 year mark and take a loss
3. You overpay or buy an undesirable property and have difficulty selling later on
Setting yourself up to be renting for what could be another 20-30+ years seems like a very poor decision, unless you’re in a position where your company is paying part of your rent (so you can effectively get a tax discount).
By that point you could have almost fully paid off the mortgage for a house if you were to buy now.
You also never know what’ll happen in the next 20-30 years in terms of family circumstances, what happens if either you get divorced, or your wife’s parents need to sell it in order to pay for nursing homes/medical care, etc. etc. etc. You’ll also likely be landed with a hefty inheritance tax bill if the property is in a prime location as you said it is.
If I were you I’d just act as if that land doesn’t exist and live my life accordingly.
IÔÇÖd say to budget another 5% for buying and selling costs for other taxes, fees, moving expenses etc.
Otherwise what he said. You are almost always going to come out ahead owning vs renting after around 7 years. To some extent itÔÇÖs a simple cash flow exercise: spend X on rent for Y years and own nothing, spend X on a mortgage for Y years and own something.
[https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html](https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html) – it’s US-centric but might get your head in the right space for this calculation.
Though my situation is not the same as yours, I had to decide between renting and owning when I moved to Japan recently.
You didn’t really mention it, but are there any differences between the kind of home you can own vs rent in the area you want to live in?
For us, we decided to buy because:
1. the finances weren’t abundantly obvious as to which option was better and
2. we could really only buy the kind of property we wanted ÔÇô single family home with enough bedrooms ÔÇô in the same town as family. (No rental options that fit our needs)
I could have lived in the next town over (about a 15 minute drive,) with rental options that fit our needs, but for us, we have little kids and wanted to be as close as possible to wife’s parents and grandparents. This would be a big quality of life improvement for us.
We ended up finding a home that was walking distance to her parents and can visit them frequently and on short notice. We don’t regret choosing quality of life over the potential financial downside.
I guess just another angle to the problem, as buying vs renting is a very personal decision that isn’t just about the finances.
You should also factor in the lost opportunity costs of investing the down payment money. If you are thinking of a down payment of, say, 10 million yen, then think that you are losing about 500,000 yen a year (assuming a 5% rate of return on investment).
We decided to rent because we can stay flexible- if we get crazy neighbours we can move, if there is a natural disaster we can flee, etc. Our rent (about 30 minutes outside of Nagoya) is 85,000 a month for a 4 LDK home. Not new but renovated 6 years ago. Quiet area full of seniors. Seems good so far.
I bought a second-hand house but sold it again a few years later. Owning a house is expensive in Japan. And the condition deteriorates quickly due to the climate and shoddy construction. Wouldn’t be so bad if the house appreciated in value. I am saving money by renting and investing what I used to spend on maintenance costs. Then again, I am single with no dependents, so my situation is different from others.
I wouldnÔÇÖt bank on your in-laws in getting their house. You never know what will happen in the future. If you had the money and then just go ahead and buy the house on your own if youÔÇÖre planning on settling down in Japan.
Houses are cheap but land may not be depending on the area. Our house itself was worth only like 10% of what we paid, the other 90% was for the land, but the total value is more than when we got it a couple years ago. If youre in a major city and can do your research (get a hazard map and avoid flood zones) Id say buying is definitely worth it. Our mortgage is about what we were paying for rent with 3x the space even apart from the increase in value
Build an apartment on the land and rent out the units. Earn rental income as a landlord. Use rental income to rent a manshon.
I rented my last house for 25 years. As a single woman I kept putting the buying idea on the back burner. When I suddenly realized I had paid the ownerÔÇÖs mortgage already I finally bought my own house. I wish I had done it much sooner! My house loan is 40,000 yen cheaper than my rental house was. If you have the opportunity IÔÇÖd definitely say buy something!
Owning a house means massive exposure to one asset, unless you’re filthy rich and the value of the house is pocket change to you. If you’re a regular middle-class guy, if anything goes wrong with that asset, you could look at great losses. If you can insure against the risk, then it’s not such a big obstacle. But how do you insure against neighbors from hell or some other unpredictable characteristic of the neighborhood? Maybe something that isn’t the case when you buy but arises later? War in east Asia wouldn’t do anything for that property value either.
This sort of thing is rare/unlikely, of course, but it cannot be completely ruled out. You have to be clear about that.
In my mind, this is the biggest factor speaking against owning a house.
Against this stands the potential economic upside if all works out and you are able to purchase good value. Also, the upside of living in a place that’s just right for you because you designed it. I’ve done that and I cannot imagine going back to renting.
Lots of variables in this equation. Maintenance. Taxes, tax breaks. Health. Depreciation oh house increase in land value. After 20-30 years, the house will have devaluated to the point that you might need to rebuild when you are 60 if you plan on living there into your old age.
Renting is easier because se a good accountant can figure this out where you can come out ahead but also means you can try many places until you have your dream house. There are advantages to building a new home when you are older but maintenance gets more difficult the older you are.
I would make comparison for the montly payment amount on mortage vs rent and what you can get in each case.
20~30 years time frame you will manage to pay off majority of your loan, especially if 30y. so even if it deprecated in value that would not be a big deal. most value is usually lost in early years anyway.
if you can get similar or better for the same montly payment when buying, go for buying a house. However if you can get cheaper when renting then go for that. That being said usually if I look at the monthly payment, for the same amount, you get often better when buy.
in case renting much lower then investing the difference would be good idea.
But I think you can see the point. if montly payment is same, if you bought by the end of the time period you will own the house whereas in renting you would own nothing. But if rent would be much lower then instead of owning a house, you could have added the difference on your NISA account for tax free gains on your investment. in which case it might be worth more than old house.
Best move? It depends on what and where? Suburban houses (outside of maybe central Tokyo?) will only depreciate down to land value over 30 years so not a good investment. Central Tokyo condos continue to increase in price over time. So not much choice in terms of investment unless the market changes.