Extreme & Cheap listings (and how to deal with them)
The Basics
In my last article, I wrote about NOT dealing with extremely cheap listings due to the high risks as a real estate, BUT if you have the knowledge, guts and cash…there are ways to turn the risky listings into an exciting investment.
Today I'd like to go write some details.
There is always a reason why a certain real estate is "cheap". And in times when something is "extremely cheap," it is generally due to the following reasons:
The land cannot build, or the existing building cannot be rebuilt.
No loans are available, and/or mortgage cannot be used.
Other common reasons are: the need for government permission to rebuild or renovate (urbanization control area), restrictions on use and/or the need for large expenses to rebuild or renovate (due to existing building is not compliant, illegal buildings, old retaining walls, old structural design etc. ), among many other minor reasons (fireproof rules, usage area rules etc.).
"SAI-KENCHIKU-FUKA" Real Estate
Among all these hindrances, the most major situation would definitely be the "Sai-Kenchiku-fuka" situation.
First, let's explain what a "Sai-Kenchiku-fuka" (meaning "A non-rebuildable property" )property is.
A non-rebuildable property is a piece of land that does not meet the requirements of the Building Standards Act and cannot be rebuilt even if the existing building is demolished.
The main reason for a non-rebuildable property is that it does not meet the road access requirement stipulated in Article 43 of the Building Standards Act. The road access requirement is an obligation that in order to build a building, the frontage must be at least 2m wide and adjacent to a road stipulated in the Building Standards Act that is at least 4m wide.
Examples of non-rebuildable properties include the following:
The frontage of the lot adjacent to the road is less than 2m.
The lot is not adjacent to a road under the Building Standards Act.
The lot is only adjacent to an alley or passage (non-road).
Properties that cannot be rebuilt have the following advantages and disadvantages.
Low acquisition cost.
Low tax assessment value, low fixed asset tax and city planning tax.
High possibility of not being able to obtain a mortgage.
Due to the deterioration of the property, there is a high risk of it collapsing or being partially destroyed in natural disasters such as typhoons and earthquakes.
If the owner causes damage to neighboring houses or passersby, they must be liable for compensation.
If you purchase a property that cannot be rebuilt, you can use it for remodeling or renovation, or by purchasing the neighboring land to fulfill the road access obligation. Some references below:
A. Extreme and Interesting case for utilizing "vacant land"
(note: this land is not "sai-kanchiku-fuka")
B. A realtor in Kyoto, specializing in renovating "Machiya"s
Real Estate not applicable for Mortgage
"Sai-kanchiku-fuka" properties are usually out of the question for mortgage opportunities. Also, other issue as mentioned in the opening can be a reason for no, or extremely limited loans. But in fact, these properties are excellent
opportunities for high yield investments, since lessee's don't care if the properties are subject to mortgage approval or not, so you can charge normal rent, where as to people looking to buy housing usually depend on loans, which largely lowers the selling price.
Real Estate requiring large cost(s) upon Renovation and/or Rebuild.
These properties' risk is moderate compared to the "no mortgage situation" and can be handled by the combination of "high yield investment" scenario and "slightly lower selling value". If the leasing operation is a "Minpaku" instead of normal leasing, some properties may generate large profit in a short period of time, decreasing the risk.
Challenging on your own may be TOO challenging
Since there are many parameter to consider, and those parameters tend to be moving parts, I would suggest that you have a professional with skills and knowledge of extreme real estate, creative skills and exit strategies.
いいなと思ったら応援しよう！
