Some of the people who want to start investing in the future will be interested in real estate investment.
However, many people are hesitant for a variety of reasons:
●I don't have enough money...
●I don't have specialized knowledge or experience
●Too risky
Many people view real estate investing this way.
In this article, we will explain the fundamentals of real estate investments as well as introduce you to what kind of mechanism will generate profits, as well as the benefits and risks.

How does real estate investing work？What are the income and capital gains that generate profit?

Many people think that real estate investing is difficult and complicated.
In recent years, however, corporate employees with annual income of 500 to 6 million yen have also been able to invest in real estate.
The reason why ordinary salaried workers can invest more comfortably is a "loan".
Of course, higher starting costs will make it easier to repay the loan later, but most of them will purchase it by receiving a loan from a bank or other financial institution.
Any person who goes through a loan review can become an owner.
Those who wish to hedge against unemployment income, also dream of large profits from a small amount of money.
The methods of generating profits from real estate investments can be broadly divided into the following two categories.
●Income gain (= Rent income)
●Capital gain (= profit generated from the sale of real estate)
Income gain refers to "rental income" and is the mechanism for making profits on rental properties as shown below:
●Purchase the property
●Lease the purchased property to a third party (tenants) and earn monthly rental income
●Revenue is derived by subtracting loan repayments, management company fees, etc

This method is recommended for beginners of real estate investing because it can be expected to generate continuous and stable earnings every month.
Capital gain refers to "gain on sale."
This is a method of earning considerably large profits depending on the method and timing of doing so.
It is earning profits not only from real estate such as land and buildings, but also from the sale of various assets such as stocks and currencies.
However, because we need a wealth of knowledge and experience to ensure that we can make a profit on the sale, it is not very recommended for beginners.

What are the three benefits of investing in real estate?

Let's look at what the merits of investing in real estate are.

Earn a stable income

Unlike investments such as stocks and currencies, real estate investments can earn a certain level of profit, so it is a major advantage to expect stable income.

Have high tax shields

By investing in real estate, you can save on taxes such as income tax and inheritance tax
It is very effective to shield income tax because it allows us to account for various expenses incurred in the purchase of real estate.
It also has the advantage that inheritance of real estate requires a smaller amount of tax than cash inheritances.
Another major advantage is that by making real estate investments, they can be used for pensions, life insurance, death insurance, and other purposes.
For example, your rental income after loan repayment is completed is in lieu of your own pension.
Since we can still earn stable income in old age, there are many people who create assets in the form of real estate rather than cash.
In addition, if you make a loan and purchase the real estate, if the investor dies during repayment of the loan, the loan balance will be 0 yen.
Since the inheritor can choose whether to continue to earn rental income or to sell them for a profit, many people invest in real estate as a substitute for life and death insurance.

What are the three risks of investing in real estate?

This section explains the three risks of investing in real estate.

Risk of borrowing by making a loan

Purchasing any product, such as a house or car, with a loan means you have debt.
Therefore, it is necessary to repay the purchase costs (loan amount) that have been transferred to banks and other financial institutions every month.
While it is ideal to obtain stable monthly rental income without vacancies in the properties purchased, it is also true that depending on the location and the condition of the property, there are cases in which the investment does not work well and the earnings we aim for cannot be expected.
In extreme cases, we must repay the loan even if the profit is 0 yen.
Therefore, it is important to understand that there are risks incurred with borrowing money.

Risk of disasters due to earthquakes and floods

Japan is one of the countries with an extremely high risk of disasters such as earthquakes and typhoons.
We can take measures such as selecting all-electric properties for fire prevention and conducting ground surveys to minimize damage caused by earthquakes.
Unfortunately, however, we cannot prevent natural disasters before they occur.
For this reason, it is essential for us to obtain insurance coverage for earthquakes and fires so that we can feel secure in the event of any damage from a disaster.
Be sure to subscribe to this service because it can cover subsequent repairs and other costs.

Risk of declining rents due to population decline and declining profits due to vacancies

Japan's population is beginning to decline, fueled by the declining birthrate.
Population decline is likely to lead to an oversupply of domestic real estate, resulting in a drop in rent.
In addition, there is a possibility that vacancies will not be filled as a result of mistakes in location and rent markets.
Therefore, when purchasing real estate, solid research is required in advance.
Therefore, the points that you want to check before purchasing are as follows:
●Whether the rent is appropriate
●Is the information of the property properly recognized?
●Are appropriate repairs conducted?
The most important thing is the appropriateness of the rent.
In addition to comparing it with similar properties in the vicinity, let's take into account the condition of the property and properly research whether the rent is appropriate.
It is also important to research whether the information of your own property is up to date.
If we do not hit a search on the Internet by searching for conditions or rent, we will need to conduct further activities, such as going through brokers and conducting sales activities for the properties we own.
In addition, it is an important point that appropriate repairs are carried out in line with the useful life of the property.
People do not gather at properties that look older than the age of the building.
Make early repairs when the wallpaper, floors, and other items are significantly damaged.

In conclusion

In this article, we talked about earning income from real estate investment.
We introduced a mechanism for generating revenue such as "income gain" and "capital gain."
Unlike investments in stocks, bitcoins, and exchange rates, real estate investment, which is expected to generate stable income, is an investment that is easy even for beginners.
We also discussed how real estate investments have tax shields and that they can be used as funds after retirement and death.
On the other hand, we also explained that there are risks that need to be addressed, such as damage from debt and natural disasters, and a decline in revenues due to vacancies and other factors.
It is important to get the right knowledge and information through books and seminars, and make sure you're getting more revenue.