Buy or wait?

[Riayain]

Hi all, it's been a hot minute since my last question and I'm back with another one, this time on the idea of purchasing a "mansion."

I've been living in a share house for a while and due to various factors, I've been thinking about making the move to rent my own place. However, someone brought up the idea of purchasing my own little place instead, as the upfront costs would be roughly the same as if I were to move to a rental, but I could put the rent into equity.

I'm a Japanese citizen and have no debts, so I don't think getting a loan, even at 100% financing, will be too difficult. The issue is that I don't earn a lot and I don't have a lot of savings. I earn a bit more than 3.5 mil/year, and with my current savings, I can't afford to put down any deposit at all.

It doesn't help that I'm looking for something 30-45 minutes from Tokyo's city center...

In this sort of situation, would you buy or wait? And if you were to buy, what would be your price limit?

I'm really new to all of this, so I apologize if this should be in the "questions for dummies" section, but I'd really love to hear other people's opinions and advice. Thank you!

[RetireJapan]

Most important thing is probably how long you will stay in the property -if you'll definitely be there for at least a decade or two, it can be cheaper to buy, and you'll probably have a nicer place to live.

However, every time you buy and sell, the transaction costs (5-10%) will really hurt. Also in Japan you're less likely to see prices rise (if you buy something new the building will depreciate quicker).

If you are not sure you will be there for decades, might be cheaper/more flexible to rent until you have a better idea.

[Riayain]

Thank you for your reply!

I'll definitely be here for at least 5-10 years, and if something comes up, I'm contemplating on renting the property out. Is there anything I should be aware of in the case that I have to rent it out?

[RetireJapan]

Most residential mortgages won't let you rent out a property (you need a commercial mortgage). Check the terms and conditions with your lender.
Rent may or may not cover your costs (run the numbers and err on the side of caution to be sure).

[adamu]

I don't have any experience with buying property, but I do have an opinion

the upfront costs would be roughly the same as if I were to move to a rental, but I could put the rent into equity

I don't know. I think if you buy a place you are going to be looking at costs far higher than a rental. You will need to buy all your furniture and stuff in either case, that's for sure, but I feel like the costs on buying a property are going to be way higher than for a rental. I don't think you can consider buying a place "equity" either - as RetireJapan mentioned you will have large transaction costs when buying/selling, and the value will probably decrease, not increase (although that's purely heresay from me, I've not actually checked Japanese property price statistics). If the house price goes down, you're stuck with an apartment that you can't sell and a mortgage you still need to pay. So, like paying rent to the bank, except you can't move. Plus once you're the owner, you're responsible for all repair and maintenance costs, property taxes... etc.

If you're used to a share house, living alone(?) suddenly might be a bit of a shock. Maybe starting with a rental for a couple of years would be the best path?

[Beaglehound]

I have bought here (well, built to be exact but same principle applies) but did so only on the basis that my wife and I plan to base ourselves where we are, in this house, for as long as we both shall live. You need to factor in land and house registration and acquisition tax, the cost of registration itself, stamp duty (minimal) plus a 3% commission to the estate agent. This does add up. And repair/maintenance costs and property taxes. As Adamu says, the value of the building will likely depreciate as well, though perhaps not drastically near to central Tokyo. On a 5-10 year timescale, I would be wary of buying here tbh. I think the potential financial downside might outweigh the positives, though I find I am happier psychologically with the concept of owning rather than renting.

[Riayain]

Most residential mortgages won't let you rent out a property (you need a commercial mortgage). Check the terms and conditions with your lender.
Rent may or may not cover your costs (run the numbers and err on the side of caution to be sure).

I'll definitely check that with them, thank you.

I don't know. I think if you buy a place you are going to be looking at costs far higher than a rental. You will need to buy all your furniture and stuff in either case, that's for sure, but I feel like the costs on buying a property are going to be way higher than for a rental. I don't think you can consider buying a place "equity" either - as RetireJapan mentioned you will have large transaction costs when buying/selling, and the value will probably decrease, not increase (although that's purely heresay from me, I've not actually checked Japanese property price statistics). If the house price goes down, you're stuck with an apartment that you can't sell and a mortgage you still need to pay. So, like paying rent to the bank, except you can't move. Plus once you're the owner, you're responsible for all repair and maintenance costs, property taxes... etc.

The initial costs are definitely going to be much higher than just renting a place, but my family has offered to pay a "small" sum that would cover a good chunk of the costs. I was contemplating buying a slightly cheaper place and tacking on the remaining costs to the loan. Ideally, I'm hoping to keep total monthly costs (excluding bills like electric) to around how much I'd pay to actually rent a similar place, but I'm still crunching the numbers.

As for value of a home over time, yeah, even I'm not 100% sure about that. I plan to buy a secondhand "mansion," so I don't know how much more the value could decrease. The agent I've been talking to said that as long as the location is decent (not too far away from the Tokyo city center, not too far away from the station), I have a good shot of the value increasing over time based on previous property price records, but obviously I'm a bit reluctant to take them for their word.

I have bought here (well, built to be exact but same principle applies) but did so only on the basis that my wife and I plan to base ourselves where we are, in this house, for as long as we both shall live. You need to factor in land and house registration and acquisition tax, the cost of registration itself, stamp duty (minimal) plus a 3% commission to the estate agent. This does add up. And repair/maintenance costs and property taxes. As Adamu says, the value of the building will likely depreciate as well, though perhaps not drastically near to central Tokyo. On a 5-10 year timescale, I would be wary of buying here tbh. I think the potential financial downside might outweigh the positives, though I find I am happier psychologically with the concept of owning rather than renting.

Yeah... I'm still crunching all the numbers to see if it's even worthwhile for me, but since I'm so new to this, there's a lot I'm not sure about. I'm not sure, for example, around how much of my gross income should the mortgage payments be. There's a lot of conflicting advice on this online. In general, there's a lot of conflicting advice.

I'll definitely think through what all of you said, and of course, I'll run through the numbers multiple times before really committing. Thank you!

[RetireJapan]

I'm not sure, for example, around how much of my gross income should the mortgage payments be.

Your lender will have rules for this. It's not based on your income, but rather on your disposable income (after any other debts). So if you have a smartphone on a payments plan or a student loan those will be taken into account.

From a personal finance perspective, the smaller your mortgage payment is, the better (it gives you more flexibility). Mine is a bit extreme in that it is around 3% of our income and our only debt. I wouldn't advise going much over 20-30% of your income even if they let you borrow that much.

I think banks in Japan are happy to lend more than UK banks are, perhaps because of the more stable job market/lower interest rates/longer term loans...

[StockBeard]

I'm not sure, for example, around how much of my gross income should the mortgage payments be.

From a personal finance perspective, the smaller your mortgage payment is, the better (it gives you more flexibility). Mine is a bit extreme in that it is around 3% of our income and our only debt. I wouldn't advise going much over 20-30% of your income even if they let you borrow that much.

I want to +1 retirejapan on this. When I took my first job, my dad told me "your rent/mortgage should be about a third of your income". That anchored the number of "Oh, I can spend 33% of my income on rent/mortgage" for a huge part of my life which, in hindsight, was a terrible way to think about things. (although maybe my dad was right but he meant the first job?)

Spend what you're comfortable spending, but FWIW my mortgage is about 20% of my income today, and I often wish it was lower. Then again, don't sacrifice too much life comfort either... so, go with what works for you, but be aware that, just like for the diamond industry, there are lots of people who want you to believe you should spend as much as you can on your house, because they make money out of that belief. So in general it's easier to find inflated numbers.

[bushidobryan]

Wait. We are staring down the barrel of another recession similar to 2008, but worse.