Japan offers two primary options for real estate investment: whole-building investment and individual-unit investment.
Each has its own set of advantages and disadvantages, making it essential to understand their differences and choose the one that best suits your investment style.
This article explains the distinctions, pros, and cons of whole-building and individual-unit investments to help guide your investment decisions.

Whole-Building vs. Individual-Unit Investment

In Japan, **apartment and condominium investments** are popular choices for real estate investment, divided into two types:

• Whole-Building Investment: Purchasing and managing an entire apartment or condominium building.
• Individual-Unit Investment: Purchasing and managing single units within an apartment or condominium.

Whole-Building Investment involves acquiring and managing properties on a building-wide scale.
Although it requires a significant capital outlay and carries high risks, it also offers substantial returns.

On the other hand, Individual-Unit Investment refers to purchasing single units within a property for investment purposes.
This can include owning one or multiple units.
Individual-unit investments typically have lower initial costs and reduced risk, making them a popular choice for beginners.

The following sections outline the pros and cons of whole-building and individual-unit investments to help you determine which approach aligns with your investment strategy.

ｗagaya Japan provides multilingual support for foreign investors in buying, selling, and managing real estate in Japan.

Feel free to contact us anytime.

Advantages of Whole-Building Investment

Whole-building investment offers high profitability and efficient use of funds due to managing an entire building.

High Profitability

One significant advantage of whole-building investment is the potential for high income. For example, managing 20 units with a monthly rent of ¥100,000 per unit results in a total monthly rental income of ¥2,000,000. In contrast, individual-unit investment for a single room would yield only ¥100,000 per month, highlighting the vast difference in potential earnings.

Additionally, managing an entire building helps reduce per-unit costs for repairs and management fees, enhancing overall profitability.
This efficient cost management makes operations more streamlined and lucrative.

Mitigating Vacancy Risks

One of the significant risks in real estate investment is vacancy, where properties remain unoccupied, leading to lost income. With whole-building investments, owning multiple units ensures that even if some units are vacant, the losses can be mitigated. In most cases, total loss of income is unlikely. This ability to spread vacancy risks across multiple units provides a level of operational stability, a critical advantage for steady investment returns.

Flexible Management

As the owner of an entire building, you have the discretion to decide on repairs, renovations, and management rules. For example, you can choose to renovate due to aging or repaint the exterior for aesthetic improvement, potentially increasing occupancy rates.

Disadvantages of Whole-Building Investment

Whole-building investments have drawbacks due to their scale, particularly the heightened risks associated with failure.

High Investment Costs

Purchasing an entire apartment building often requires capital in the range of hundreds of millions of yen. Additionally, ongoing costs such as maintenance and taxes are also substantial. While the per-unit cost may be lower than individual-unit investments, the overall expenditure is significant. As a result, many aspiring investors may find themselves unable to afford such investments.

Difficulty Securing Loans

Whole-building investments require large loans, and few financial institutions are willing to offer financing. Even when such loans are available, they are contingent on factors like your income and the property’s profitability, necessitating a stable and substantial income. If loans cannot be secured, you may need to either abandon the investment or fund it entirely with your own resources, making this a high-barrier form of investment.

Foreign nationals can apply for Japanese real estate investment loans if they hold permanent residency.
If not, they may face additional hurdles and should consider consulting financial institutions or agents from their home country that have operations in Japan.

At ｗagaya Japan, even overseas residents can secure loans to purchase properties in Japan.

We also provide multilingual support for foreign investors in buying, selling, and managing real estate in Japan.

Feel free to contact us here for more information.

Challenging Exit Strategies

A common exit strategy in real estate is selling the property, but whole-building properties can be difficult to sell due to a limited pool of buyers. Just as the high financial threshold applies to buying, it also applies to selling, requiring buyers with significant capital. To facilitate future resale, consider strategies such as increasing occupancy rates and maintaining the property appropriately.

Advantages of Individual-Unit Investment

Individual-unit investments allow for lower financial barriers compared to whole-building investments and offer several advantages.

Lower Costs

Depending on the property, investments can start from as low as ¥10 million. Lower upfront costs make it easier to secure loans and begin investing. The reduced cost per unit also allows for the possibility of owning multiple units, enabling risk diversification and investment scalability.

High Liquidity

Individual units are easier to sell compared to entire buildings. This makes it simpler to liquidate assets in emergencies and allows for timely sales to maximize profit.

Simple Management

Managing individual units is less complex as it involves fewer tenants and simpler administration. Additionally, building management companies handle major repairs, reducing the investor’s burden. The simplicity and affordability of operation make individual-unit investments appealing.

Disadvantages of Individual-Unit Investment

Although individual-unit investments require less capital, they also come with drawbacks such as lower profitability and increased risks.

Lower Returns

The rental income from individual units is limited. For instance, owning one unit with a monthly rent of ¥120,000 yields only ¥120,000 per month. Additionally, costs such as management fees and repair reserves reduce actual returns. Careful simulations of costs and net returns are crucial before investing.

Higher Vacancy Risk

The fewer units you own, the greater the risk of income loss due to vacancies. For example, if you own only one unit and it becomes vacant, your income drops to zero. Even with no income, expenses like management fees and taxes must still be paid, leading to potential cash flow problems and investment failure.

Operational Restrictions

While you own the unit, the building as a whole is managed by an association or management company, which enforces rules and guidelines. For example, certain renovations may require approval, and short-term rentals (e.g., Airbnb) are often prohibited. Shared areas cannot be modified, limiting strategies to attract tenants through shared space improvements.

Summary

This article has outlined the differences, advantages, and disadvantages of whole-building and individual-unit investments. Whole-building investments are attractive due to their high profitability and flexibility but require significant capital. Individual-unit investments have lower financial barriers but face challenges such as higher vacancy risks and lower returns.

Compare the pros and cons of each option and start your real estate investment journey with a style that best suits you.

wagaya Japan provides multilingual support for foreign investors in buying, selling, and managing real estate in Japan.

In addition, at Nihon Agent, even overseas residents can secure loans to purchase properties in Japan.

Feel free to contact us here for more information.