Editorial
Repair reserve and management fees of 40,000 to 45,000 yen a month did not work against nearby rents of 80,000 to 90,000 yen, so we passed.
Contents
This property was a condo with unusually high repair reserve contributions and management fees.
If you are buying a home to live in, you can overlook management fees and repair reserve contributions. Even if the costs are close to what you would pay to rent, if you want to live there you accept them, as “home is where you make it”.
From an investor’s view, it is a monthly cost
From the viewpoint of real estate investing, however, repair reserve contributions and management fees are costs you pay every month. For example, even if you can rent a unit for about 80,000 yen, if 40,000 yen goes to the reserve and management fees, you are left with only 40,000 yen a month. Property tax comes on top, so over a full year the property becomes very hard to recover your investment on.
The listing sheet showed 40,000 to 45,000 yen a month
Recently a condo came up. The room was quite large and the view from the window looked good. I thought of going to see it, and when I checked the listing sheet I found that the repair reserve and management fees came to roughly 40,000 to 45,000 yen a month. It is precisely because it is a good, newer-standard building that the cost runs that high.
If you rent it out, it would be fine if a very high rent could be achieved. But the unit had no parking, and I doubt that a rent of around 150,000 yen could be obtained just because the building is relatively new. Looking at nearby rents, the market was around 80,000 to 90,000 yen.
Why we passed
I judged that the numbers did not work, and passed on it. What matters, I think, is to calculate how much the reserve and management fees cost each month, compare that with market rents, and carefully judge whether the numbers work.
What this case shows
- Management fees and repair reserves are viewed differently when you live in a place and when you invest. As an investor, count them as a monthly cost.
- Think in terms of what is left after management fees, repair reserves and property tax are subtracted from the rent (the nearby market rent).
- Newer, well-kept buildings can carry higher fees. A newer building does not guarantee a high rent.
- Check the monthly costs on the listing sheet and set them against nearby rents to see whether the numbers work.
This is a record of an individual’s own decision and is not a recommendation of any property or investment. Legal points are described in the context of Japan; please consult a lawyer or a licensed real estate professional before making an actual decision.