Common Failure Patterns in Real Estate Investment

 [Common Failure Patterns in Real Estate Investment]

Real estate investment is popular as a sound method of asset building, but there is also a risk of failure due to incorrect judgments or insufficient preparation. Below is a summary of common failure patterns in real estate investment.

🔻 Common Failure Patterns in Real Estate Investment

1. Mistakes in Property Location Selection

Properties far from train stations, in areas with low demand, or in areas with declining populations.

Many people are tempted by high gross yields and jump at cheap properties in rural areas.

👉 Solution: Choose areas with high rental demand (near train stations, urban areas, near universities/hospitals, etc.).

2. Excessive Borrowing (Over-leveraging)

Purchasing with a full loan or over-loan, making it difficult to withstand interest rate increases or vacancy risks.

If cash flow deteriorates, selling the property also becomes difficult.

👉 Solution: Invest a certain amount of your own capital and create a sound plan that doesn't rely too much on borrowed funds.

3. Unrealistic Financial Planning

Underestimating repair costs, vacancy rates, management fees, and taxes.

Being misled by overly optimistic calculations such as "monthly rental income of ◯ yen!"

👉 Solution: Conduct long-term simulations and plan for the worst-case scenario (vacancies, rent decreases).

4. Neglecting Management by Relying Solely on the Management Company

Poor management quality leads to sloppy tenant handling and vacancy management, resulting in decreased profits.

Mistakes in selecting a management company can also lead to problems.

👉 Solution: Thoroughly research the reputation and track record of the management company and regularly check the situation yourself.

5. Not Considering an Exit Strategy

Buying a property that is difficult to sell (low liquidity), leading to a dead end.

Ultimately, you either sell at a loss or face increased burdens due to long-term ownership.

👉 Solution: Anticipate in advance "when," "for how much," and "to whom" you can sell the property.

6. Being Misled by Tax-Saving Benefits

Losing composure due to sales pitches like "Buy it because it will save you on taxes."

Cash flow tends to deteriorate after depreciation is complete. 👉 Solution: Focus on the actual return on investment, not just tax savings.

7. Getting stuck with old or defective properties

High renovation costs, difficulty finding tenants, legal troubles (e.g., illegal construction).

Even if it looks good, there may be problems with the structure or legal compliance.

👉 Solution: Conduct an inspection (building survey) and have it checked by a professional.

8. Lack of information gathering and knowledge

Lack of knowledge about properties, the market, laws, and tax systems.

Signing contracts without question, simply following what the real estate agent says.

👉 Solution: Acquire solid knowledge through books, seminars, and real-world examples.

🔚 Summary: Basic principles for avoiding failure

Become proficient in numbers (income and expenses, yield, loan terms)

Assess the value of the market and the property

Partner with trustworthy professionals and companies

Make decisions based on logic, not emotion

Anticipate the worst-case scenario