5 May, 2024
In our latest blog series, “Akiya ROI,” we delve into the intriguing world of Akiya homes in Japan – a realm where affordability meets opportunity. These underappreciated and often inexpensive properties present a unique investment possibility for the astute buyer. Each post in this series will dissect various scenarios, analyzing when it financially makes sense to invest in an Akiya. We’ll consider individual financial situations, weighing the costs and benefits, and explore the transformative potential of purchasing an Akiya, including the prospect of relocating to Japan. If you are considering relocating for greater purchasing power, this series promises to offer valuable insights into the world of Akiya homes. If you see yourself in one of these examples, contact us and we can talk through your options!
Pedro is an Enterprise Architect who lives in Pleasanton, CA, and works in San Jose, CA. He earns $170,000 a year but faces a long commute of 1-2 hours daily. In 2020, he bought a house for $1,000,000 with a low interest rate of 3%, making his monthly mortgage $4,500. Luckily, he has a housemate who helps by paying $1,000 a month in rent. Additionally, Pedro has investments that grow by about $15,000 each year. Even with a good income, the high cost of living in the area means most of his earnings go towards expenses. He saves less than $1,000 per month.
In addition to feeling overworked at his job in California, Pedro’s not seeing the investment of his time being reflected in his bank account at the end of each month. To get a better work/life balance, he’s considering quitting his job and freelancing so he can work remotely. However, the drop in income and increase in costs associated with self-employment make this impractical for his budget. Even if he moved to rural America, which he doesn’t want to do, interest rates now are much higher than when he bought his current house, so his mortgage payment wouldn’t change very much. He’s considering moving abroad to be a digital nomad as a possible solution.
Pedro studied abroad in Japan during college and has heard about cheap houses in Japan called “Akiya.” An Akiya is a Japanese term for houses that have been vacant for a long period of time. These properties, often priced under $100,000, are surprisingly well-maintained and are situated in various locations across Japan. For foreign buyers, getting a mortgage is not easy, but the prices are so low that they are often the equivalent of a down payment in many other countries. By buying and then moving into an Akiya, it’s possible to eliminate your mortgage and drastically reduce your cost of living. There are over 10M Akiya scattered throughout Japan, including near major metropolitan cities.
If he moves to Japan to work remotely, Pedro wants to maintain some aspects of his life in California. He loves the sunny weather and hopes to find a similar climate in Japan. Being a beach enthusiast, he wants to be near the coast for weekend getaways. Also, easy access to the city is important for him to enjoy social outings. As he plans his move, these preferences are key in finding the perfect balance in his new home.
The Izu Peninsula in Japan has a very similar climate and vibe to beach towns in California. Ito City is a bit less touristy than other locations on this peninsula, but it happens to have a lot of Akiya because many people from Tokyo purchased second homes there during peak economic times in Japan. As the population aged and economics constrained, these houses became more and more underutilized.
The one above from @cheaphousesjapan has enough space for Pedro, opportunity for gardening, and only $105,000! Here is a comparison of how an Akiya in Ito, Japan compares to options in Pleasanton, CA:
| Housing Options | Before Akiya | After Akiya |
|---|---|---|
| Location | Pleasanton, CA | Ito, Shizuoka Japan |
| Population | 79,871 | 68,773 |
| Climate | Mediterranean | Warm Oceanic |
| Area Type | Suburb | Vacation homes |
| Closest Major City | San Jose | Yokohama |
| Time to City | 30-60min | 60-90min |
| Work Commute | 1-2 hrs | 0 hrs |
| Car Dependency | High | Local high |
| Rent/Own | Own | Own |
| Avg Home Price | $1.5M | $0.13M |
| Avg Down Payment | $150K | $130K |
| Avg Interest Rate | 7% | 3% |
| Avg Mortgage Payment | $10K | $0K |
| Real Estate Value Growth | High | Negative |
Pedro’s transition to Japan as a freelancer marks a significant shift from his current, comfortable position at a large tech company in the United States. In his current role, Pedro enjoys a substantial salary and a competitive benefits package, which are essential for his lifestyle in the U.S.
By choosing to become a digital nomad in Japan, Pedro faces the reality of a potential decrease in income. Despite his high marketability as a skilled programmer, he anticipates earning about half of what he currently makes. Nevertheless, Pedro remains optimistic about this career shift. His expertise in programming, particularly in projects he has previously worked on, positions him well to secure freelance work. In fact, his current company, recognizing his valuable skills, may become his first client in this new phase of his career. This potential continuity offers a bridge as he navigates the challenges of establishing himself in a new country with a different work structure.
Pedro, like many Americans, has a significant portion of his wealth tied up in his home. A revealing statistic from 2019 shows that just two assets — home equity and retirement accounts — accounted for 65.2% of households’ wealth in the United States. The median home equity, which is the value of a home minus the mortgage balance, was $130,000, indicating the substantial role that home ownership plays in the average American’s financial portfolio. This underscores the potential impact of Pedro’s decision to sell his house, which has appreciated significantly since its purchase in 2020. By moving to Japan and investing in a more affordable house, he can effectively diversify his investment portfolio. He has two primary options: selling his current house to fully capitalize on its increased value, or renting it out. Selling would provide a significant lump sum that could be reinvested, while renting would offer a steady income stream and the potential for further appreciation in value. This strategic shift could enable Pedro to unlock and better utilize the equity accumulated in his home.
The data below would help Pedro make this decision:
| If Renting… | |
|---|---|
| Purchase Date | January 2020 |
| Purchase Price | $1,000,000 |
| Down Payment | $100,000 |
| Interest Rate | 3% |
| Monthly Payment | $4,500 |
| Monthly Income if rented | $4,000 |
| Monthly Expenses if rented | $2,000 |
| Monthly Profit if rented | -$2,500 |
| Annual Profit if rented | -$30,000 |
| Current home value | $1,500,000 |
| Appreciation % if rented | 10% |
| Avg Annual Appreciation $ | $150,000 |
| If Selling… | |
|---|---|
| Current Home Value | $1,500,000 |
| Purchase Price | $1,000,000 |
| 24 months of mortgage principal | $81,000 |
| Income if sold | $581,000 |
| Expenses if sold | $150,000 |
| Long-term Capital Gains if sold | $37,500 |
| Profit if sold | $393,500 |
| Japanese Real Estate Cost | $105,000 |
| Net Real Estate Proceeds | $288,500 |
| Investment yield percentage | 10% |
| Annual investment gains | $28,850 |
Since renting his house would result in a negative cash flow, Pedro should prioritize selling the house and diversifying the proceeds into other investments. After buying his Akiya, he can reinvest those returns, or use the extra cash to subsidize his cash flow in Japan.
| Income / Yr | Before Akiya | After Akiya |
|---|---|---|
| Job Title | Enterprise Architect | Freelance Software Developer |
| Employment Status | FTE | Self-employed |
| Job Income Per Year | $170,000 | $85,000 |
| Roommate | $12,000 | $0 |
| Property Reinvestment | $0 | $28,850 |
| Other investment returns | $15,000 | $15,000 |
| Total | $197,000 | $128,850 |
| US Tax Bracket | 35% | 24% |
| Tax $ | $68,950 | $30,924 |
| Net Income | $128,050 | $97,926 |
| % Change | N/A | -23.53% |
Thanks to Pedro’s reinvestment of his home equity into his Akiya and other financial portfolios, the loss of half his income from his full-time salary will be buoyed by this other stream of income. Hypothetically, if he were taxed in the US as a freelancer, his income tax bracket would also be significantly lower. In reality, he would need to optimize his taxes for both the US and Japan. The total shift in Net Income could be as low as 23%, while the payoff is eliminating the mortgage and other cost of living benefits.
After buying his Akiya with cash using the proceeds from the sale of his house, he’ll no longer have a mortgage, which will eliminate the largest expense from his monthly budget. Just with that change alone, he’ll save $54,000 per year. In addition, many other aspects of life in Ito Japan are lower cost that what he is used to in Pleasanton CA: home maintenance, groceries, dining out, utilities, and transportation will all be significantly cheaper. One variable is health insurance. At his current job, his company pays for most of his insurance, so if he pays out of pocket in Japan it will be a bit higher and depends upon how he structures his business there. However, the coverage that insurance provides and overall low cost of health care means that he won’t need to put away money for health savings while in Japan.
Considering just the basics, Pedro will spend nearly 70% less in Ito, Japan than he did in Pleasanton, CA. Here is the breakdown of his cost of living:
| Expenses / Mo | Before Akiya | After Akiya |
|---|---|---|
| Rent/Mortgage | $4,500 | $100 |
| Home maintenance | $1,250 | $250 |
| Groceries | $1,000 | $500 |
| Dining out | $1,000 | $500 |
| Insurance out of pocket | $500 | $1,063 |
| Medical Savings | $500 | $0 |
| Utilities | $500 | $300 |
| Car/transportation | $1,000 | $500 |
| Total/mo | $10,250 | $3,213 |
| Total/yr | $123,000 | $38,550 |
| % Change | N/A | -68.66% |
Pedro is going to save a lot of money by moving into an Akiya! He’ll save about $59K per year, whereas in California due to his high cost of living he was only saving about $5K per year. That’s over 10x more savings after moving to Japan!
| Annual Savings / Yr | Before Akiya | After Akiya |
|---|---|---|
| NET Income/yr | $128,050 | $97,926 |
| Expenses/yr | $123,000 | $38,550 |
| NET Savings/yr | $5,050 | $59,376 |
| Difference | N/A | $54,326 |
| % Change | N/A | 1075.76% |
To calculate ROI, we’ll assume that $54,326 is Pedro’s return less opportunity cost of what he would have saved anyway in California. His house cost $105,000 and we’ll say it cost him $20,000 to move to Japan. To break even on his investment of $125,000, it will take him 2.3 years. That is discounting the potential earnings he can get from investing his savings!
As a bonus, due to his lower costs and owning his home outright, Pedro’s passive income alone would be enough to sustain him in his Akiya. That means Pedro could focus on making his freelance business successful without sweating bullets about the prospect of a financial slump.
| NET Passive income /yr | $37,273 |
| Costs per year | $38,550 |
| NET Savings /yr | -$1,278 |
If Pedro wants to reduce his liabilities, save more, and lower his financial risks, relocating to an Akiya is a valid option. Doing that would allow him more freedom in choosing the work he wants to do and allow him financial flexibility to explore new ideas. Moving to Japan is a big change, so he should think carefully about how to go about it. If he were an Action Plan client of Japan Remotely, we’d fine tune his lifestyle plans, help him decide a business model that works best for his life in Japan, fine tune his anticipated ROI, and point him in the right direction of what visa type to go after.
