Ziv Nakajima-Magen – When Investing in Asia Listen Much More Closely

Ziv Nakajima-Magen was born in Israel, migrated first to Australia, then finally to Japan, where he and his wife run a buyers’ agency and portfolio management company, helping foreigners invest in Japanese property and manage their investments.   “When investing away from home, choose the right people to work with, and learn how to trust and listen to them.” Ziv Nakajima-Magen   Worst investment ever Investing in Asia for the first time When Ziv and his wife moved to Japan, having some experience with real estate property investment in Australia, he decided to get into the Japanese real estate industry. Ziv felt that he knew what property investment is all about. How to price rent for rental property, what’s a good or bad property, locations, and so forth. Cash flow investments Ziv looked for the highest rental income that they could find in areas that they were comfortable with. He found a bulk purchase of three condo units in a city not too far from Fukuoka, where the couple lives. The units came at a discounted price because the seller wanted to get rid of all three of them and was happy to discount the price if it was all to the same buyer. The tenants had been in place for like 15 years, so it was quite a good investment, tenancy wise and return was through the roof at about 15-16%. Coming in guns blazing While doing the math, Excel sheet style, the couple realized that one of the units had slightly lower rent than the others, about $20 or $30 a month. Ziv, thinking that he knew what they were doing as they’d been in the property market for a while now and knew all about globalization, decided that when that tenancy lease was about to be renewed, they should raise the rent to bring it up to the same level as the other two units. It was just a small amount anyway, the tenant wouldn’t mind, or so they thought. In Japan, you don’t increase the rent When they told the property manager to increase the rent for that lease, he asked them if they were sure about it, and they said yes without giving it much thought. What they didn’t realize was that you don’t raise rents in Japan. A tenant would be paying the same rent that they paid when they moved into the property say eight, 10 or even 20 years ago. And they wouldn’t ask you to reduce the rent when the contract is renewed because for them any negotiation is considered and feels like a conflict. The Japanese tend to avoid conflict at any cost. Ziv’s tenant did not renew the lease; instead, they moved to another vacant unit in the very same building that was renting for about half the rent. Ziv stayed with a vacant unit for about a year and a half, losing a third of their income stream. When they got another tenant, they had to rent it at a much lower amount. Eventually, they sold it at about 20 or 30% loss compared to when they bought it. Had they just taken time to learn this new market, they would have known about the Japanese culture regarding raising and lowering rent, and it would have saved them from making their worst investment. Lessons learned Consider cultural and emotional differences when doing your due...