Kevin Elliot (Ex – Owner/Teacher, Smith’s School of English – Okamoto)
I am a UK citizen teaching English here in Japan. I love teaching English but for me there is one major problem of being an employee is – an unofficial wage cap. No matter how good you are, how hard you work you only receive so much and you will never make headmaster. With a wonderful wife and two great kids (so far) to provide for I realized that in the future this wouldn’t be enough to pay for school fees, medical and everything else. So in January 2004 I sat down with Smith’s School of English and we put into effect a plan. In September 2004 I opened my school in Okamoto, Kobe. This was also the start of my property investing. With an English school??? Let’s go back a few years.
In 2001 I studied a Master’s degree at Durham University in England. By coincidence on the first weekend in Durham an old friend calls to say he has a job interview in Durham and could he come and stay. Long story short, he got the job and moved into a rented place in Durham. Before the standard 6-month rental contract was up he had moved out and bought a small house for 60,000 pounds. I finished my Master’s and moved back to Japan leaving my friend in Durham. 12 months after buying his little house the market had moved up it was now worth 90,000 pounds, why didn’t I buy one! My friend re-mortgaged and bought a 6 bedroom student house, I didn`t understand why he wanted to complicate his life but….. He has since bought a larger house for him and his wife and they rent out the smaller one. All in the space of 3 years.
So back to me, in late 2002 I returned to Japan and started to think about what was happening in the UK real estate market. How could I get in? The upshot was that I couldn’t, little or no deposit and prices rising so fast I would have to win the lottery to get in. I never play the lottery.
At that time in Japan, as a foreigner, there was no possibility of getting a home loan. Which actually helped me because it wasn’t until the meeting with Smith`s School of English in January 2004 that I REALLY started my financial education. If I had had a home loan approved in 2002 I would have bought a large family house and crippled myself with a home loan, which I couldn’t afford. As it was, thanks to Smith’s School of English, Mark Smith and Japan Investments, today, I am the proud owner of six cash flow positive properties.
On my first meeting with Mark Smith and agreeing to buy a Smith’s School of English, Mark gave me a copy of Richdad Poordad by Robert Kiyosaki. I was ready to learn and devoured the book, realizing how my old friend in England had done so well with his property. Some friend I thought, why didn’t he tell me? I asked him and he replied that I wasn’t ready to learn! He was probably right.
My English school had been open 6 months when I bought my first property. The banks were now offering loans to foreigners with spouse visas. They offered me 30 million with 0 yen down. It as very tempting but I learned, thanks Mark, that my first property should be smaller and more manageable. I found a place in February 2005 and used less than half the available loan, the bank was a little upset. I bought a three-bedroom apartment less than 10 minutes from the center of Kobe and negotiated 6 million yen off of the asking price. Used Japanese property is less desirable than brand new. Also the vendor was selling as an occupied property and wasn’t keen to renovate or even clean! This put me in a good position, as I knew very few Japanese buyers would be interested. Two months of negotiations later I was on the property ladder. I worked hard on the place. Painted and fixed for a week and let the property within a month. A good result.
After reading Robert Kiyosaki`s RDPD and implementing what it had taught me I had moved myself and my family ahead and now had a financial plan. Later and again on Mark Smith’s advice I bought the second book in the series, The Cashflow Quadrant. For those who haven’t read this it discusses: the employees, the self employed, business owners and investors. At this stage my English school was turning over a nice profit, the rental apartment was making me money and I had a full-time job. I was real busy and loving it but my wife and kids were not so happy! The Cashflow Quadrant really helped me see what was happening in my life. I was an employee at the high school, a self-employed business owner with my Smith’s School of English and an investor with the property. But I was spreading myself too thin.
I was enjoying the Smith’s school, but something had to give to allow me more family time. I had to invest at home as well. I had a choice to make, one of my quadrants had to go and I decided the self-employed route was it. I didn’t want to sell such a valuable asset so I investigated the option of getting a teacher in to run the school and then I would be a business owner. I played with the figures and put together a business plan. Then went back to my real estate agent, she is a fantastic person.
In March 2006 I bought my second property, a five-story building with one apartment on each floor. Again, it is an older property but this was fully occupied – instant cash flow!! In fact on changeover day the seller gave me cash, my share of that months rent. It was harder to find a company to give me a loan for this property. The main sticking point was my age! At the time of purchase I was 30 years old and the banks were worried I was TOO YOUNG! It is often said that Japan has a unique culture, people etc. I don’t necessarily agree with that but here I was stumped. In England the banks worry that you can’t pay the loan back if you get too old, lack of personal income, illness etc. However here I had to convince the banks that I was mature enough to take on the loan. It had been a long time since I was too young for anything so I was, inwardly at least, pleased. The turning point was that I owned and operated my own business and once again Smith’s School of English had given me a springboard. Showing the bank that amongst other things I could deal with income and expenditure on a monthly basis. I hurried to complete the deal before April because the acquisition tax on all properties was set to rise from 3% of the purchase price to 4% on April 1st. Not a great increase but I had done my homework and these are the details that can make a difference.
So back to that business plan. I now had sufficient passive property income to make a more informed decision about how to restructure my life. I decided to cut out the self-employed part. I enjoyed the independence and responsibility it bought me but my wife didn’t enjoy the extra hours it took away from family life. I had two choices, sell up the school or put in a teacher/manager. In the end it was my desire to buy more property that made me decide to sell. Once again Smith’s School of English proved true to their word and using the buy, build and sell technique I sold my school in June 2006. Now it is time to go shopping again.
I have an excellent job at a high school in Japan and use this to approach the banks. I don’t buy new properties as they depreciate like buying a new car. I look for 20-25 year old properties that have, I believe, depreciated as far as they will go. Even though Japan loves brand new things and historically doesn’t buy used things there is an inherent value in a piece of real estate. This combined with the fact that Japan has seen 14 years of recession, makes me believe older properties are the best option for me to invest in. Furthermore Japanese society is changing, the bursting of the bubble in 1989 has meant a huge rise in second hand stores and general frugality. Less and less people are buying new cars. The proliferation of so-called `k` cars, which are smaller and more economical to run is yet another indicator that the Japanese are becoming more thrifty. Will this lead to an explosion in the used property market? I doubt it. Will more Japanese be looking at second hand property – definitely. Finally the DIY boom that has started and the general upturn in the economy makes me believe Japan as a great place to invest.
When my friend bought his first property in England, I had to admit I was jealous, “how come I can’t do that?” is a question I asked myself many times. However by being proactive, by educating myself and listening to Mark and Japan Investments I have learnt to spot opportunities. I was somewhat resigned to the fact that I had missed the property bubble in the UK, “it never happens to me”. In truth, I simply wasn’t ready for it to happen to me. Now however I am building a strong financial foundation to look after my family and our retirement. Come invest in Japan, before I buy it all.
Kevin Elliot. Ex Smith’s Franchisee and real estate Investor.
The first property was bought with a loan from MitsuiSumitomo bank and the second with a loan from lifejyutaku loan company.