Ep197: Ziv Nakajima-Magen – When Investing in Asia Listen Much More Closely

By Andrew Stotz | 03/02/2020 |

Listen on

Apple | Overcast | Stitcher | Spotify | Other

Guest profile

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 diligence

In our minds, due diligence tends to be a very practical sort of numbers related matter. So we look at income streams and risk factors in the sense that something might suddenly happen. But we don’t think about cultural and emotional differences when we’re dealing in another country. So, yes, the numbers probably apply the same anywhere you go. But there are a lot of other factors that you need to take into account.

Not all real estate locations are the same

Relying on your knowledge that was gained in another location when you’ve been investing in a familiar market might not be applicable. Your market might be the stark opposite of the one that you’re going into next.

Learn about the professionals that you’re dealing with

Understand how professionals in the new location you want to invest in work. Also, learn to trust their advice, and try to read between the lines when they say something or trying to gauge what it is that they might be trying to say to you but are maybe avoiding for various reasons.

Andrew’s takeaways

Avoid downtime in between tenants

Rental property owners often forget about the damage that can be done by having downtime in between tenants. That can destroy what looks like a beautiful yield.

Don’t focus on numbers only

Don’t be the Excel expert type that focuses on numbers only. Not everything can be measured in a spreadsheet. The most important things often in business are unknown, unknowable, and unmeasurable.

A little resistance in Asia could mean trouble

In Asia, a tiny amount of resistance is a signal that you have to stop pushing something through and ask yourself why you’re getting this little bit of resistance. One of the biggest mistakes that people make coming to Asia from the West is that they push through and think, “let’s get this done.” That can be a huge mistake.

Actionable advice

If you’re investing away from your familiar market, and especially if it’s for the first time, focus a lot more on the companies and the professionals that you’re going to do business with. Because you’re not going to be present in person and you’re not familiar with that market, you’re not going to be able just to walk in there and make things right again.

So what you really want to do is make sure that you choose the right people to work with. And once you feel confident that you’ve done that, listen to them, talk to them and try to find a way to align your goals with that particular environment and what the people working in it are suggesting to you.

No. 1 goal for the next 12 months

Ziv’s goal for the next 12 months is to set up his business infrastructure, automate processes, and get things done a lot more smoothly and profitably.

Parting words

“You don’t have to stay in your backyard and what you’re familiar with. If the attractive investments are not there, just go out and explore. The world is your oyster.”

Ziv Nakajima-Magen

Connect with Ziv Nakajima-Magen

Andrew’s books

Andrew’s online programs

Connect with Andrew Stotz:

About the show & host, Andrew Stotz

Welcome to My Worst Investment Ever podcast hosted by Your Worst Podcast Host, Andrew Stotz, where you will hear stories of loss to keep you winning. In our community, we know that to win in investing you must take the risk, but to win big, you’ve got to reduce it.

Your Worst Podcast Host, Andrew Stotz, Ph.D., CFA, is also the CEO of A. Stotz Investment Research and A. Stotz Academy, which helps people create, grow, measure, and protect their wealth.