Approaching the “50 Million Yen Arena” of Real Estate Investment Through Index Investing | The Royal Road to Cultivating Seed Money and Knowledge Simultaneously from Your 20s

To enter the world of real estate investment, a certain level of annual income and personal capital is required. Even if you want to start in your 20s, the reality is that the hurdles to entry are quite high because your annual income may still be low or you may not have saved enough personal capital yet.

That is precisely why I believe it is very important during that period to study real estate investment and accumulate knowledge, and to make an effort to increase your annual income while saving personal capital.

As for ways to save personal capital, savings are of course a good option. Investment can only succeed once you have savings. On top of that, a powerful option for building capital is “investing in index funds”.

Building 50 million yen in financial assets requires 10 to 20 years of time

If you want to build financial assets of 50 million yen or more, it will take 10 to 20 years. Rather than just saving money during that time, it is easier to reach your goal if you simultaneously engage in stock investment to grow your assets efficiently.

For example, if you invest a lump sum and manage it at an annual rate of 4-6% for 20 years, your principal will grow by approximately 2.2 to 3.2 times. Even with monthly installment investments, if you invest 50,000 yen per month at an annual rate of 5% for 20 years, the calculation shows that a principal of 12 million yen will grow to approximately 20.5 million yen (these are simple calculations that do not consider taxes or fees, and do not guarantee future results).

Calculations for monthly installments of 50,000 yen at a 5% annual rate
・After 10 years: 6 million yen principal → approx. 7.8 million yen
・After 20 years: 12 million yen principal → approx. 20.5 million yen

Three steps for those aiming for real estate investment

If you are aiming to enter real estate investment, I believe it is important to take the following steps.

1. Consider asset formation through index funds as your core strategy

2. Continue acquiring knowledge and studying

3. Cultivate assets and knowledge simultaneously over a long period of 10 to 20 years

By preparing with this long-term perspective, the path to real estate investment will steadily open up.

Index investing is slow to grow

Leveraging time to show its true potential

When building assets over a long period of 10 or 20 years, index investing centers on monthly installment investments. If asked, “Will investing 50,000 yen a month change the future 10 or 20 years from now?” I would answer, “It will change it significantly.”

On the other hand, if you want to build significant assets within 2, 3, or 5 years, investing in index funds is not suitable. This is because index investing only shows its true potential when you take a long time horizon.

Materials from the Financial Services Agency also introduce historical data showing that when diversifying investments into domestic and international stocks and bonds through monthly installments, there were cases where the principal was lost over a 5-year holding period, whereas over a 20-year holding period, all cases resulted in a positive return of 2-8% per year. It is clear that the longer you hold, the smaller the tendency for results to fluctuate.

If you want to double your assets in the short term, concentrate your investment in individual stocks

If you are thinking of doubling your stock investment assets in a short period, the method will center on analyzing stock prices, selecting stocks, and investing with the belief that those stocks will rise. The result is close to a binary choice of whether it goes up or down, and winning or losing is roughly a fifty-fifty chance. If you subtract trading commissions and taxes, the expected results are even more likely to decrease.

While there is potential to significantly increase your assets, there is also the potential to significantly decrease them. That is what concentrated investment in individual stocks entails.

Therefore, you will have to choose one of the following two strategies.

• Accept the speed of assets growing slowly through the compound interest of index investing

• Adopt a concentrated investment strategy in individual stocks to increase them significantly in the short term

The effects of compound interest become more apparent in the later stages

One thing I can say is that even if the speed of asset expansion is slow and takes time, investing in index funds has a high probability of returning two or three times the invested amount by making time your ally.

When that happens, you enter a phase where your money grows naturally even if you spend almost no time on stock investment. The realization of operating with compound interest becomes clearer the further along you get.

Choosing the certain path or the path of taking a gamble

The reason I chose the ‘certain path’

Which path would you like to choose: the certain path or the path of taking a gamble? To build assets, you must choose one of these two.

When I first started stock investing, I thought that stocks were things you bought low and sold high, and that the difference was your profit. However, that method never actually worked for me. Therefore, I made the choice to walk the certain path without hesitation.

In the world of investment, that means committing to investing in index funds. For me, I believe this is the most certain path.

What determines the speed of growth is ‘contribution power’

I can almost hear people saying, ‘That takes too long, you can’t get rich that way.’ I think that feeling is natural. However, the reason asset growth feels slow is not so much because the returns on stock investment are low, but mainly because your own savings, in other words, your contribution power is low.

From the perspective of an experienced investor, choosing not to use index investing for this reason feels like focusing on the wrong point.

If you feel you are not getting sufficient investment results, the first thing you should focus on is ‘how much you can save’. How much surplus can you create by subtracting your expenses from your income? This is the most important point in investing.

Three things to review when you don’t reach your goal

This is more of a matter of mindset and goal setting than investment performance. Depending on your goal, how much you should be saving now changes. If you are not reaching your target amount, you will need to review one of the following.

1. Extend the investment period

2. Increase the monthly investment amount

3. Reviewing investment methods and strategies

If you want to earn a lot of money in a short period, that is fine. How you spend your own money is for you to decide.

However, looking back on my own experience of over 10 years, I feel that the choice to invest in index funds was a perfect fit for me. Even if the investment returns are modest, if your annual contributions grow to 3 million, 4 million, or 5 million yen, your assets will steadily increase just from that.

I believe that in the long run, this is a more reliable way to build assets than repeatedly engaging in short-term trading to aim for large returns with small amounts of capital. Which path you choose depends on your goal setting. It is important for the investor themselves to clearly identify that.

Financial assets of 30 to 50 million yen required for a single-building income property

Financial assets are valued more than annual income for loans

When you consider income-generating real estate, single-building properties such as new wooden apartments or old wooden apartments come into play. When the price reaches 100 million to 150 million yen, it becomes quite difficult to get a loan unless you have over 10 million yen in personal funds and 30 to 50 million yen in financial assets as backing (conditions vary depending on the financial institution and timing).

Of course, there are requirements for annual income, but what becomes even more important is the amount of financial assets. So, how do you build those 30 to 50 million yen in assets? Looking back at myself, I believe it was thanks to index investing.

10 years ago, I wasn’t even on the starting line for a loan

10 years ago, when I was looking for properties to invest in real estate, even when I visited real estate agents, I wasn’t even on the starting line for a loan for a studio apartment. At the time, neither my financial assets nor my annual income were sufficient.

10 years have passed since then, and I have finally grown to a profile that can purchase properties. I believe this is solely because I was able to efficiently increase my assets through index investing. If I hadn’t been doing index investing, my assets might have remained at about half of what they are now.

Thinking about it that way, I feel once again that the period I spent continuing to invest through accumulation from a young age was a necessary process to receive loans from banks, leverage them, and purchase real estate.

The period when you cannot enter is a “period of preparation”

Don’t rush into full loans or subleasing

It took me over 10 years to reach a profile that could enter the single-building income property market. During that time, I considered all options, including condominium units, detached houses, and old apartments in rural areas. As a result, I think I was able to learn a lot during that period.

The feeling of “wanting to start quickly” is something everyone has. However, it is better to avoid rushing and compromising on conditions, jumping at terms like “full loan” or “sublease.” If you cannot enter at that point, it is a sign that you have not yet reached a profile that can enter.

The most efficient way to create seed money

Now is the time to grit your teeth, work hard, increase your annual income, and save money until you are at the table for loans from financial institutions. If you spend that period only saving, the speed at which your assets increase will be slow. Therefore, I believe that the most certain and efficient way to save personal funds is “index investing.”

In fact, by accumulating index investments for over 10 years, I built large assets, and as a result, I was able to reach a profile that could receive loans from banks for real estate investment.

For investments that become the axis of your life, walk the royal road

Keep going even if people say it’s ‘too slow’

I am aware of opinions such as ‘index investing takes too long to be called investing’ or ‘if you do that, you’ll be old by the time you see results.’ On the other hand, I have also seen many people who, driven by such thoughts, dabbled in high-yield funds or engaged in repeated short-term trading, only to end up losing their money. I was one of them once.

No matter how much people around me say it ‘takes time,’ is ‘slow,’ or is ‘inefficient,’ I have no intention of stopping because I have made this method the core of my life’s investments. Ultimately, I am confident that I am steadily building assets. If you feel that ‘money is accumulating too slowly,’ you should simply increase your contribution amount. I believe that is where the focus should be.

The base is index funds for global stocks or the S&P 500

Investing in financial assets that serve as the core of your life should be safer and more reliable. In that process, I think it is a matter of personal freedom to buy high-dividend ETFs, J-REITs, or individual stocks for a change of pace. Even so, the base should be investing in index funds such as global stocks or the S&P 500, and it is important to never lose sight of the core of long-term management.

If your focus wavers, it will become difficult to save enough capital even if you want to invest in real estate. The world is full of investment projects promising ‘double-digit yields’ and crowdfunding schemes showing high returns, all of which look attractive. Nevertheless, I believe that one should walk the royal road of investing.

Rather than chasing high yields or returns, increase your contribution amount to thicken your principal

This way of thinking is very important. If you can accept this mindset and build a foundation of financial assets through index investing, you should be able to get closer to the ’50 million yen’ arena required to enter the world of real estate investment.