Some property owners live in part of their acquired apartments or houses. This type of property is called housing with rentals (賃貸併用住宅 or chintai heiyo jutaku). When purchasing such a property, experienced investors might consider use of Flat 35 as finance option rather than regular “Apartment Loan” offered by banks because the rate is flat over the 35 years.
Flat 35 is applicable to housing with rentals but note the requirements
I asked Japan Housing Finance Agency whether or not Flat 35 can be used for housing with rentals. Their answer was YES (!). But please note the scheme is only applicable to the owner’s residential area, which must be 70 m2 or over. Suppose you intend to acquire 3-unit apartment and to live in one of them. Flat 35 can be used for your residential area only if your residential area is 70 m2 or over. For the rest, you will have to rely on other financial options such as regular apartment loan.
Bank loan tends to be difficult when Flat 35 already mortgaged the property
Suppose you are happy about using Flat 35 only for your residence and are now trying to discuss with bank for finance option for the rest of the property. However, banks in general will give low valuation for the property if partially financed by Flat 35 because it is already mortgaged by Flat 35. The loan conditions tend to become harder compared to tenant-only apartment.
Overall, we do not recommend Flat 35 for purchase of housing with rentals because:
- Two loan schemes by two different loan providers are likely to make your finance management complex.
- Benefit of Flat 35 may be minimal especially when you purchase a property with many units.
- Bank valuation is likely to be lower compared to typical bank financing for rental-only apartment; you may have to prepare a lot of cash for self-financing portion.
In the next article, I would discuss how you can tap bank loan for housing with rentals.