Flow of Income Property Purchase｜7 Steps from Property Search to Settlement and Points to Check Before Contract
Income properties such as entire apartment buildings and sectional condominiums are often purchased with tenants in place (owner change), unlike buying a personal residence, and the profitability of the property is emphasized in loan screening. By understanding the flow and precautions at each stage, you can act confidently when you find a good property.
This article divides the purchase of income properties into 7 steps from property search to settlement and handover, explaining what to do at each stage, points to check before contract, and tips to avoid trouble.
Overall Flow of Income Property Purchase
| Step | Main Contents | Estimated Period |
|---|---|---|
| 1. Property Search | Gather information from portal sites, real estate companies, newsletters | Several weeks to several months |
| 2. On-Site Inspection & Document Review | Visit the site and surroundings, check rent roll and repair history | Several days to 2 weeks |
| 3. Submission of Offer to Purchase | Communicate desired purchase price and conditions to seller | Same day to several days |
| 4. Loan Pre-Screening | Submit property documents and personal documents to financial institution | 1 to 2 weeks |
| 5. Important Matters Explanation & Sales Contract | Confirm contract contents, pay deposit | 1 day |
| 6. Loan Formal Screening & Loan Agreement | Confirm loan conditions, sign loan contract | 2 to 4 weeks |
| 7. Settlement & Handover | Pay remaining funds, register ownership, transfer leases | 1 day |
Periods vary depending on the property and financial institution. Popular properties often receive multiple offers, so it is advantageous to proceed with loan pre-screening early.
Steps 1 & 2: Property Search and On-Site / Document Review
Property information is gathered through portal sites such as SUUMO, HOME'S, At Home, investment portals like Rakumachi and Kenbiya, and direct introductions from real estate companies. Properties not yet publicly listed are sometimes introduced first via newsletters for investors that real estate companies you regularly deal with send out.
When you find a property of interest, request and review the following documents.
- Rent roll (rent per unit, contract start dates, deposits)
- Certificate of registered matters, cadastral map, survey map
- Building drawings, completion and inspection certificates
- Repair history (exterior walls, rooftop waterproofing, plumbing equipment, etc.)
- Documents showing assessed value for fixed asset tax
On site, check the building exterior and common areas, the route from the station, nearby convenience facilities, and number of competing rental properties. How to select properties is explained in detail in "How to Choose Income Properties."
Step 3: Submit Offer to Purchase
When you decide on the property you want to buy, submit an offer to purchase (purchase application form) to the seller. The main items to include are as follows.
- Desired purchase price
- Payment method (whether using financing or cash) and whether to include a loan contingency
- Preferred contract and handover dates
- Other conditions (boundary clarification, removal of remaining items, etc.)
- Validity period
If multiple offers come in at the same price, priority is generally given to those who submitted earlier or those with conditions easier for the seller to foresee, such as cash purchase or earlier settlement dates. If you negotiate price, prepare grounds such as yields of comparable properties and local rent market prior to submitting the offer.
Steps 4 & 6: Loan Pre-Screening and Formal Screening
If using financing, you undergo loan pre-screening at a financial institution before or shortly after submitting your offer. After signing the sales contract, you undergo formal screening, and if approved, enter into a loan agreement (monetary consumption loan agreement) with the financial institution.
It is common to include a loan contingency (loan special provision) in the sales contract. This clause allows the buyer to cancel the contract and get the deposit back if the planned loan does not come through. The deadline for the contingency, the financial institution involved, and the loan amount should be specifically stipulated in the contract. The structure of financing is explained in "Basics of Real Estate Investment Loans."
Step 5: Explanation of Important Matters and Sales Contract
Before the sales contract, a Real Estate Transaction Specialist (宅地建物取引士) explains important matters to you. This document includes information on the property’s rights, legal restrictions, infrastructure conditions, contract cancellation terms, and more. Ask any questions on the spot and only sign after you are satisfied.
Examples of items necessary at contract include:
- Identification documents
- Seal (official registered seal and certificate of seal registration often required when using financing)
- Deposit (usually about 5 to 10% of sale price)
- Stamps (to affix on contract copies held by seller and buyer each)
3 Points to Confirm Before Contract
- Whether the seller is the true owner: Confirm owner on the certificate of registered matters. To prevent fraud by “land scammers” (jimen-shi) impersonating owners to deceitfully obtain funds, real estate companies and judicial scriveners carefully verify identities. If the seller or their agent’s explanations seem suspicious, do not rush the contract.
- Contents of lease agreements: Confirm that the rents in the rent roll match the contracts, check for arrears or disputes, and whether any sublease agreements remain.
- Scope of seller’s liability for contract non-conformity: Individual sellers often limit or disclaim liability by special contract clauses. Older properties especially require careful pre-confirmation of building condition.
Step 7: Settlement and Handover
On settlement day, the loan is disbursed by the financial institution and the remaining funds are paid to the seller. A judicial scrivener applies for registration of ownership transfer and mortgage registration and hands over keys and lease contracts.
For properties sold with tenants in place (owner change), the following settlements are also conducted.
- Transfer of security deposits held from tenants (usually offset against sale price)
- Proration of current month’s rent and fixed asset tax and city planning tax
- Notification of owner change and rent payment destination to tenants and management company
Costs incurred at purchase are explained in detail in "Expenses When Purchasing Income Properties."
Summary
- Income property purchase progresses through 7 steps: property search, document review, offer submission, loan screening, contract, formal screening, and settlement.
- Submit offer based on evidence, and proceed with loan pre-screening early.
- Include loan contingency in the sales contract, clearly stipulating deadlines and conditions.
- Confirm ownership, lease agreement contents, and limits of seller liability before contract.
- At settlement, settle deposits, rent, fixed asset tax proration, and notify tenants.
Top image: Photo by Alicia Christin Gerald on Unsplash (image)
About this article
- Author
- Xiao Li（Asset Management）Qualifications: Real Estate Transaction Specialist, Building Management Specialist
The operational lead for real estate sales and property management. At NTT Communications, he spent more than eight years managing DX projects for major enterprises, overseeing the full process from requirements definition through delivery and operations. At TLL, he handles the entire deal management cycle for income-producing properties, including sales strategy planning, investor sourcing, contract execution, settlement, and handover, providing well-matched opportunities and smooth transaction execution for domestic and international investors and operators.
View profile → - Publisher
- TLL合同会社宅地建物取引業 東京都知事(1)第108202号住宅宿泊管理業 国土交通大臣(01)第F03424号
Data in this article cite their source and as-of date. Market conditions and regulations change, so check the latest information and consult a professional before deciding. Translated from the Japanese original.
