Assumptions and Facts on Tokyo Property Yields

Purchasing investment property has been the average person’s way to wealth for centuries. One very popular strategy the world over is to create a portfolio of property of which the net rent generated is enough to fund a work free lifestyle.

This is achievable and takes a lot of patience. It also takes an agent you trust to help you achieve this goal.

When working towards building passive cash flow, it is important to understand what the average yield is for the target type of property you are after.

In central Tokyo, the average yield to date is 4.5%, plus or minus depending on things like location, building age and unit size in the case of condominiums. If one looks at the average across all 23 wards, it is more like 5.5% in this market.

First time investment property buyers in the city are skeptical when they hear this. Often times, one motivation for wishing to purchase Tokyo property is that they have a friend who owns in Tokyo making a 7% yield.

There can be many reasons for this. The friend purchased a property 6 to 8 years ago. The friend purchased a very old property in cash as very old properties don’t qualify for financing and thus have lower price points. The friend wasn’t specific in where exactly the property is in Tokyo as it is a big city with large variations in pricing. Minami Senju is very different from Azabu-Juban.

Sometimes buyers heard the story from their friend years ago and time erased these details from the mind leaving only the “Tokyo” and “7%” parts.

Most often then not, when the buyer gets more details from the friend, it turns out there is some reason that the property is able to produce a higher yield that doesn’t match with the buyer’s desired type of property in today’s market.

Japan has a very regulated real estate industry and before rushing to judgment regarding an agent’s capability, it would serve better to ask your friend more details about their property first. Location, age and type of property are all essential as well as when they purchased.

Then go to an agent with this knowledge to find out the differences between your friend’s market and the current situation. This strategy will save you a lot of time and effort, streamlining the decision to whether investment property in Tokyo works for you or not.

 
 

Editor’s Note: Shirley is Sales Director for Housing Japan. She has sold billions of yen of real estate and arguably has the highest client satisfaction rating in the industry. Shirley writes a weekly column for Housing Japan readers to help illustrate common challenges buyers and sellers have when trading Tokyo residential property.