As commented in the previous article, there are always some stories behind high yield. Banks see risks there while income gain seekers, bearing bank financing costs in mind, the higher the yield is, the better. One of the typical reasons for higher yield is distance from central Tokyo.
Rough picture of property yield in Tokyo area
Where can they find properties that generate sufficient levels of rentals to cover the costs and to leave some profit to make the business sustainable? The map below may give you a rough picture of property yield distribution in Tokyo Area. Please note the map is just a rough indication. Big cities like Yokohama have many buildings with low to medium level yield although the map suggests the city is included in high-yield area.
Low-yield is justified by the edge given by the location
Across age categories of newly built, 10-year-old, and 20-year-old and maybe 21 y.o.or over, the respective yield map basically follows the same pattern. The closer the property location is to central Tokyo or popular area of Tokyo, the lower the yield is or the more expensively the property sells.
Several years ago, we were very frequently requested to search for investment properties in fashionable areas such as Minato-ku and Shibuya-ku. There are not many properties on sale in those areas compared to less fashionable 23 Wards of Tokyo. If any, the yield tends to be unbelievably low. The land value is very high in the first place relative to the rentals which are still higher than other areas. The yield is low mostly because of high land value which represents high potential of business and other utility.
Yield comparison for properties built in 2006~2008
It is hard to make head-to-head comparison among different 23 Wards of Tokyo in a specific period of time because supply of new buildings differ; commercial areas actively construct new buildings while areas with less business activities do not need many new ones. However, I tried to pick up RC buildings priced 200 million level and only found one building priced under 100 million yen in Adachi-ku.
The table above is in line with the tendency of yield distribution suggested in the map.
Everyone prefers higher yield but bear in mind the risk in too high yield
In general, high-yield property implies potential of high income gain and also of high risks. As long as you are aware of this and have a clear vision of future business with the property, there should be no problem of acquiring high-yield property. You might be very successful if you elaborate your business plan, have an experienced property manager, always keep close eyes on the property state, and conduct appropriate maintenance in a timely manner. But personally, I would not recommend any property with too high yield compared to similar ones in the same area.
For example, if you find an apartment too reasonably priced which has over 10 units in Tokyo, please thoroughly review the background information. The previous or initial owner might have built an extension after the initial construction plan was authorized. Or the building may have other illegal construction like floor-area ratio or building coverage exceeding legal limit. They are major drawback of the property because banks turn down finance application. Even if you are cash buyer, it will affect when you sell the property to someone who considers bank finance.
Medium-yield property in Tokyo’s 23 Wards is a safe option for beginners
Overall, 5~7% are the yields we often see in Tokyo’s 23 Wards if they are located in the areas with many activities going on throughout the year. Constant population flow supports the demand for lease property. You may not have to worry about long vacancy if any of the tenants moves out. If you are a beginner of property investment in Japan, I would suggest affordable property in 23 Wards within walking distance (desirably 10-minute walk) from the nearest station.