1. Why financing is not just an afterthought
Many investors treat financing as something to sort out after they "like" a deal. In reality, the debt structure is part of the deal. The same asset can produce very different cash-on-cash and risk profiles under different interest rates, amortisation speeds and equity contributions.
In Japan, the interaction between relatively low nominal rates, amortising structures and acquisition costs deserves careful attention.
2. Interest, principal and the shape of cash flow
Amortising loans blend interest and principal into each payment. For yield-focused investors, this means part of what feels like "cash flow" is actually equity returning to you slowly. Distinguishing between true return on equity and mere return of equity is essential when comparing deals.
3. Stress-testing interest rate and covenant risk
Even in a relatively stable rate environment, serious investors stress-test their financing. How sensitive is the deal to modest changes in rate? What happens if you need to refinance under less favourable conditions? Are there covenants or LTV triggers that could force action at the wrong time?
These are not edge cases; they are part of responsible underwriting.
4. Connecting financing to GRM and acquisition costs
Acquisition costs and GRM tell you about the price you pay relative to rent and the true all-in basis. Financing tells you how that cost interacts with your equity over time. A slightly higher GRM with excellent financing terms can sometimes be preferable to a superficially "cheap" asset with weak funding.
The key is to model both sides in a single, coherent framework rather than optimising one in isolation.
5. Defining your own leverage policy
Beyond the math, each investor needs a clear leverage policy: preferred LTV bands, comfort with recourse, and rules for concentration by lender and by line. This policy then constrains which deals you will even consider seriously.
6. Where to integrate this in your playbook
Financing is not a standalone topic; it connects to GRM corridors, yield targets, tax treatment and portfolio construction. The core guide "Financing, Taxes & Fees in Japan — Complete Guide" is where these pieces come together in more technical detail, with a view to long-term, repeatable decision making.