1. From gross yield to something you can actually keep
The yield figures that circulate in marketing materials are often gross or semi-gross. Serious investors care about what is left after property tax, management, repairs, insurance and realistic vacancy. The Japanese system has its own structure, and getting this wrong can materially change your expectations.
The first step is to list all recurring items explicitly, instead of hiding them in a single percentage guess. Each line below carries a typical range; the key analytical move is to add them up for the specific asset, then compare the resulting net yield to the gross yield in the marketing material. The gap is usually larger than first-time buyers expect.
2. Local property taxes: fixed assets and city planning
Residential property in Japan is typically subject to two local annual taxes:
- Fixed assets tax (kotei shisan zei): standard rate 1.4% of the assessed value, levied by the municipality.
- City planning tax (toshi keikaku zei): standard rate 0.3% of the assessed value in urban planning zones, levied alongside the fixed assets tax.
Combined, these typically represent around 1.7% of the assessed value per year. The assessed value for residential condos is usually 60 to 65% of market price, so the practical cost is closer to 1.0 to 1.1% of purchase price per year. On a ¥20m Tokyo condo, expect roughly ¥200,000 to ¥230,000 of combined annual local property tax. Small residential land reductions and condo-specific allowances can lower this, but they should be verified per asset, not assumed by default. Over a 10 to 15 year holding period, the cumulative effect of these taxes is significant.
3. Building management, repairs and reserves (the kanrihi stack)
For condos, monthly building management and repair reserve fees are key drivers of net yield. They are paid to the building management association (kanri kumiai) and they are not optional.
- Management fee (kanrihi): typically ¥10,000 to ¥25,000 per month for a compact Tokyo condo, covering cleaning, concierge, and routine common-area maintenance.
- Repair reserve (shuzen tsumitate kin): typically ¥5,000 to ¥20,000 per month, funding the long-term scheduled-repair plan (chokirepair plan) of the building. Older buildings often charge more, and reserves can be levied as a one-off assessment if the fund is underfunded.
Under-funded reserve funds, or buildings with large upcoming works, can compress returns even when the headline GRM looks attractive. Always ask for the building's long-term repair plan and the current reserve balance before underwriting an older condo. For whole-building deals, you need an equivalent allowance for common area maintenance and periodic capex, sized to the building's age and structure. Looking only at today's fee level without understanding the reserve's health is one of the most common blind spots among foreign buyers.
4. Property management for the rental side
Separately from the building management association, you also need a property manager for your specific unit, who handles tenant placement, rent collection, lease renewals and minor repairs.
- Standard management contract: typically 3 to 8% of collected rent per month, depending on city, agency tier and scope.
- Sabu-riisu (subleasing with guaranteed rent): 10 to 20% of contractual rent, in exchange for the manager taking vacancy risk. Convenient, but rarely mathematically attractive for a yield-focused investor.
- Re-leasing fees: typically one month of rent paid to the broker at each new tenancy, plus possible advertising or refresh costs.
Foreign buyers without local presence often default to higher-touch management with bilingual reporting, which can push fees above the standard range. That choice is legitimate; what matters is that it appears explicitly in the model, not hidden inside an optimistic vacancy assumption.
5. Insurance and other recurring protections
Fire and earthquake insurance, landlord insurance and other protections add to the cost stack but are non-negotiable for serious investors. The key is not to minimise these costs at all costs, but to price them realistically and see how they impact net returns.
Typical annual cost for a Tokyo condo: ¥10,000 to ¥30,000 for fire insurance, with earthquake insurance adding meaningfully on top depending on building age, construction type and area. Multi-year prepayment can lower the per-year figure. Landlord-specific endorsements (e.g., rent guarantee, tenant default cover) are an additional ¥5,000 to ¥20,000 per year per unit when used.
6. Vacancy, leasing and the small frictions that compound
Vacancy, re-leasing costs, small renovation between tenants and occasional incentives are part of the real world. A robust model includes an allowance for these items rather than assuming perpetual, frictionless occupancy.
Even a modest vacancy assumption, applied consistently, can be the difference between an apparently attractive deal and a mediocre one. For Tokyo central wards, a 5 to 7% annual vacancy allowance is reasonable for compact 1K units near busy stations. For outer-ring stations and family-sized layouts, 8 to 12% is more defensible. The between-tenant period in Tokyo can also include a 1 to 2 month cleaning, light renovation and re-leasing window that does not always show up in "vacancy rate" statistics published in broker materials.
7. Connecting ongoing costs to your target net yield
Once you have mapped recurring costs, you can work backwards from your target net yield to see what gross yield, GRM and financing profile you need. For a stylised Tokyo ¥20m central 1K renting at ¥80,000 per month, the cost stack might look like this on an annual basis: gross rent ¥960,000; vacancy at 7% reduces effective gross income to roughly ¥893,000; property tax and city planning tax around ¥210,000; building management plus repair reserve around ¥240,000; property management at 5% of collected rent around ¥45,000; insurance ¥20,000; small repairs and re-leasing reserve ¥50,000. Net operating income lands around ¥328,000, or 1.6% net yield on price before financing. The headline 4.8% gross has been compressed by two-thirds. This is the calculation that decides whether a deal compounds or not.
The main guide "Financing, Taxes & Fees in Japan: Complete Guide" connects these recurring items to acquisition costs and financing, giving you a coherent picture of long-term cash flow. For an entry-level Tokyo condo underwriting model that plugs these costs into a full cash-on-cash and IRR view, see the Underwriting Template for a Tokyo Condo.
Official sources
- Ministry of Internal Affairs. Fixed assets tax and city planning tax rates
- NTA. Deductible expenses for rental income (management fees, repairs, insurance)
- MLIT. Real property acquisition tax overview
Related guides
- Acquisition costs for foreign investors in Japan. The upfront cost stack at purchase.
- Japan real estate tax for non-residents. Complete multi-layer tax guide including withholding and treaties.
- Capital gains tax on Japanese real estate. How exit taxation interacts with depreciation you claimed during holding.
- Financing costs and their impact on returns. How debt structure interacts with the cost stack above.
- Underwriting template for a Tokyo condo. Where these recurring costs enter the model.