As interest in real estate investment grows, we hear from many people that they do not know how to get started and are worried about the risk of failure. We are proud to be a part of the real estate investment market in the year 2025.
The real estate investment market in 2025 remains an attractive investment vehicle, despite the impact of interest rate trends and tax code changes. In this article, we will systematically explain the basics of real estate investment, from basic knowledge to property purchase, as well as management and operation, in a way that even beginners can understand.
Real estate investment is an investment method that can generate stable income with the right knowledge and proper procedures. Through this article, we will provide you with practical information so that you can start real estate investment with confidence.
Real estate investment is an investment technique in which real estate such as condominiums, apartments, and detached houses are purchased to generate income from rental income and capital gains from sales. Compared to investments in stocks and bonds, real estate investments are used to hedge inflation and to prepare for inheritance taxes, as they involve the ownership of a physical asset.
The income structure of real estate investment can be divided into the following two main categories
Income gains (rental income) are the ongoing income from renting out properties to third parties. It is suitable for long-term asset building as a stable monthly rental income can be expected. On the other hand, capital gain (gain on sale) is the profit obtained by selling a property at a higher price than when it was purchased. Since it is greatly affected by market trends and location conditions, it is important to determine the right timing.
The real estate investment market in 2025 is an environment where multiple factors are intertwined in a complex manner. While interest rates on real estate investment loans are on the rise due to the normalization of the Bank of Japan's monetary policy, the amount of investment will reach 5 trillion yen for the full year 2024, exceeding the pre-Corona 2019 level.
While construction costs continue to rise, yields have shown a flat to slightly decreasing trend due to rising real estate prices, especially in central Tokyo. However, rising rents are partially offsetting price increases, and it is possible to secure profitability through appropriate property selection.
To better understand the characteristics of real estate investment, the following table provides a comparison of major investment methods.
| Investment Method | Initial Investment | Liquidity | Profitability | Risk | Management effort |
|---|---|---|---|---|---|
| Real estate investment | High (from several million yen) | Low | Medium to high | Medium | High |
| Stock investment | Low (from several tens of thousands of yen) | High | High | High | Low |
| Fixed Income Investment | Medium (from several hundred thousand yen) | Medium | Low to medium | Low | Low |
| J-REIT | Low (from tens of thousands of yen) | High | Medium | Medium | Low |
Although real estate investment has the disadvantages of high initial investment and low liquidity, its stable profitability and the sense of security provided by owning physical assets are major advantages. Another unique feature is the leverage effect, which allows investors to invest more than their own capital.
1. Securing a stable source of income
The biggest advantage of real estate investment is the stable monthly rental income. Unlike dividends from stocks, you can expect continuous income as long as you have tenants. If the property is in an appropriate location, it is possible to secure a stable income for a long period of time.
2. Inflation hedge effect
During periods of rising prices, real estate prices and rents tend to rise in tandem. Real estate investment can preserve the value of assets that would otherwise be eroded by cash or deposits.
3. Leverage Effect
By utilizing a real estate investment loan, it is possible to invest several times the amount of one's own funds. For example, you can purchase a 20 million yen property with 5 million yen of your own capital and aim for a larger profit.
4. Effect as a substitute for life insurance
Group credit life insurance is attached to the investment loan, and in the event of an emergency, the remaining loan balance will be paid off. The remaining family members will inherit a debt-free, income-producing property that will provide a continuous source of income.
Inheritance Tax Prevention
Since the assessed value of real estate is lower than its market value for inheritance tax purposes, inheritance taxes can be reduced compared to holding cash. In particular, in the case of rental properties, the assessed value is further reduced.
6. Income tax and inhabitant tax savings
Depreciation and various other expenses incurred from real estate investment can be used to reduce income and inhabitant taxes by aggregating profits and losses with employment income. In particular, those with taxable income of 9 million yen or more can expect significant tax savings.
7. Income in lieu of pension
Amidst growing concerns about the public pension system, rental income from real estate investment can function as a private pension. It can ensure a continuous source of income even after retirement.
8. Preservation of asset value
Land is a finite resource, and especially in densely populated areas, it can be expected to preserve its value over the long term. Although the building portion depreciates, it is possible to maintain asset value through appropriate maintenance.
9. Expandability as a business
Accumulating successful experiences will enable you to own multiple properties and expand the scale of your business. You can develop your real estate investment as a business and aim for greater profits.
1. Vacancy risk
The most important risk is the occurrence of vacancy. If there are no tenants, rental income will not be earned and the burden of loan repayment and management costs will continue. This risk should be minimized through location selection and appropriate rent setting.
2. Rent delinquency risk
Rent arrears by tenants may occur. If the arrears become prolonged, legal proceedings will be required to resolve the situation, which will be time-consuming and costly.
3. Repair and maintenance costs
Periodic repairs and maintenance will be required as the building ages. Large sums of money may be required to replace air conditioners and water heaters, paint exterior walls, etc.
4. Risk of rising interest rates
If you have a loan with a variable interest rate, there is a risk that your repayment amount will increase due to a rise in interest rates; this is especially important in the 2025 financial environment.
5. Risk of Decline in Real Estate Value
Property values may decline due to economic conditions or a decrease in the local population. The risk of the purchase price falling below the purchase price at the time of sale should be considered.
6. Low liquidity
Real estate takes longer to sell than stocks. It is difficult to respond to sudden demand for funds and may take several months to convert to cash.
7. Disaster risk
There is a risk of damage to properties due to natural disasters such as earthquakes, fires, and floods. Insurance coverage provides a certain level of compensation, but complete restoration may be difficult.
8. Time and effort for property management
It takes a considerable amount of time and effort to deal with tenants and manage the property. Outsourcing to a management company can alleviate this, but there will be an outsourcing fee.
| Risk items | Main countermeasures | Effectiveness |
|---|---|---|
| Vacancy risk | Focus on location and appropriate rent setting | High |
| Rent delinquency | Strengthen tenant screening, use guarantee company | Medium |
| Repair cost | Reserve for repairs, selection of new/newer buildings | Medium |
| Rising interest rates | Fixed Rate Selection / Early Repayment | Medium |
| Decline in value | Focus on location and future prospects | High |
| Disaster risk | Insurance and earthquake resistance | Medium |
Through proper risk management, it is possible to secure stable income while minimizing the disadvantages of real estate investment.
Before starting a real estate investment, it is important to set clear objectives and a budget. The purpose of investment differs from person to person, such as "to provide a pension for retirement," "to prepare for inheritance tax," "to secure additional income," and so on. The appropriate investment strategy and property type will vary depending on the objective, and should be clarified at the outset.
In setting a budget, accurately ascertain the amount of personal funds and available borrowing capacity. Generally, it is estimated that you will need 20-30% of the property price as personal funds and be able to borrow 7-10 times your annual income. However, it is recommended that you consult with a financial institution in advance, as this varies greatly depending on your attributes (annual income, place of employment, age, etc.).
Successful real estate investment requires adequate knowledge acquisition. Acquire basic knowledge through books, seminars, and the Internet. It is especially important to deepen your understanding of the following areas
A wide range of knowledge is required, including real estate market trends, taxation and laws, financing systems, property evaluation methods, and rental management practices. In addition, learning about the experiences and mistakes of actual investors will help you understand the risks in advance.
There are multiple styles of real estate investment, which should be selected according to one's financial resources, time, and risk tolerance. The main investment styles are as follows
One-room condominium investments are suitable for beginners because they can be started with relatively small amounts of money and require little management effort. On the other hand, single building apartment/condominium investments can be expected to generate greater returns, but require a larger initial investment and management burden.
Investments in detached houses have stable asset values because they come with land and are targeted at families, so long-term occupancy can be expected. While commercial real estate investments can expect high yields, they are characterized by tenant risk and susceptibility to market fluctuations.
Property selection is the most important factor in successful real estate investment. It should be evaluated comprehensively from the following perspectives.
In terms of location, check the distance from the nearest station, the surrounding environment, and future development plans. Important factors include a 10-minute walk from the station, commercial and medical facilities, and public safety.
Regarding the condition of the property, we will investigate in detail the age of the building, the structure, and the condition of the facilities. Newly built properties are popular with tenants because of their new facilities, but they tend to be expensive and have low yields. Used properties are less expensive and can be expected to generate high yields, but there is a risk of incurring repair costs.
In evaluating profitability, we calculate not only the surface yield but also the real yield and compare it with the surrounding market price. If the surface yield is significantly higher than the market price, there is a possibility that the property has some problems, and caution is required.
Once you find a property you are interested in, be sure to conduct a site survey. It is important to directly confirm information that cannot be found on the Internet or in documents alone.
During the on-site survey, we will check the condition of the property's exterior and common areas, the surrounding environment, transportation access, and commercial facilities. By visiting at different times of the day, we can also ascertain noise and security conditions.
In the property evaluation, we conduct a comparative analysis with similar properties to determine a fair price. It is important to conduct an objective evaluation not only with the data provided by the real estate agency, but also by researching rental market rates and sales cases in the surrounding area yourself.
Once a property has been selected, preparations for financing should be made. Market interest rates for real estate investment loans range from 1.5% to 4.0% per year as of 2025, and vary widely depending on the financial institution and loan terms.
Undergo preliminary screening at several financial institutions and select the institution offering the most favorable terms. City banks, regional banks, shinkin banks, non-banks, etc. all have different characteristics, so it is important to make comparisons.
Documents required for the examination include withholding tax certificates, tax returns, property documents, and proof of personal funds. The examination period is usually one to two weeks, but may vary depending on the property and borrowing conditions.
Once financing is secured, a purchase offer is made to the seller. The purchase offer includes the desired purchase price, financing terms, and desired delivery date.
In the price negotiation, an appropriate price is offered based on the condition of the property and the market rate. It is important to collect information from the real estate agency, as the room for negotiation varies depending on the seller's reason for selling and the degree of urgency.
Other conditions that are subject to negotiation include repairs and cleaning of facilities, and taking over the terms of the current tenant's contract.
Once the purchase offer is accepted, a purchase agreement is concluded. Before signing the contract, the buyer will receive an explanation of important matters and fully confirm detailed information about the property and the terms of the contract.
A deposit (usually 5-10% of the purchase price) is paid at the time of contract. Cancellation of the contract after it has been signed will require the waiver of the deposit or the payment of a penalty fee, so it is necessary to make a careful decision.
The contract contains important information such as the purchase price, delivery date, financing covenants, and liability for defects, so be sure to confirm any points that are unclear.
After the purchase agreement is signed, a formal loan application is made at a financial institution. Additional documents such as a contract and a statement of important matters will be required for the main application.
After loan approval, the settlement date will be arranged. At the settlement, payment of the remaining balance, registration of transfer of ownership, and handover of the keys will take place at the same time. A judicial scrivener will be present to ensure that the legal procedures are carried out.
After the settlement is completed, the property is handed over to the tenant. If there is a current tenant, the lease contract, security deposit, and key money will be transferred.
After the handover, proceed with the procedures for starting operations, such as obtaining fire insurance, signing a contract with a management company, and preparing tax returns.
By steadily following the above 10 steps, you can safely and surely start investing in real estate. It is recommended that you proceed with professional advice at each step.
Success after purchasing a property depends on proper rental management. Rental management operations can be broadly categorized into "tenant management" and "building management.
Tenant management includes tenant recruitment, tenant screening, contract signing, rent collection, and move-out procedures. Maintaining a good relationship with tenants promotes long-term occupancy and ensures stable income.
Building management includes daily cleaning, facility inspections, repair responses, and statutory inspections. Proper maintenance maintains property value and enhances tenant satisfaction.
There are two ways to perform these tasks: self-management and outsourced management. Self-management is less expensive, but requires more time and effort. Outsourced management is more expensive, but provides professional services and reduces the burden on the owner.
When choosing to outsource management, it is important to select the right management company. Make a comprehensive evaluation from the following perspectives.
Customer acquisition ability is the most important factor. Select a company that maintains an occupancy rate of at least 95% for managed properties. Since shortening the vacancy period is directly related to profitability, it is important to select a company with a proven track record.
The number of units managed is also an important indicator; a company that has managed more than 10,000 units is considered to have accumulated know-how and an organizational structure in place. However, not only large companies but also community-based companies should be considered.
Check the response of the person in charge. Evaluate the speed of response, the ability to make proposals, and the wealth of expertise in the interview. Since this will be a long-term relationship, it is important to select a company with a reliable contact person.
The market rate for outsourced management fees is around 5% of rent income. A company that is too cheap may have service quality problems, while one that is too expensive will put pressure on profitability. Compare and contrast services at a reasonable price.
To minimize vacancy risk, effective vacancy control measures must be implemented.
Appropriate rent setting is of utmost importance. If the rent is too high compared to the surrounding market, tenants will not move in, and if it is too low, profitability will deteriorate. Conduct periodic market surveys and set rents that are appropriate for the market.
Improving the attractiveness of the property is also effective. Differentiate your property from competing properties by remodeling the rooms, updating facilities, and improving the Internet environment. It is important to implement these measures in a cost-effective manner.
Strengthen recruiting activities by requesting multiple real estate agencies, enhancing Internet postings, and improving the response to previews. Attractive property introductions using photos and videos are also effective.
Consider also reviewing occupancy requirements. Relaxing conditions such as allowing pets, musical instruments, and foreigners can expand the tenant base. However, it is necessary to consider the balance between these conditions and the risks involved.
To maintain the asset value of the building, systematic repairs and maintenance are necessary.
Daily maintenance includes periodic cleaning of common areas, inspection of facilities, and minor repairs. Early detection of problems can prevent large-scale repairs.
Large-scale repairs include painting exterior walls, waterproofing rooftops, and updating water supply and drainage facilities. In the case of condominiums, these repairs are handled through the repair reserve fund, but single-family properties are responsible for their own costs. It is important to prepare a repair plan and funds according to the age of the building.
For equipment renewal, we will know when to replace air conditioners, hot water heaters, intercoms, etc., and implement this in a well-planned manner. Preventive replacement will minimize the impact on tenants, rather than dealing with problems after they have occurred.
Estimated repair costs are approximately 5-10% of annual rental income. Older properties tend to have higher repair costs, so this should be taken into account from the time of purchase.
It is important to accurately grasp the income and expenses of a real estate investment and to properly handle taxation.
Income/expense management involves monthly recording of rental income, management fees, repair expenses, loan repayments, and taxes. Specialized accounting software and applications can be used for efficient management.
The tax return calculates real estate income. The amount of real estate income is calculated by subtracting necessary expenses from rental income, which is then combined with employment income to calculate the amount of tax.
Necessary expenses include management costs, repair costs, depreciation, interest on loans, taxes, and insurance premiums. Appropriate expense accounting can reduce the tax burden.
Depreciation is calculated by dividing the acquisition cost of the building portion by its legal useful life. The legal useful life is 22 years for wooden structures, 34 years for steel structures, and 47 years for RC structures. In the case of used property, depreciation is calculated over the remaining useful life of the property.
If the tax treatment is complicated, we recommend consulting a tax accountant. Proper tax treatment can provide legitimate tax savings.
In order to accurately evaluate the profitability of a real estate investment, proper yield calculations are necessary. There are several types of yields, each with a different meaning.
The surface yield is the most basic indicator and is calculated by dividing the annual rental income by the property price. It is easy to calculate and useful for comparing properties, but it does not take expenses into account and thus differs from actual profitability.
The real yield is calculated by dividing the annual rental income minus the annual expenses by the property price plus the purchase price. This is an important indicator for investment decisions because it provides a more realistic picture of profitability.
The estimated yield is the yield calculated based on the rental income when the property is fully occupied. It is used to evaluate the potential profitability of a property with vacancies, but the actual occupancy rate must be taken into account.
| Types of Yield | Calculation Formula | Characteristics | Situations of Use |
|---|---|---|---|
| Surface Yield | Annual rental income / Property price x 100 | Simple and easy to compare | Initial screening of properties |
| Real Yield | (Annual rental income - Annual expenses)/(Property price + Purchase expenses) x 100 | Close to the actual situation | Investment decision and income/expense planning |
| Estimated Yield | Annual rental income at full occupancy ÷ property price × 100 | Potential profitability | Valuation of unoccupied properties |
Cash flow yield is another important indicator. It is calculated by dividing the annual cash flow (rental income - all expenses) by the amount of one's own investment, and can be used to evaluate the actual residual income.
Location is the most important factor in real estate investment. It is so key to success that it is often referred to as "location, location, location.
In terms of transportation access, the distance from the nearest station and the convenience of train lines are important. A station within a 10-minute walk is ideal, and stations with access to multiple train lines are especially valuable. Check plans for future line extensions and new station openings.
The quality of the surrounding environment is also important. Tenant satisfaction will increase if there are supermarkets, convenience stores, hospitals, schools, and other convenient facilities within walking distance. Public safety is also an important factor in tenant selection.
It is important to select a location with future potential in mind. Demographics, redevelopment plans, and corporate attraction will predict future changes in demand. Avoid areas with declining populations or declining industries, and select locations where growth can be expected.
It is also important to select a location that is suitable for the target demographic. For singles, focus on the convenience of being near a train station. For families, focus on proximity to schools and parks. For the elderly, the availability of medical facilities and shopping facilities is important.
Real estate investment is based on long-term investment. Rather than pursuing short-term profits, it is important to aim for stable long-term returns.
We understand the market cycle and make investment decisions at the appropriate time. The real estate market is said to fluctuate in approximately 10-year cycles, so it is important to determine when to buy and when to sell.
Investments will be made taking into account the growth potential of the property. Rents will decline with the age of the property, but a property in a good location will have a smaller decline and maintain long-term profitability.
From a portfolio perspective, consider diversified investment in multiple properties. Diversification by region and property type can ensure stable income while reducing risk.
Exit strategy is also an important factor. Assuming the timing and price of future sales, we formulate strategies to maximize total returns. Long-term planning that also takes into account inheritance measures and asset reassignment is necessary.
Various tax benefits are available for real estate investment. Appropriate use of these benefits can substantially increase profitability.
The reduction of income and inhabitant taxes through depreciation is a big advantage. In particular, for older properties, a large amount of depreciation can be recorded in a short period of time, and high tax savings can be expected.
Losses from real estate income can be offset against employment income through profit and loss. In the first year, the property is often in the red due to purchase expenses, resulting in significant tax savings.
In the case of inheritance tax measures, the fact that the assessed value of real estate for inheritance tax purposes is approximately 70-80% of its market value can be utilized. In the case of rental property, a further valuation reduction is applied that takes into account the percentage of leasehold (30%) and the percentage of land leasehold.
Special exceptions for small residential lots, etc., allow substantial valuation reductions to be applied to land used for residential and business purposes. By investing in properties that meet the applicable requirements, inheritance taxes can be significantly reduced.
However, since the taxation system is subject to frequent revision, it is advisable to check the latest information and consult a tax accountant if necessary.
Real estate investment is an attractive investment technique that, with proper knowledge and strategy, can provide stable income. In this article, we have systematically explained everything from basic knowledge to practical investment methods so that even beginners can understand.
We will reiterate the important points. First, a clear investment objective and appropriate budget setting are the foundation for success. It is important to start investing after understanding the risks through sufficient study and information gathering.
When selecting a property, place the highest priority on location, and make a decision that balances profitability and risk. In the management and operation of the property after purchase, the long-term asset value can be maintained through the selection of an appropriate management company and planned maintenance.
As a next action, we recommend that you first further your basic knowledge of real estate investment and gain practical experience through actual property tours and meetings with real estate agents. It is also important to understand your investment potential through loan consultations at financial institutions.
Real estate investment is not an overnight success. It is necessary to adapt to the changing environment through continuous learning and understanding of market trends. All successful investors have an attitude of continuous learning.
Contact INA&Associates for your real estate investment needs
We at INA&Associates, Inc. support optimal real estate investment based on each client's individual situation. Please feel free to contact us if you have any questions or concerns. We will be happy to assist you in building your asset portfolio.
Initial capital varies greatly depending on the property price and investment style. In the case of a studio apartment investment, you will need about 20-30% of the property price as personal funds, which is about 4-6 million yen for a 20 million yen property. In addition to this, brokerage fees, registration fees, fire insurance premiums, and other expenses of approximately 7-10% of the property price are required.
For a 100 million yen property, you will need to prepare about 20-30 million yen in personal funds. However, loan conditions vary depending on the attributes and property, so it is recommended that you consult with a financial institution in advance.
We recommend investing in anexistingcondominium for beginners. The reasons are that they can start with a relatively small amount of money, require little management effort, and have high liquidity.
The ideal location is within a 10-minute walk from a station, and the property should be 10 to 20 years old. Newly built properties tend to be more expensive and have lower yields, while properties that are too old have a higher risk of repairs. Used properties have a good balance between price and yield, and are characterized by the ease with which even beginners can secure income.
However, the most appropriate property type depends on the individual's financial capacity and investment objectives, so we recommend consulting with an expert to make a decision.
The market rate for management consignment fees is around 5% of rent income. For example, for a property with a monthly rent of 100,000 yen, the monthly management fee would be about 5,000 yen.
The services included in the management fee vary from company to company, but generally include tenant recruitment, contract procedures, rent collection, complaint handling, and move-out procedures. Building management and cleaning may incur additional costs.
A company that charges too low a management fee may have service quality problems, while one that charges too much puts pressure on profitability. It is important to select a company based not only on cost, but also on a comprehensive evaluation of service content and performance.
The most effective way to minimize vacancy risk is location selection. Properties that are near train stations, have convenient transportation, and are surrounded by convenient living facilities will have shorter vacancy periods.
The next most important factor is setting an appropriate rent. If the rent is too high compared to the surrounding market rate, tenants will not move in, and regular market surveys are required to set rents that are appropriate for the market.
Improving the attractiveness of the property is also effective. Differentiate from competing properties by remodeling rooms, updating facilities, and improving the Internet environment. It is important to consider cost-effectiveness when implementing these measures.
The ability of the management company to attract customers is also an important factor. Select a management company that has a track record of maintaining an occupancy rate of 95% or higher.
Various tax-saving effects can be expected from real estate investment. The main ones are as follows
The most significant benefit is the reduction of income and inhabitant taxes through depreciation. The amount obtained by dividing the acquisition cost of the building portion by the legal useful life can be posted as an expense every year, which is especially effective for those with taxable income of 9 million yen or more.
Losses from real estate income can be offset against employment income through the profit and loss account. In the first year, the property is often in the red due to purchase expenses, resulting in significant tax savings.
For inheritance tax purposes, the inheritance tax assessed value of real estate is lower than its market value, thus reducing inheritance taxes compared to cash holdings.
However, investing solely for the purpose of tax reduction is a mistake. It is important to focus on profitability first and foremost, with the idea that tax savings can be achieved as a result.