As of 2025, Tokyo's real estate market is highly regarded as a stable investment destination with annual price appreciation of 6.72%. Even novice investors can start with as little as 3-5 million yen of their own capital for a condominium unit investment, and by utilizing leverage, efficient asset building is possible. The key to success lies in building relationships as well as property selection, and a long-term perspective that emphasizes sustainable growth is essential. Wise investors do not only chase high yields, but also implement strategies that comprehensively assess location, stability of demand, and future potential, as well as prepare for disaster risk and vacancy risk.
Income sources of real estate investment can be divided into two categories: "income gain" and "capital gain. Income gains are ongoing profits derived from monthly rental income, while capital gains are gains on the sale of a property due to an increase in the property's value.
The amount of rental income minus expenses and loan repayments is "cash flow," which is the actual monthly net income. The two most important factors in investment decisions are the "surface yield" and the "real yield. The surface yield is the annual rental income divided by the property price, and is generally displayed in advertisements, etc. In reality, however, the real yield should be judged by subtracting expenses such as management fees and reserve funds for repairs.
The leverage effect is a major characteristic of real estate investment. For example, if you purchase a 50 million yen property with 10 million yen of your own funds, if the yield on the property is higher than the interest rate on the loan, the real yield on your own funds will be significantly higher. However, since high leverage also increases risk, it is considered safe to secure 20-30% of the property price as equity capital.
As of 2025, surface yields of 3.5% to 4.5% are common in the five central wards of Tokyo (Chiyoda, Chuo, Minato, Shinjuku, and Shibuya), while yields of 4.5% to 5.0% can be obtained in the Joto area (Sumida and Koto) and 5.5% to 8.0% outside the 23 wards. In other areas, yields of 5.5 to 8.0% can be obtained.
Vacancy is the biggest risk factor in real estate investment. The most important countermeasure is to choose an area with high demand. Demand is stable in central Tokyo, near major train stations, and in areas with a high concentration of universities and companies. Areas with convenient transportation access, such as those along the Yamanote, Chuo, and Tokyu lines, are particularly recommended.
Appropriate rent setting is also important. Setting rents slightly lower than the surrounding market rate will shorten the vacancy period. Also, it is effective to set the start of occupancy in February to April, when demand is at its peak. In terms of facilities, maintain the competitiveness of the property by offering value-added services such as free Internet access and regularly updating facilities.
Rising interest rates will result in worsening cash flow due to increased loan repayments. Interest rate types include fixed rate, floating rate, and fixed term option, each with different characteristics. Fixed interest rates offer stable repayment amounts but higher interest rates, while variable interest rates offer lower initial repayment amounts but are subject to the risk of future fluctuations.
Countermeasures include increasing the equity ratio (about 20-30%), setting a longer repayment period to reduce the monthly repayment amount, and securing sufficient funds to allow for early repayment when interest rates rise. It is also important to choose a financial institution with a "5-year rule" or "1.25x rule.
It is necessary to have a plan to prepare for equipment failure due to aging, unexpected repairs (e.g., water leakage, equipment failure), and large-scale repairs (e.g., exterior wall painting, roof repair).
In the case of condominiums, it is important to set aside a monthly repair reserve of approximately 5,000-6,000 yen and review it according to the age and structure of the building. As preventive maintenance, early detection and early action should be taken through periodic inspections, and planned renovation should be carried out using the time when the building is vacant. In the case of condominium ownership, it is also important to confirm the adequacy of the management association's repair reserve fund and large-scale repair plan.
Tokyo is a high-risk area for earthquakes and flooding, but damage can be minimized with appropriate countermeasures. When selecting a property, it is important to check hazard maps, confirm the strength of the ground (liquefaction risk), and choose a property that meets the new earthquake resistance standards (June 1981 or later). Reinforced concrete construction is considered more resistant to earthquakes than wooden construction.
Insurance measures are also important, and fire insurance (with basic coverage and water and wind damage clauses), earthquake insurance (purchased as a set with fire insurance), and rent compensation insurance (covering loss of rent income due to damage) may be utilized. Diversification of disaster risk by investing in multiple areas is also effective.
Tenant selection is extremely important. Basic measures include checking credit information, confirming a stable source of income, and using a joint guarantor or rent guarantee company.
Effective measures against rent arrears include early detection and early response (contact from the first month), flexible payment arrangements such as installment payments, and use of a rent guarantee company. In addition, as countermeasures against problems when vacating, record photographs of the room conditions at the time of moving in, clearly explain the scope of restoration to its original condition, and have a third party attend the inspection of the property.
Ideally, you should have about 20-30% of the property price as personal funds to start real estate investment. For a condominium unit investment in Tokyo, you will need at least 3-5 million yen in personal funds.
Loan conditions vary by financial institution, but as of 2025, interest rates are as follows
Loan screening focuses on the individual's ability to repay the loan (annual income, length of employment, other borrowing conditions), the profitability and collateral value of the property, and property conditions such as location and age. The key to the financing strategy is to aim for "cheap, long, and big," i.e., low interest rates, long repayment terms, and a loan amount that minimizes the amount of personal funds required.
In property selection, it is important to evaluate properties from multiple perspectives, including location, building condition, profitability, and future potential. Stable demand can be expected in the 23 wards of Tokyo, especially in areas within 30 minutes from major stations.
As for the characteristics of each property type, condominiums can be invested from a small amount (10-30 million yen) and are relatively easy to manage, while single apartments/condominiums require a larger investment (50 million yen and up), but can diversify vacancy risks and tend to have higher overall yields.
Points to check in property selection include location (distance from train stations, surrounding environment, living convenience facilities), building (structure, age, earthquake resistance, condition of facilities), profitability (surface yield, real yield, cash flow), and future potential (redevelopment plans, demographics, demand forecasts).
Important criteria for selecting a reliable real estate company include track record and experience (number of transactions, number of years in management), information disclosure (transparency of property information, detailed income/expense simulations), follow-up services (management support system after purchase), and expertise (quality of investment consultation, tax knowledge, etc.).
Key factors in selecting a management company include the ability to recruit tenants, management system (promptness in responding to problems and repairs), fee structure, and provision of information. There are two types of outsourced management contracts: general management contracts and sublease contracts, each with different advantages and disadvantages.
In order to effectively recruit tenants, it is important to set appropriate rent, make the property attractive (cleaning, remodeling, updating facilities), and implement an advertising strategy (use of multiple brokers, online advertising).
Preventive measures (selection of quality tenants, regular communication, periodic updating and repair of facilities) and responses when vacancies occur (prompt restoration and repair, rent review and consideration, offering special benefits) are effective measures to address vacancy risk.
In addition, maintaining asset value and improving tenant satisfaction through planned repairs will lead to long-term operational success. It is also important to understand the distinction between repair expenses and capital expenditures and how to treat them favorably for tax purposes.
The Tokyo real estate market continues to grow as of May 2025. There are large price differences by area, with the most expensive and most affordable districts differing by a factor of 20 or more.
By area, high-priced, low-yielding central Tokyo areas (Chiyoda, Chuo-ku, Minato-ku, etc.) are expected to experience stable demand and high asset value appreciation, while medium-priced, medium-yielding semi-central Tokyo areas (Meguro, Setagaya, Nakano, etc.) are popular as well-balanced investment locations. Low-priced, high-yielding suburban areas (Adachi-ku, Katsushika-ku, Edogawa-ku, etc.) are also suitable for cash-flow oriented investors.
The prevalence of remote work is also changing property preferences. Specifically, demand for spacious properties with dedicated workspaces is increasing, quiet suburban living environments are more highly regarded, and properties with high-speed Internet access are becoming more popular. In particular, upscale suburban residential areas such as Kichijoji, Jiyugaoka, Musashikosugi, and Futakotamagawa are attracting attention.
Suitable investment areas include the area around Takanawa Gateway, which is undergoing redevelopment (large-scale development to be completed between 2025 and 2027), the Toranomon and Azabudai areas (under continuous development after the completion of Mori JT Tower), and the area around Shibuya Station (expansion development of Shibuya Stream and Shibuya Scramble Square).
Effect of asset preservation by real assets Real estate, which is a real asset, is resistant to inflation and tends to have smaller price fluctuations than stocks and other assets. In particular, real estate in prime locations in Tokyo can be expected to have stable asset values over the long term.
High investment efficiency by utilizing leverage Since properties can be purchased with four to five times the amount of one's own funds, large assets can be managed with a small amount of one's own funds. If the yield of the property exceeds the borrowing interest rate, the real yield on equity capital will increase significantly.
Stable cash flow Monthly rental income is relatively stable and provides a regular source of income. High occupancy rates can be expected, especially in high-demand areas of Tokyo.
Tax benefits Various tax benefits are available, such as tax savings from depreciation and a system that allows loss from real estate income to be passed through to employment income.
Low liquidity Since it takes time to sell real estate, it is difficult to convert it into cash when funds are suddenly needed.
Management hassles and responsibilities Various management tasks are involved, such as dealing with tenants, repairs, and filing tax returns. It is possible to outsource these tasks to a management company, but this is costly.
Vacancy Risk During the period when no tenants are found, income will cease, but loan repayments, management fees, and other expenses will continue.
Interest Rate Rise Risk In the case of variable interest rate loans, there is a risk that repayment amounts will increase due to future interest rate rises.
Disaster Risk There is a risk that the value of the property may decline significantly due to disasters such as earthquakes and floods. Insurance coverage is limited.
Depreciation Allows the acquisition cost of a building to be divided and expensed over the useful life of the building. The useful life varies depending on the structure of the building: 22 years for wood construction and 47 years for reinforced concrete construction. This system allows the taxpayer to record expenses that do not involve actual cash outflows, thereby reducing taxes.
If real estate income is in the red, it can be offset against other income, such as employment income. Especially in the early stage of investment, depreciation expense is large, so the tax saving effect is high.
Special Exception for Small Building Lots, etc. If the requirements are met, the assessed value for inheritance tax purposes can be reduced by up to 50% (up to 200 m2) for rental real estate (residential land used for loan business).
Land and House Lease Law The Land and House Lease Law protects tenants and prohibits refusal of renewal or request for cancellation of lease without just cause.
The Building Standards Law and the Urban Planning Law regulate the safety of buildings and the use of land, including earthquake resistance standards and restrictions on floor-area ratio and building-to-land ratio.
Impact of Civil Code Amendment on Lease Contracts The April 2020 amendment to the Civil Code (Law of Obligations) changed the joint guarantor system (requiring the setting of a maximum amount) and clarified the obligation to restore the property to its original condition.
Tokyo-specific regulations Tokyo's 23 wards have their own regulations, such as the ordinance for studio apartments, which stipulate minimum unit size (generally 25m2 or more, although this varies by ward) and the obligation to have a family-type unit attached to the unit.
Case 1: Failure in a high-yield property Although the company invested in a single apartment building in a local city (25 years old, purchase price of 30 million yen, surface yield of 12%), the vacancy rate soared from 30% to 70%, and repair costs increased due to aging of the building. As a result, the company incurred a monthly loss of 200,000 yen and ultimately sold the property for 20 million yen, incurring a loss of 10 million yen. This was due to an error in selecting an area with a declining population and an underestimation of the property's aging.
Case 2: Failed Investment in a Newly-built One-room Apartment Although the company invested in a newly-built one-room apartment in the suburbs of Tokyo (purchase price: 25 million yen), rent fell from the initial 80,000 yen to 65,000 yen after five years. The management fee and reserve for repairs were also a heavy burden, resulting in a monthly loss of 20,000 yen, and a loss of 5 million yen at the time of sale. This was due to the relatively high sales price and the decline in competitiveness after the disappearance of the "new construction premium.
Building trusting relationships with quality real estate companies, management companies, and tenants leads to long-term success. In particular, novice investors can obtain market information and advice on property selection by building good relationships with real estate companies and management companies that have extensive experience and a proven track record.
In addition, a good relationship with tenants can lead to long-term occupancy and the acquisition of new tenants through word-of-mouth. By listening to tenants and performing appropriate maintenance, we can expect to increase the value of our properties and generate stable income.
It is important to have an attitude that emphasizes the maintenance and improvement of long-term asset value rather than short-term high yields. Although the Tokyo real estate market may be overheated in some areas, wise investors will not be swayed by temporary market fluctuations and will make investment decisions from a long-term perspective of 10 to 20 years.
For sustainable real estate investment, appropriate property selection, systematic repairs and renovations, and securing stable tenants are essential. To achieve these goals, it is important to keep abreast of market trends and changes in laws and regulations, and never neglect information gathering and learning.
In modern real estate investment, the use of technology is also an important success factor. AI and big data are effective in gathering and analyzing property information, and rental management is also becoming more efficient with the introduction of IT tools.
In particular, differentiation strategies utilizing digital technology, such as online previews, the spread of IT instruction manuals, and the introduction of smart home appliances, are effective in attracting younger tenants. Eliminating information asymmetry in real estate investment through the power of technology and making investment more transparent and efficient will be the key to success in the coming years.
Real estate investment in Tokyo is an investment technique that, if approached with the appropriate knowledge and strategy, can be expected to generate stable income and asset building. What is especially important is not to neglect investing not only in the property itself, but also in relationships and information gathering. The shortcut to success is to focus on sustainable growth and thorough risk management, rather than being distracted by short-term high yields.
Beginners are advised to start with a small amount and gradually increase the size of their investment as they gain experience. In addition, since real estate investment is an "investment," it is important to always be aware of the balance between return and risk, and to make calm decisions.