Sunday, November 1, 2026 | President MA’s Investment Journal: Holiday Special Edition
Today is Sunday. The stock market is closed.
I usually write mainly about day trading, but today I would like to write about real estate investment, which I have been involved in for a long time.
I have been investing in real estate mainly in Japan, as well as overseas in places like Malaysia. Recently, I have also been considering several properties in the United States.
The total amount of my real estate investments to date has reached approximately 6 billion yen.
As someone with that experience, there is something I want to tell those who are about to start real estate investment first.
That is,
“If you judge real estate investment solely by gross yield, you will fail miserably.”
That is what I mean.
When you look at real estate investment advertisements, you see things like:
“8% gross yield!”
“High yield of 10%!”
“Regional apartment building, 12% yield!”
Attractive numbers like these are lined up.
However, will that 8% or 10% really remain in your pocket?
The answer is NO.
Today, I would like to explain the reason for that using concrete numbers.
■ What exactly is gross yield in the first place?
The most commonly used indicator in real estate investment is “gross yield”.
The calculation method is very simple.
Gross Yield = Annual Rental Income ÷ Property Purchase Price × 100
For example, if you can earn 8 million yen in annual rental income from an investment property purchased for 100 million yen,
8 million yen ÷ 100 million yen × 100 = 8%
The gross yield is 8%.
At first glance, it looks like a decent investment.
By simple calculation, you would earn the same amount of rental income as the property price in 12.5 years.
However, there is a big pitfall here.
This 8 million yen is merely the total amount of rental income.
In reality, various expenses occur.
Furthermore, necessary expenses at the time of acquisition (purchase), such as real estate acquisition tax and brokerage fees, are almost never included.
Moreover, that 8 million yen per year is based on the assumption of full occupancy. If vacancies occur, the rental income itself will decrease. It is almost impossible for full occupancy to continue forever.
In other words, the figure of 8% gross yield does not guarantee that the investor’s profit will be 8%.
■ The reality where an 8% gross yield becomes a 4.5% net yield
So, let’s calculate it a bit more realistically.
Suppose there is a property with the following conditions.
【Purchase Conditions】
・Property Price: 100 million yen
・Annual Assumed Full Occupancy Rent: 8 million yen
・Gross Yield: 8%
・Initial purchase costs: 7 million yen
From here, let’s consider the expenses that actually occur.
First, let’s assume a 15% reduction in annual rental income due to vacancies.
8 million yen x 15% = 1.2 million yen
In other words, the actual annual rental income will be 6.8 million yen.
Furthermore, as annual operating expenses,
・Management outsourcing fees: 400,000 yen
・Fixed asset taxes, etc.: 600,000 yen
・Cleaning and common area electricity costs: 200,000 yen
・Insurance premiums: 100,000 yen
・Average annual estimated amount for repairs and equipment replacement: 500,000 yen
・Average annual estimated amount for tenant recruitment and restoration: 200,000 yen
We assume a total of 2 million yen will be incurred.
Then,
6.8 million yen in annual rental income – 2 million yen in annual expenses = 4.8 million yen.
The actual annual net income is 4.8 million yen.
And at the time of purchase, 7 million yen in miscellaneous expenses were incurred separately from the property price.
The total investment amount is 107 million yen.
4.8 million yen ÷ 107 million yen x 100 = approximately 4.49%.
A property that had an 8% gross yield has become approximately 4.5% in real yield. Moreover, this is based on the assumption that it remains fully occupied. Also, there is a difference in tax rates depending on whether it is acquired by a corporation or an individual.
*The above is a hypothetical example for explanation and does not represent the income and expenditure of any specific real property. The net yield is calculated by deducting vacancy losses and operating expenses from the investment amount, including acquisition costs. Loan repayments, income taxes, corporate taxes, and capital gains/losses from sales are not included.
I think this difference is extremely significant.
And if there are loan repayments on top of this, the cash flow on hand will change.
The gross yield is merely an entry-level figure.
■ The scariest thing in real estate investment is not vacancies, but “a lack of rental demand”
What I consider to be extremely important in real estate investment is the local rental demand.
Just because a property price is low and the yield is high does not necessarily mean it is a good investment.
For example, compare a condominium a 5-minute walk from a station in Osaka City with an apartment a 20-minute drive from a station in a regional city with a declining population.
Naturally, the rental demand is different.
Because regional properties have low purchase prices, the gross yield can sometimes look high.
However, if there are no tenants, no rent will come in.
According to the 2023 Housing and Land Survey by the Ministry of Internal Affairs and Communications, the number of vacant houses in Japan is approximately 9 million.
The vacancy rate is 13.8%.
Of course, this is a statistic for all housing nationwide and does not have the same meaning as the vacancy rate for rental properties.
However, it is clear that the vacant house problem exists in the Japanese housing market.
Furthermore, rental demand varies greatly even within the same prefecture.
The way tenants gather changes depending on the distance from the station, workplaces, schools, hospitals, commercial facilities, and population demographics.
You should be especially careful with properties that depend on the demand of a single company, factory, or university.
The rental demand in that area could change drastically due to a company pulling out or a university relocating. I once owned a student apartment where there was a massive exodus of students due to the abolition of a department.
Even if it is fully occupied at the time of purchase, it is not guaranteed to be the same 5 or 10 years later.
Personally, I would not purchase a property just because it has a high yield.
“Why do people continue to pay rent and live in this area?”
First, I consider that reason.
■ There is a reason why yields in urban areas are low
Real estate in urban areas can sometimes have a lower gross yield compared to properties in rural areas.
For example, just as a hypothetical comparison,
Property A: Urban area, 5% gross yield
Property B: Rural area, 10% gross yield
Let’s assume there are these two properties.
Looking only at the numbers, Property B is overwhelmingly more attractive.
However,
Property A has stable rental demand, and rent declines are limited.
Property B has long vacancy periods, and tenants cannot be secured unless the rent is lowered.
Furthermore, the building is aging, and large-scale repairs are necessary.
In such a situation, what would you think?
The 10% gross yield figure for Property B might actually become almost meaningless.
However, being in an urban area does not necessarily mean it is safe.
If the property price is too high, you may not be able to earn returns commensurate with the low yield.
Ultimately, it is a balance between the purchase price and future rental demand.
What I value is,
It is the mindset of “not how high the yield is, but how many years that yield can be maintained.”
■ The time bomb of repair costs, which are hard to see at the time of purchase
Unlike stocks or bonds, real estate involves owning a physical building.
Naturally, buildings get old.
For example,
・Rooftop waterproofing work
・Exterior wall painting
・Renewal of water supply and drainage facilities
・Elevator repairs
・Replacement of air conditioning equipment
・Restoration to original condition after a tenant moves out
Various expenses such as these will occur.
Also, as a building ages, the quality of tenants may decline, and the risks of unpaid rent and crime increase.
Even if there are no problems in the year of purchase, a large amount of repair costs may be required a few years later.
For example, suppose a property has an annual net income of 4.8 million yen, and a large-scale repair costing an additional 10 million yen occurs in a certain year.
The simple cash flow for property operations that year would be,
4.8 million yen – 10 million yen = -5.2 million yen.
Of course, large-scale repairs do not occur every year.
However, in real estate investment, you must anticipate these expenses before purchasing.
I believe that one should not jump at properties, especially older ones, simply because the purchase price is low.
For me, I prioritize the building’s repair history, the condition of the facilities, and estimates for future necessary construction work.
Even if the purchase price is low, if it requires significant expenses afterward, it can never be called a cheap purchase.
■ Overseas real estate investment is even more complex
I conduct real estate investment and asset management not only in Japan but also in Malaysia.
Regarding overseas real estate, I often hear about yields as well. (I will write about the details in a later article. This time, I am writing about what is generally said.)
“Higher yields overseas than in Japan”
“Higher rental income overseas”
“Expectations for rising real estate prices”
These explanations are attractive, but with overseas real estate, there are things that must be checked even more than domestically.
For example, condominiums in Malaysia.
Even if the gross yield calculated in the local currency, the ringgit, is high, it does not necessarily match the investment return on a Japanese yen basis.
Overseas, it is generally necessary to consider the following factors as well:
・Local rental demand and supply of units
・Conditions for properties that foreigners can purchase
・Local management fees and repair costs
・Taxes on rental income
・Commission fees for management companies
・Vacancy periods until a tenant is found
・Taxes and transaction costs at the time of sale
・Exchange rate fluctuations
Furthermore, if it is a development project purchased before the property is completed, construction delays and post-completion demand must also be considered.
I believe that simply comparing the numbers of overseas real estate yields with those of Japanese properties is insufficient.
■ If exchange rates change, profits change too
For example, suppose a property invested in Malaysia generates a net income of 20,000 ringgit per year.
If we convert this at 1 ringgit = 35 yen, it is 700,000 yen per year.
However, if the exchange rate becomes 1 ringgit = 30 yen, the same 20,000 ringgit will be 600,000 yen in yen terms.
Even though the profit in the local currency has not changed, it decreases by 100,000 yen when converted to Japanese yen.
Conversely, if the yen weakens and the ringgit strengthens, the yen-denominated income will increase.
Of course, this also works in the opposite direction.
Also, when selling a property and converting the proceeds back into Japanese yen, not only the sale price but also the exchange rate at that time becomes important.
I personally have bases for both living and investing in Japan and Malaysia, so I am particularly conscious of exchange rates.
If you use the income earned in Malaysia within Malaysia, the fluctuation in the valuation converted to Japanese yen does not directly translate to a fluctuation in local purchasing power.
However, for investments premised on converting back to Japanese yen, exchange rates cannot be ignored.
For overseas real estate, it is necessary to think about ‘yield in local currency’ and ‘investment return converted to Japanese yen’ separately.
■ If using loans, cash flow is more important than yield
In real estate investment, in many cases, loans from financial institutions are utilized.
This is also extremely important.
For example, even for a property with an annual net income of 4.8 million yen, if the annual loan repayment is 4 million yen, the cash on hand before considering taxes and the like is 800,000 yen.
Furthermore, if interest rates rise or vacancies increase, cash flow could deteriorate.
What I want to point out here is that the principal portion of loan repayments is different from tax-deductible expenses.
Therefore, even if there is a profit in accounting terms, the cash on hand may decrease due to principal repayments.
I believe that in real estate investment, it is important to manage accounting profit and actual cash flow separately.
Even if property prices are rising, if monthly cash flow is tight, long-term holding becomes difficult.
And in a rising interest rate environment, differences in loan terms significantly affect investment results.
Is it a fixed interest rate or a variable interest rate?
How many years is the repayment period?
If interest rates rise by 1%, how much will the cash on hand decrease?
I think you should perform these simulations before purchasing.
■ Actually, the most important thing is how much it will sell for in the end
There are broadly two types of returns in real estate investment.
Income gain and capital gain.
Income gain is the profit earned from monthly rental income.
Capital gain is the profit earned from the sale of the property.
For example, even if you can earn stable rental income every year from a property purchased for 100 million yen, if you can only sell it for 70 million yen after 10 years, the overall investment return will change significantly.
Conversely, even if the rental yield is low, there are cases where the asset value increases due to changes in location or supply and demand, allowing you to make a profit at the time of sale.
That is why I also consider selling before purchasing.
“Who will buy this property in 10 years?”
“Will financial institutions provide loans to the buyer at that time?”
“Will the number of buyers decrease due to population decline or building aging?”
You need to think this far ahead.
Even if you are earning rent with a high yield, if you suffer a large loss when selling, you may end up losing money on the investment as a whole.
Consider investment returns not just from the entry yield, but including the exit.
I believe this is an essential perspective for real estate investment.
■ So, what do I look at when purchasing a property?
When I consider a property, I think about a combination of the following factors, not just the gross yield.
1. Actual annual rental income
2. Rental demand and population trends in the surrounding area
3. Past vacancy status and occupancy duration
4. Whether the current rent is too high compared to the surrounding market
5. Building age and repair history
6. Maintenance costs such as management fees, property taxes, and insurance premiums
7. Loan conditions and interest rate hike risks
8. Demand at the time of sale and estimated selling price
9. In the case of overseas properties, exchange rates, tax systems, and ownership conditions for foreigners
And, if possible, I create multiple scenarios.
If fully occupied.
If the vacancy rate is 10%.
If the vacancy rate becomes 20%.
If rent drops by 10%.
When large-scale repairs occur.
When borrowing interest rates rise.
I calculate these to confirm whether I can still continue the investment.
Of course, it is not possible to predict the entire future.
However, if you quantify the risks, you can at least prepare to reduce unexpected losses.
Since no two real estate properties are the same, there are significant risks in hidden areas. This note focuses on day trading, so I will omit those details, but if you are interested, please contact me and I will answer.
■ Both real estate investment and day trading are ultimately about risk management
I have written about real estate investment up to this point, but I have some thoughts after recently studying day trading.
It is that real estate investment and stock investment are fundamentally the same.
Buying because the gross yield is high.
Buying because the stock price is rising.
Buying because someone recommended it.
All of these can lead to dangerous decisions.
What is important is whether you understand the reasons for purchasing and the risks yourself.
I have conducted a total of approximately 6 billion yen in real estate investments so far.
However, in day trading, I am struggling even to make a profit of a few hundred or a few thousand yen.
A person who has experienced 6 billion yen in real estate investment is seriously considering cutting losses of a few hundred yen in the stock market.
I think it’s interesting myself.
However, this is by no means a wasted experience.
I believe that the risk management, capital management, and the mindset of limiting losses that I am learning in day trading are also common to real estate investment.
The more capital you move, the more cautious you need to be.
■ Finally. High-yield properties are generally not good properties.
This is the most important thing I want to convey today.
Properties with high gross yields are not necessarily excellent properties.
Conversely, properties with low gross yields are not necessarily bad properties.
What is truly important is
“how stably rent comes in, how much expenses are incurred, and how much it can be sold for in the end”
Also, circumstances change depending on your asset situation and whether you are a corporation or an individual.
Yield figures are a convenient indicator for comparing properties.
However, if you decide on an investment based solely on those numbers, you will overlook important risks.
I have experienced various investments myself, and I want to continue to value not judging solely by superficial numbers.
Especially for those who are about to start real estate investment, I would like you to consider not only gross yield, but also net yield, vacancy rates, repair costs, cash flow, and exit strategies.
Real estate investment is not something where you feel like you’ve made a profit the moment you buy it.
Investment is the process of securing revenue over a long period and finally selling it.
For me, aiming to build 10 billion yen in assets, this is a way of thinking I want to cherish even more in the future.
Today’s day trading profit is 0 yen because it is Sunday.
With real estate investment, rent comes in 365 days a year (in reality, it is monthly).
However, a difference of a few percent in yield in real estate investment becomes a very large amount as the investment amount increases.
Even though I struggle for a few hundred yen in stocks, a 1% difference in yield in real estate becomes millions or tens of millions of yen.
The world of investment is truly profound.
I would like to continue writing not only about my day trading records but also about real estate investment, M&A, and overseas investment, incorporating my actual experiences.
Thank you for reading until the end.
*The simulations for property prices, rent, vacancy rates, expenses, etc., in the text are assumptions for explanation purposes. They do not indicate the investment performance of any specific existing property or market averages.
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