What is the high yield property?

Yield is the most important indicator when considering the return and profit of real estate investment.

Yield is the annual full occupancy / current occupancy rent income ratio to the property price. If the annual rent income is 10 million yen and the property price is 100 million yen, we can say the gross yield will be 10%. Expected costs such as purchase related costs, rental management costs, and vacancy risk are not taken into account. Annual income which after deducting expenses divided by the property price is the net yield. If the annual expenses such as property tax, management expenses, and repair expenses are 2 million yen, the annual net income will be 8 million yen and the net yield will be 8%.

What kind of property is a high return property? For example, properties located in rural areas and have been built for a long time, illegal properties that violate the Building Standards Act, and real estate that is occupied by industries with high barriers to enter such as leisure hotels. In the actual practice of real estate transactions, the actual and current yield obtained by dividing the income of the traded real estate by the transaction price is the yield of all-in-one (all includes fluctuations and risks, etc.), and the location conditions, distance from nearest station, structure, etc. It can be said that the market competitiveness is reflected in consideration of the number of years, structure, equipment specification, type of tenant , etc. In other words, the investment principle of “low risk: low return, high risk: high return” is established, and it should be considered that there is no property with “low risk: high return”.It should be taken into account that there are reasons for high yields, which can be tedious and carry risks that are not noticed at the time of purchase.

There is a trend and tendency in Real estate investment. Prior to the Lehman shock, office properties are popular. After the Lehman shock was residentials. Before Covid-19, hotels and private lodgings related to inbound demand. And now, residential and logistics facilities are popular again. There can be a double price difference between when the trend is on or not. Needless to say, it is best if you can get it at the bottom and sell it at the ceiling, but it is possible because you can consult with a professional who has been observing for many years, such as not vice versa, and after confirming that you have hit the bottom by looking at the trend.

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