table of contents
Introduction
When selecting a property for real estate investment, "yield" is one of the most important indicators. However, many beginner investorsJudging based on "nominal yield" aloneTaxes, management fees, vacancy periods, etc. have a big impact on income and expenditure."Real yield" is an indicator of realistic profitability(※1)
This article will provide a detailed explanation of the differences between the two, calculation formulas, uses, expense items, risk avoidance, etc.
1. Nominal yield and real yield
1.1 What is gross yield?
Gross yieldis an indicator that shows the ratio of annual rental income to the property price, is easy to calculate, and is widely used in advertising (※2).
■ Calculation formula:Gross yield (%) = annual rental income ÷ property price × 100
■ Features:
- Convenient for comparing multiple properties
- Since it does not take into account expenses or the risk of vacancies, it is easy for the estimates to deviate from reality (※3)
■ Terminology Notes:The calculation is based on the assumed income from full occupancy and the base price excluding miscellaneous fees.
1.2 What is real yield?
Real yield (net yield)is calculated by subtracting expenses from annual rental income and dividing it by the total investment amount.Ensuring the reality of cash flow(※1,※2).
■ Calculation formula:Real yield (%) = (annual rental income - annual expenses) ÷ (property price + purchase expenses) x 100
■ Features:
- Essential for mid- to long-term income and expenditure planning
- It is also used in loan screening, depreciation, and after-tax profit calculations (※4) (※7)
■ Terminology Notes:Annual expenses = taxes, insurance, management fees, etc. Purchase expenses = brokerage fees, registration fees, etc. (6-10% of the price)
1.3 Example of comparison of different yields
◆ Case Study (Apartment A)
Property price: 1,500 million yen / Annual rental income: 90 yen → Gross yield = 6.0%
Expenses: Management fee 18 yen, Tax and insurance 6 yen, Purchase expenses: 120 million yen
→ Annual revenue = 66 yen / Total investment = 1,620 million yen
→ Real yield = Falls to about 4.07%
It is necessary to be careful of the profit gap that cannot be seen by the surface yield alone(※2,※3).
2. Important expenses when calculating real yield
| Expense Items | Contents and Notes |
|---|---|
| Management fee and repair reserve fund | Occurs every month. Tends to increase with age. |
| Building management fee | Maintenance costs for common areas in a single-building property. |
| Property tax / city planning tax | Taxed annually and cannot be overlooked. |
| Insurance fee | Fire and earthquake insurance. Financing conditions. |
| Recruitment and advertising expenses | Expenses incurred each time you move in or out. |
| Vacancy risk | Depending on the location and year of construction, the unit is expected to be vacant for 1-2 months. |
| Equipment replacement costs | Unexpected replacement costs for air conditioners, etc. |
| Tax accountant fees | Filing agency fee: Approx. 10 yen/year. |
If you ignore these expenses when making a purchasing decision, your real return will be significantly reduced and you run the risk of your cash flow turning into a deficit (※5) (※9).
3. The risk of judging a property based solely on its nominal yield
The surface yield is as follows:False positive pointsThere is:
- It is built on the assumption that it will be fully occupied (※6) (※10)
- Calculations based on past rent levels lead to overvaluation
- Unrecorded expenses inflated yields
The viewpoint that we should think in terms of "the remaining amount"is a path that all experienced investors must take, and it is premised on a clear understanding of the difference between appearance and substance (※3) (※8).
4. Conclusion (Summary)
The gross yield is just a number that can be used as an "entrance".Be sure to calculate the real yield and perform a balance sheet simulation.(※1, ※4, ※6).
In order to make smart investments without being misled by appearances, it is essential to be able to read behind the numbers.
References
- *1: Owners Club "Difference between gross yield and real yield, calculation method, simulation"
https://owners-cb.jp/topics/262 - *2: AtHome, "What is the yield on real estate investment? A thorough explanation of the difference between the nominal yield and the real yield"
https://www.athome.co.jp/… - *3: Manenobino "What is the difference between nominal yield and real yield? An easy-to-understand explanation of calculation methods and market prices"
https://www.am-expo.jp/… - *4: Kuramo, "What is the difference between the nominal yield and the real yield of real estate investment? Explaining how to calculate each and points to note"
https://cramo.jp/6170/ - *5: Vertex "Formulas for calculating gross yield and real yield and the ideal yield"
https://vertex-c.co.jp/… - ※6: Real Estate Investment Window "What is yield? Explaining the difference between nominal yield and real yield"
https://fudosan104.jp/… - ※7: Apartment Management University "Real estate investment yield | How to calculate the nominal yield and real yield"
https://mansionkeiei.jp/… - *8: GOKURAKU "What are the 'nominal yield' and 'real yield' of real estate investment?"
https://gokuraku.io/… - *9: Minna no Real Estate "Introduction to Yield Calculations: What you need to know if you are starting real estate investment"
https://minna-fudosan.com/… - *10: Landlord Forum: "Understand the difference between nominal and real yields in real estate investment"
https://ooya-forum.net/…
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