Japan Rental Property Investment Simulator
Enter five things — price, structure and age, rent, and your salary — and see in which year selling the property would finally leave you in the black overall, as a chart. The loan balance, the taxes and your yearly take-home cash are all worked out for you. The detailed assumptions can be changed afterwards. It is built on Japan's tax rules for rental property: depreciation of used buildings, offsetting a rental loss against salary income, and capital gains tax on the sale. If you live in Japan and are weighing up an investment condo or apartment building, use it for a quick reality check before you commit.
How to use
- Enter the property price, the structure and building age, the monthly rent and your annual salary. The tool estimates everything else.
- Once those four items are filled in, the break-even year, two charts and a year-by-year table appear automatically (the button works too).
- To change the assumptions, open “More features” and adjust the interest rate, vacancy rate, sale yield and so on. It recalculates as soon as you change anything.
How it is calculated
- Loan: equal-instalment repayment of principal and interest. Interest, principal repaid and the outstanding balance are accumulated year by year from the monthly balance (defaults: 100% financing, 2% interest, 35 years).
- Depreciation: the building value (50% of the price by default) is depreciated on a straight-line basis over the useful life given by Japan's simplified method for used assets — based on statutory lives of 47 years for RC, 34 for steel frame and 22 for wood frame, as “(statutory life − years elapsed) + years elapsed × 20%”. Once depreciation runs out the tax saving thins and the tax burden rises, and the simulation carries on through that point (the “dead cross”).
- Rent and vacancy: rent falls 1% a year with a 5% vacancy rate (defaults). Operating expenses are 20% of full-occupancy rent — a rule-of-thumb total for the building management fee, repair reserve, fixed asset and city planning tax, rental management fee and so on.
- Tax saving (loss aggregation): in any year the rental income is a loss, it is offset against salary income and the reduction in income tax (quick-reference table plus the special reconstruction income tax) and resident tax is calculated. The rule that the part of the loss corresponding to loan interest on the land acquisition cannot be offset (Act on Special Measures Concerning Taxation) is also reflected.
- Estimated sale price: derived by income capitalisation, as “that year's full-occupancy rent ÷ gross yield” (by default the same yield as at purchase, so a falling rent also means a falling sale price). A book-value line (land + remaining building value) is shown for reference.
- Capital gains tax: gain = (sale price − selling costs) − (acquisition cost − accumulated depreciation). Depending on the holding period, 39.63% for short-term or 20.315% for long-term is applied automatically. Assuming a purchase at the start of a year and a sale at the end of one, this makes year 7 onwards long-term. Strictly, the test in Japan is whether the holding period exceeds five years as of 1 January of the year of the sale.
- Total profit or loss if sold in that year = cumulative cash flow + net sale proceeds (after the loan balance, selling costs and tax) − initial cash outlay (down payment + purchase costs). The first year this reaches zero or more is the break-even year.
Sources (primary information)
- Depreciation (simplified method for used assets, statutory useful lives): National Tax Agency, Tax Answer No.2108 (useful life of used assets) (in Japanese)
- Capital gains tax rates (short-term and long-term): National Tax Agency, Tax Answer No.3208 (calculating tax on long-term capital gains) and No.3211 (short-term) (in Japanese)
- Loss aggregation and the land-interest restriction: National Tax Agency, Tax Answer No.1391 / income tax rates: No.2260 (in Japanese)
Assumptions and notes
- Major repairs, equipment replacement, rising interest rates and market conditions at the time of sale are not reflected. It is worth setting the sale yield 1–2 points above the purchase yield to see what happens if you can only sell cheaply.
- The acquisition cost is approximated as “property price − accumulated depreciation”. In practice some purchase costs can be added to the acquisition cost, which lowers the tax, so this tool is slightly conservative.
- Your annual salary is assumed to stay the same for the whole period.
- For a new or nearly new property there is also real property acquisition tax and first-year registration costs. Adjust the purchase costs rate to cover them.
Frequently asked questions
No year ever shows a positive total. Why?
It is a sign that the price, borrowing and expenses are too heavy for the rent the property brings in. In “More features”, try raising the down payment, lowering the interest rate (refinancing) or lowering the expense ratio and watch how the break-even point moves. If it still never turns positive, the deal simply does not work as an investment on those assumptions.
Why does the result change so much between year 6 and year 7?
Because the capital gains tax rate switches from short-term (39.63%) to long-term (20.315%). For a property that sells at a gain, waiting until it qualifies as long-term makes a large difference to what you keep. The exact test is that you must have held the property for more than five years as of 1 January of the year in which you sell, so check the timing of an actual sale with a professional.
What is a “dead cross”?
It is the point where the principal portion of your loan repayment — which is not a deductible expense — exceeds the depreciation expense, which is a deduction that costs you no cash. From then on it becomes easy to end up in the situation where the books show a profit and your tax goes up while the cash in your hand goes down. This tool shows the year it happens.
Are the numbers accurate?
The loan, depreciation, tax rate tables and capital gains formulas are implemented as set out in the Japanese official materials and are verified by tests. But future rent, vacancy and sale prices are estimates based on assumptions, so treat the result as a scenario — what happens if these assumptions hold.