What Is the Difference Between Gross and Net Yield?
Written by：SUMIMOTO Inc.Editorial Policy
Gross yield is expected annual rent divided by the purchase price. It is easy to compare but includes none of the costs of owning the property. Net yield deducts operating costs from annual rent and divides by the total investment, including purchase costs. The gap is often larger than people expect, so compare properties on net yield.
How big is the gap?
For condominium units, gross and net yields typically differ by one to two percentage points, and the gap tends to widen for older buildings and high-yield properties outside major cities. A gross 8% falling below 6% net is not unusual.
The gap comes from operating costs such as management fees, repair reserves, fixed asset tax, management commissions and vacancies, and from purchase costs such as brokerage and registration fees. Listing what each figure includes shows where the difference comes from.
What overseas investors should also watch
Rent received by non-residents is in principle subject to withholding tax, and in practice a tax agent is usually appointed to file the final return.
Even if the yield in yen turns out as planned, your return in your home currency moves with the exchange rate. Running the numbers separately in yen and in your home currency keeps exchange rates from skewing the decision.
Relevant provisions
- Income Tax Act, Article 161
- Consideration for the lease of real property located in Japan is treated as Japan-source income.
- Income Tax Act, Article 212(1)
- A person paying Japan-source income to a non-resident must withhold income tax and pay it to the state.
- Act on General Rules for National Taxes, Article 117
- A taxpayer without a domicile in Japan must appoint a tax agent and notify the tax office.
FAQ
- Q. What net yield should you target?
- A. The benchmark shifts with district, property type and financing terms. Comparing several properties on identical assumptions is more useful than any single target figure.
- Q. Will the repair reserve rise?
- A. It is often stepped up over time under the long-term repair plan. Check the plan and the current balance before buying.
This is general information. Before investing, check your own conditions with a tax accountant or a licensed real estate broker.
Want the full picture?
Advertised yields assume full occupancy
References & Sources
This article provides general information as of its publication date and is not individual legal, tax or investment advice. It was written with the help of generative AI.Editorial Policy
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