Should you jump into a purchase just because the yield is high??
When browsing the property options for your next real estate investment, you often see property with yields such as 9%! 10%! 15% and etc. The yield numbers do look appealing enough for you to click the property details and spend time to study them, but should you just think less and buy? Or should you take a step back and understand “why” this yield is high?
In this article we will go over a few things for you to understand and for see before you make that “jump”. First of all, the yields that are expressed in property marketing in Japan are all Gross Yields. In addition even if the property is vacant, they will market the “Estimated gross yield” with the estimated rental according to the market when tenanted. In other words the property is currently vacant and it will need to be leased but there is no guarantee that it will be rented for the estimated amount. Do make sure you look over the details if the property is vacant or tenanted, and if tenanted then what kind of tenant along with the tenant agreement period is always nice to know beforehand.
Secondly, the reason behind the “high yield” obviously is the cheap property price versus the high rental amount. Well what kind of property is “cheap”? It could be old, it could be located in an area that may not be potential enough for growth, it could be close to an unsuitable area where you will have a hard time finding a tenant if the current tenant leaves, etc etc. There are always reasons for a low price property but some reasons may be a critical matter when it comes to deciding to invest.
However if someone can set a lower bar for their investment criteria then some reasons could be voided and the buyer could acquire a property that does have or could pitch a high yield. If you are planning to hold it for some time and do have a recovery plan should something happen, for instance renovating the unit, or just being ok with the reasons already involved, then a high yield property may be your good choice but a backup plan is recommended.
Recently, many real estate companies are buying older, low price properties to renovate the units, and find a tenant so it could be packaged before it goes back on the selling shelf as a “renovated owner change property”. An easier method to acquire a property that has been valued up by a professional.