Cash Flow Basics: Japan Rental Property

The full stack

Gross rent
  − Vacancy (5–10%)
  = Effective gross income

  − Property tax (固定資産税・都市計画税)
  − Building management (管理費)          ← condominium only
  − Reserve fund (修繕積立金)             ← condominium only
  − Property manager fee (PM 3–7%)
  − Insurance
  − Repairs & turnover
  = Net Operating Income (NOI)

  − Interest expense (loan interest only, not principal)
  − Depreciation
  = Taxable income

  − Income tax (progressive) & resident tax (10%)
  = After-tax profit

+ Depreciation add-back (non-cash)
  − Principal repayment (cash but not deductible)
  − Capex / large repair
  = After-tax cash flow

Worked example — Tokyo studio

Purchase: ¥25M, loan ¥20M @ 3.0% × 30y
Gross rent:                 ¥1,320,000
Vacancy 5%:                −¥66,000
EGI:                        ¥1,254,000

Property tax:               ¥120,000
Building mgmt + reserve:    ¥180,000
PM 5%:                      ¥66,000
Insurance & repairs:        ¥30,000
NOI:                        ¥858,000

Interest (year 1):          ¥590,000
Depreciation (used RC ~15y):¥350,000
Taxable income:              −¥82,000  ← loss shelters other rental income

Principal repayment:        ¥420,000
After-tax cash flow:         ¥8,000   (thin — sensitivity matters)

What to stress

• Vacancy 10% instead of 5%
• Rate +100 bps at refinance
• 10-year lump-sum repair (¥500K–¥1M for a studio)
• For non-residents: 20.42% withholding cash-flow drag

See yield & NOI for how listings hide the OpEx line and depreciation for the tax shelter.