DSCR for Japanese Property Loans

1. The formula

DSCR = NOI ÷ Annual Debt Service (ADS)

NOI (Net Operating Income) = gross rent − vacancy − operating expenses − property tax − PM fee. See the yield & NOI guide for the full breakdown.

Example: NOI ¥4,000,000 and ADS ¥3,200,000 → DSCR = 1.25. That clears most Japanese regionals; a city bank may ask for more.

2. What Japanese lenders actually require

• City banks & major regionals: 1.3+ (conservative)
• Shinkin banks & non-banks: 1.2+ (typical baseline)
• Strong personal balance sheet: lenders may accept 1.1 with a large equity cushion or high-income guarantor

DSCR of 1.0 means NOI just barely covers debt. A single vacancy cycle or a 50 bps rate move pushes you underwater — which is why 1.2 is the practical floor.

3. If the deal doesn't clear

1. Put more equity down. Smaller loan → smaller ADS → higher DSCR.
2. Extend the loan term. Payments drop; total interest rises. In Japan, 25–35 year terms are common for RC (reinforced concrete) property.
3. Negotiate the rate. Bring competing term sheets. Regional banks often match to keep the deal.
4. Raise NOI. Reprice under-market units, cut PM fees, reduce vacancy.
5. Cut the price. A price cut is the single biggest DSCR lever — always model it before walking.

4. DSCR ≠ cash flow

A deal with DSCR 1.25 can still bleed after-tax cash if you factor in property tax, capex reserves, and — for non-residents — the 20.42% withholding on rental income. See the non-resident tax guide. DSCR gets you the loan; after-tax CF tells you if the deal is worth doing.

5. Special note for foreign buyers

Overseas buyers usually cannot access mainstream domestic yen financing. Options: SMBC Trust, SBJ Bank, ORIX, and some Shinkin banks lend to non-residents at 2.5–4.5% with LTV 50–70% and shorter terms — meaning your DSCR math is stricter than a Japanese resident's. Model conservatively.