1. The 5-year capital-gains cliff
- Held ≤ 5 years (short-term): 39.63% on gain
- Held > 5 years (long-term): 20.315% on gain
The clock counts from January 1 of the year of the 5th full year — not the actual purchase date. A property bought March 2021 becomes long-term on January 1, 2027. Selling in December 2026 costs you nearly 2× the tax bill for a difference of one month.
2. Depreciation runway
Once you exhaust the short-schedule depreciation (see depreciation guide), the deal loses its tax shield. A 22-year wooden house on the 4-year short schedule turns tax-positive in year 5. For high-income overseas owners, exit near end-of-schedule is often optimal — you got the shelter years and now hand off before the tax drag begins.
3. Cap-rate cycle risk
Japanese cap rates for major cities have compressed for 10+ years. A 100 bps cap-rate expansion drops price by ~20% at prevailing yields. Model the exit at current cap + 50 bps as a base case, +100 bps as downside. If the deal still returns your target IRR under +100 bps, it's robust.
4. Buyer pool by exit price
- Under ¥30M: individual investors, all-cash. Deep pool nationwide.
- ¥30M–¥100M: professional individual + small corporate. Financed buyers.
- ¥100M–¥1B: J-REITs, family offices, private funds.
- ¥1B+: institutional only. Very cap-rate sensitive.
Deals just above a buyer-pool threshold sit thin. Deals just below get bid up.
5. Non-resident sale mechanics
Buyer withholds 10.21% of gross sale price for non-resident sellers (waived if ≤ ¥100M owner-occupied). You file to compute actual gain and reclaim excess. See non-resident tax guide.
6. Base-case rule
Plan the exit before purchase: hold years, target buyer, exit cap. If any of the three doesn't survive stress-testing, don't buy.
Free account · 150 AI credits on signup
Paste a Japanese property URL and get yield, DSCR, after-tax cash flow and exit scenarios in seconds.
Saving deals, sharing links and PDF export require a free account (10 seconds, no card).