How I Compare Gross Yield Across Different Property Ages

Last year I looked at a 32-year-old wooden apartment building listed at a gross yield of 14.2%, sitting three blocks from a 6-year-old RC building offering 6.8%. On paper the old wooden place looked like a slam dunk. The wooden building’s occupancy history also showed two long vacancies of 5 and 7 months in the past three years, something the yield sheet didn’t reflect at all. But after self-managing 9 rental properties for over 15 years, ranging from a 41-year-old wooden duplex to a 4-year-old steel-frame building, I’ve learned that comparing raw gross yield across different property ages is one of the fastest ways to buy yourself a headache.

Gross yield only tells you annual rent divided by purchase price. It says nothing about how many years of usable life are left in the structure, how much you’ll spend keeping it rentable, or how a bank will treat the loan. Here’s the system I actually run before I let a yield number talk me into, or out of, a deal.

Why Gross Yield Alone Misleads You Across Ages

A 35-year-old wooden building depreciates for tax purposes over just 4 years once it’s past its 22-year statutory life, while a brand-new RC building depreciates over 47 years. That single difference changes your after-tax cash flow enough to erase a 3-4 percentage point yield gap by itself. I’ve also seen investors chase double-digit headline yields on buildings over 40 years old, only to find the seller’s numbers assumed continuous full occupancy, which almost never holds once a wooden building passes the 30-year mark in my own experience. I’ve since made it a habit to request the last 3 years of actual rent collection records, not just the current asking rent, before I trust any single yield percentage.

My Method: Adjusting for Remaining Useful Life

Before comparing two listings, I calculate a rough remaining useful life percentage: statutory life minus building age, divided by statutory life. For wood-frame buildings the statutory life is 22 years, for light steel-frame it’s 27, and for reinforced concrete it’s 47. A 15-year-old wooden building only has about 32% of its statutory life left, so I mentally discount its headline yield by roughly 1.5 to 2 percentage points to make it comparable to a newer RC property. On a building priced at 25 million yen with an 8.5% gross yield, that discount effectively drops the comparable figure to somewhere around 6.5-7%, which suddenly looks a lot closer to what a newer building down the street is offering.

Factoring In Repair Reserves by Building Age

Age drives maintenance cost far more than most yield sheets admit. Across my own 9 properties, I budget about 8,000 yen per unit per month in repair reserves for anything built before 2000, versus roughly 4,500 yen per unit per month for buildings under 15 years old. On a 10-unit building that’s a difference of nearly 420,000 yen a year, which on a 30 million yen purchase price works out to over 1.4 percentage points of yield that never shows up in the listing. I subtract this reserve gap directly from the older property’s gross yield before comparing it to anything else, and I add another 0.5 point buffer if the roof or plumbing hasn’t been touched in the last 18 years.

Loan Terms Change the Real Return

Banks in Japan tie loan length to a building’s remaining statutory life, and that changes your actual cash yield even when the gross yield is identical. On a recent comparison, a 20-year-old wooden building only qualified for a 12-year loan term, while a 5-year-old RC building nearby qualified for 30 years. Same purchase price, same rent roll, but the shorter term meant monthly payments about 68,000 yen higher on the older property, which ate almost the entire yield advantage it appeared to have on paper. I now ask for a loan term estimate from at least one bank before I take any headline yield seriously. Fire and earthquake insurance premiums add another wrinkle, since a wooden building built before the 1981 seismic code update can run 30,000 to 40,000 yen more per year in premiums than a comparable RC building, which quietly shaves off another sliver of that headline yield.

A Quick Checklist I Run Before Comparing Two Listings

When I’m sitting at my kitchen table with two listing sheets from buildings of very different ages, I run through this checklist before trusting either yield number:

• Confirm actual building age from the registry, not just the listing description
• Calculate remaining statutory life for the structure type: wood, light steel, or RC
• Discount gross yield by roughly 0.1-0.2 points for each year of age beyond 15 years
• Get a real loan term quote from at least one bank before assuming financing terms
• Build in a realistic repair reserve based on age, not the seller’s optimistic figures
• Compare the adjusted yields side by side, never the two headline numbers

What the Adjusted Numbers Usually Show

Once I adjust for remaining life, repair reserves, and loan terms, that 14.2% wooden building from the start of this post typically lands closer to 8-9% in real comparable terms, still solid, but nowhere near the gap the headline figure suggested against the newer building’s 6.8%. It’s not that older buildings are bad investments; over the years, 3 of my 9 properties have been wood-frame buildings past the 25-year mark and they’ve performed well. The point is that you have to run the same adjusted math on every listing before you can honestly say one yield beats another.

That’s the approach I use across all 9 of my properties before I ever put in an offer.

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