When a new listing lands in my inbox, the first thing I check is not the asking price. It is the land-to-building ratio, because that single number tells me whether I am really buying dirt or buying a structure. Over 15 years and 9 rental properties, I have learned that confusing those two decisions is one of the fastest ways a landlord loses money in year one.
I still remember walking away from a 42-year-old building priced at 28 million yen, once I worked out the land underneath it was assessed at barely 9 million. The seller was pricing nostalgia, not math, and I was not going to pay for it. That single lesson is the reason I now run every deal through the same process before I even schedule a viewing.
How I Split the Price Between Land and Building
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Before I look at anything else, I pull the fixed asset tax assessment and split the total sale price into land value and building value using that ratio. On a typical 35 million yen deal in my area, I usually see something like 20 million for land and 15 million for the structure. If the building is older than 25 years, I also mentally write its value down toward zero, because that is roughly how a lender and a future buyer will treat it too. The land number is the one that holds its value over a 20 or 30 year hold; the building number is the one that depreciates fast on wood-frame construction, sometimes losing more than half its book value within the first decade.
I also compare that split against the neighboring lots that have sold in the last 2 years. If the land component of my target property is priced more than 15 percent above recent comparable sales, I treat that as a red flag and either negotiate hard or walk away, because an inflated land price is much harder to fix later than a tired building.
When I Lean Toward Buying Land and Building New
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I choose raw land when I want full control over the floor plan, insulation grade, and parking layout, and when the site sits in a location where good used stock almost never comes up for sale. Construction on a standard 6-unit apartment building runs me roughly 780,000 yen per tsubo these days, which puts a modest new build well past 60 million yen once you add the land. That is a big number, but a new building gives me 22 years of accelerated depreciation on a wood structure instead of the 4 to 8 years typically left on something already 20 years old. For a long-term hold, that depreciation runway matters almost as much as the rent roll, because it directly reduces my taxable income for close to two decades.
New construction also lets me design around modern tenant expectations from day one: better sound insulation between units, higher ceiling clearance, and enough closet space that I am not fielding complaints about storage every single lease renewal. I built one property this way about 6 years ago, and it has never sat vacant for longer than 3 weeks between tenants.
When I Lean Toward an Existing Building
Most of my 9 properties are existing buildings, and there is a simple reason: cash flow starts on day one instead of 10 months later while permits and construction drag on. A renovation budget is also far more predictable than a ground-up build, where surprises under the slab can blow a schedule apart. I typically plan 3,000 to 5,000 yen per square meter for a light refresh covering paint, flooring, and fixtures, and closer to 15,000 yen per square meter if I am replacing plumbing or rewiring an older unit. Because I do most of the labor myself on nights and weekends, I usually cut that renovation number by 30 to 40 percent compared to hiring everything out, which is the single biggest reason existing buildings pencil out better for me than new construction in most years.
The Site Visit Checklist I Never Skip
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Whether I am looking at bare land or a building with tenants already in it, I walk the same list before I make an offer:
- Road frontage of at least 4 meters, or the lot may not be rebuildable later under setback rules
- Soil and foundation condition, checked against old flood and liquefaction maps for the ward
- Sun exposure and the height of neighboring buildings, since a shaded unit is a hard rent to fill
- Walking distance to the nearest station, ideally under 10 minutes
- Parking ratio, since anything under 1 space per unit gets a slower lease-up in my experience
If a property fails two or more of those checks, I pass, no matter how attractive the headline yield looks on paper. I have skipped deals that other investors jumped on for exactly this reason, and every single time the property later sat with a vacancy problem I was glad to avoid.
The Number That Usually Decides It For Me
In the end, it comes down to gross yield. I want existing buildings to clear 8 percent gross, and I want new construction on land to clear 6.5 percent, because I am willing to accept a lower yield in exchange for a longer useful life and lower repair costs in years 1 through 10. When a deal cannot hit those thresholds, land or building, I let it go and wait for the next one. Over 9 deals and 15 years, that discipline has probably saved me more money than any single renovation trick I have ever used, and it is the filter I apply before I even think about financing terms.
That is the approach I use across all 9 of my properties, and it keeps me from falling in love with a listing before the numbers earn my trust.
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15 years of landlord experience u00b7 3 apartment buildings u00b7 DIY renovations that saved millions of yen. Browse all articles at diytosan.com
