Glossary of Real Estate Investment Terms｜Basic Terms on Yield, Rights, Transactions, Rentals, and Taxes Explained
10 min readBy Emi Tokudomi (licensed real estate broker, 宅地建物取引士)
Documents and contracts related to real estate investment often include many specialized terms about yields, rights, and taxes. This article lists commonly used terms when purchasing, managing, and selling income properties, organized by category. Please use this as a reference if you encounter any unfamiliar words.
Income & Investment Indicators
| Term | Meaning |
|---|---|
| Gross Yield | Annual full-occupancy rent ÷ property price. Most advertised yields refer to this. |
| Net Yield (NOI Yield) | Net operating income after deducting operating expenses from annual rent ÷ (property price + purchase expenses) |
| NOI (Net Operating Income) | Actual rental income − operating expenses (management fees, repairs, fixed asset tax, insurance, etc.) |
| Cash Flow | Money remaining after deducting loan repayments (principal and interest) from NOI |
| Capitalization Rate (Cap Rate) | The yield used to discount net operating income to calculate income value, which varies by area and building age |
| Debt Service Ratio | Annual loan repayment amount ÷ annual rent income |
| DSCR | NOI ÷ annual loan repayment amount. If less than 1, rent income cannot cover loan repayments |
| Vacancy Rate / Occupancy Rate | Proportion of vacant rooms and proportion of occupied rooms |
| Rent Roll | A summary table showing rent, contract start date, security deposit, etc., for each room |
| Leverage | Using financing to invest in properties larger than one’s own capital |
Properties, Rights, and Laws
| Term | Meaning |
|---|---|
| Whole Building / Unit | Owning the entire building is “whole building,” owning a condominium unit is “unit ownership” |
| Ownership Rights | The right to freely use and dispose of land and buildings |
| Leasehold Rights | The right to build on land leased from another person. Sale or rebuilding often requires the landowner’s consent |
| Land Under Leasehold | Ownership rights of the land subject to leasehold rights |
| Zoning District | Urban planning classification that designates types and scale of buildings that can be constructed |
| Floor-Area Ratio | Maximum ratio of total floor area to site area |
| Building Coverage Ratio | Maximum ratio of building footprint (viewed from above) to site area |
| Road Adjacency Requirement | Rule requiring that the site touches a road at least 4 meters wide by at least 2 meters, otherwise building is not permitted |
| Non-Rebuildable Land | Land that does not meet road adjacency requirements, so once the current building is demolished, rebuilding is not allowed |
| Setback | If the frontage road is less than 4 meters wide, the site must be set back partially to allow for road widening when rebuilding |
| New Earthquake Resistance Standards | Seismic standards applied to buildings with building confirmation received on or after June 1, 1981 |
| Certificate of Inspection Completion | A document certifying that the building was constructed according to the building confirmation |
| Statutory Useful Life | Depreciation period for tax purposes. For example: RC construction 47 years, heavy steel frame 34 years, wood frame 22 years (residential use) |
Sales & Transactions
| Term | Meaning |
|---|---|
| Offer to Purchase | A document conveying the desired purchase price and conditions to the seller |
| Important Points Explanation | An explanation by a licensed real estate transaction specialist (宅地建物取引士, takuchi tatemono torihikishi) of important property and contract details before the sales contract |
| Earnest Money | Money the buyer pays at contract signing, applied toward the purchase price |
| Financing Contingency (Loan Contingency) | A contract clause allowing cancellation if the planned financing cannot be obtained |
| Contractual Conformity Liability | Seller’s liability when the delivered property differs from the contract terms (changed from the old “defect warranty liability” by the April 2020 Civil Code revision) |
| Brokerage Contract | A contract to entrust a real estate company to mediate the sale. Three types: general, exclusive, and exclusive with no other agent |
| REINS | A system for real estate agents to share property information among themselves |
| Owner Change | Selling a rented property with tenants remaining in place |
| Settlement & Handover | Payment of the remaining amount, registration of ownership transfer, and handing over the property |
| Direct Purchase / Brokerage | Direct purchase is when a real estate company buys the property; brokerage is when they find a buyer |
Rentals & Management
| Term | Meaning |
|---|---|
| Security Deposit | Money collected at move-in and returned after deducting unpaid rent or restoration costs upon move-out |
| Key Money | Money paid to the landlord upon moving in that is not refundable |
| Renewal Fee | Money the tenant pays when renewing the lease (customs vary by region) |
| AD (Advertising Fee) | Advertising fee paid by the owner to the brokerage that found the tenant |
| Free Rent | A certain period after move-in when rent is waived |
| Restoration | Returning the room to its original condition upon move-out. Treatment of normal wear and tear follows guidelines by the Ministry of Land, Infrastructure, Transport and Tourism |
| Rent Guarantee Company | A company that guarantees rent payment instead of the tenant’s joint guarantor |
| Sublease | A contract form where a management company rents the entire property and then subleases to tenants |
| Self-Management / Management Outsourcing | Self-management is when the owner manages the property directly, management outsourcing is when the owner entrusts a management company |
Taxes
| Term | Meaning |
|---|---|
| Real Estate Acquisition Tax | A one-time prefectural tax imposed upon acquiring real estate |
| Registration and License Tax | A national tax paid when registering ownership transfer or mortgage rights |
| Fixed Asset Tax / City Planning Tax | Municipal taxes imposed annually as of January 1st on the owner |
| Stamp Duty | Tax imposed on sales contracts and loan agreements |
| Capital Gains Tax | Income tax and resident tax on profits when selling real estate. Tax rates are lower when holding period exceeds 5 years |
| Depreciation | Gradually deducting the acquisition cost of a building as expenses over its useful life |
Related Articles
- How to Choose Income Properties
- Process for Purchasing Income Properties
- Purchase Costs for Income Properties
- Basics of Real Estate Investment Loans
Header image: Photo by Kelly Sikkema on Unsplash (illustrative)
About this article
- Author
- Emi Tokudomi（Acquisition Staff）Qualifications: Real Estate Transaction Agent
After working in real estate sales support, rental property management, and brokerage, now engages in acquisition operations. Holds a Real Estate Transaction Agent license and bookkeeping qualifications, and supports property value with extensive hands-on experience and specialized expertise.
View profile → - Publisher
- TLL合同会社宅地建物取引業 東京都知事(1)第108202号住宅宿泊管理業 国土交通大臣(01)第F03424号
Data in this article cite their source and as-of date. Market conditions and regulations change, so check the latest information and consult a professional before deciding. Translated from the Japanese original.
