Why rising interest rates make things difficult for real estate investors
Why “low-cost vacant house investment” is strong in an era of population decline
“Rent doesn’t go up immediately, but repayment amounts do”
“Properties purchased on the assumption of full occupancy go into the red with just one vacancy”
“Even if you try to sell, there is no guarantee you can sell for more than you bought it for”
Right now, a different kind of anxiety than before is spreading among real estate investors.
The cause is rising interest rates.
On September 18, 2026, the Bank of Japan raised its policy interest rate from around 1.0% to around 1.25%. Furthermore, the Bank of Japan has indicated the possibility of further raising the policy interest rate in the future depending on economic, price, and financial conditions. (Bank of Japan, September 2026 Monetary Policy Meeting)
Of course, not all real estate investors will go bankrupt immediately.
However, the investment method of “borrowing at low interest rates and selling when property prices rise,” as has been done until now, is gradually becoming more difficult.
What is important for future real estate investment is not the appearance of the property or the gross yield.
It is whether you can continue to hold the property even if interest rates rise, vacancies occur, or repairs are needed.
The reality for real estate investors suffering from rising interest rates
For example, suppose you borrow 30 million yen with a 35-year loan.
Calculating simply with equal principal and interest repayment, the monthly repayment amount changes as follows.
Interest Rate Estimated Monthly Repayment 1% approx. 85,000 yen 2% approx. 99,000 yen 3% approx. 115,000 yen
Just by the interest rate going from 1% to 2%, there is a difference of about 14,000 yen per month.
That is about 170,000 yen per year.
If the interest rate reaches 3%, the annual repayment amount increases by about 360,000 yen compared to when it was 1%.
From an investor’s perspective, rent does not increase by 14,000 yen every month.
Nor do tenants’ salaries increase at the same time as interest rates rise.
In other words, there is a possibility that expenses will increase while income remains the same.
This is why real estate investors with large loan amounts find themselves in a difficult position.
The following types of properties are particularly dangerous:
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Properties that cannot cover repayments unless fully occupied
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Properties where the majority of rental income is used for loan repayments
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Properties for which funds for large-scale repairs have not been prepared
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Properties where calculations have not been made for interest rates of 2% or 3%
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Properties based on the assumption that sale prices will rise
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Properties that will operate at a loss if rent is lowered
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Properties where monthly cash flow turns negative with just one vacancy
For such properties, it becomes difficult not only due to interest rate hikes, but also if any one of the following occurs: vacancies, repairs, or rent decreases.
Rising interest rates are not an isolated issue.
The problem is that the burden of repayment increases while already carrying the risks of vacancies and repairs.
Even if real estate prices are rising, it does not necessarily mean that investors are making a profit.
According to the Ministry of Land, Infrastructure, Transport and Tourism’s 2026 Prefectural Land Price Survey, land prices nationwide continue to show an upward trend overall.
However, this increase is not uniform across the country.
Prices continue to rise in areas where demand is concentrated, such as the three major metropolitan areas, tourist destinations, logistics hubs, and semiconductor-related regions. On the other hand, there are areas where prices are not growing due to population decline or lack of demand. (Ministry of Land, Infrastructure, Transport and Tourism, 2026 Prefectural Land Price Survey)
What must be noted here is that
the fact that “real estate prices are rising” and
the fact that “the profitability of one’s own property is increasing” are two different things.
Even if property prices rise, if the rent remains the same, the yield on the purchase price decreases.
For example, suppose a property with an annual rental income of 1.2 million yen increases in price from 12 million yen to 15 million yen.
Although the annual rent does not change, the gross yield drops from 10% to 8%.
Furthermore, if interest rates, property taxes, insurance premiums, repair costs, and management fees rise, the money remaining in hand will decrease even further.
It is no longer an era where you can feel secure just by buying a property that is increasing in price.
From now on, rather than looking for properties that will increase in price, it is necessary to look for properties that can generate profit even if the price does not rise.
Due to population decline, real estate is chosen by “location” rather than “as a whole”
The long-term decline in Japan’s population is already an unavoidable trend.
The National Institute of Population and Social Security Research has estimated the future population up to 2070 based on the 2020 census. The estimates are based on multiple assumptions such as birth rates, death rates, and foreign migration, but long-term population decline and aging are major themes. (National Institute of Population and Social Security Research: Population Projections for Japan)
When the population decreases, not all real estate will deteriorate in the same way.
From now on, the following polarization will progress.
Locations where demand remains
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Close to stations and main roads
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Has hospitals, schools, and supermarkets
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Has employment from factories and companies
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Has university or tourism demand
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Has immigrants or foreign residents moving in
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Few rental properties in the surrounding area
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Can live without a car
Locations where demand weakens
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The younger generation is moving away
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Shops, hospitals, and schools are closing
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Public transportation is being reduced
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The number of vacant houses is increasing
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There is a surplus of rental properties
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Even if you want to sell, there are no buyers
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There are few contractors available for management and repairs
In the era of population decline, looking only at whether the population is increasing is insufficient for real estate investment.
Even if the population is decreasing, there is potential for investment if there is consistent rental demand, few competing properties, and the ability to acquire them cheaply.
Conversely, even in areas where the population is increasing, if property prices are too high and no profit remains, it is a risky investment.
What kind of investors are less likely to suffer when interest rates rise?
I believe that those who will be resilient to rising interest rates in the future are low-cost vacant house investors.
To be precise,
they are “investors with small loan amounts who keep total investment costs low and can recover rental income quickly.”
that is.
The greatest strength of low-cost vacant house investment is not just that property prices are low.
It is that you can start without relying on borrowing.
What I have been working on are zero-yen properties and old detached houses priced at 500,000 yen or less.
Of course, you cannot live in them with just the purchase cost.
Miscellaneous expenses, disposal of remaining items, repairs, equipment replacement, and leasing costs are necessary.
However, there are cases where the total investment amount, including property price and repair costs, stays within the range of 1 million to 2 million yen.
For example, consider the following model:
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Property price: 200,000 yen
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Miscellaneous expenses: 200,000 yen
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Repair costs: 500,000 yen
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Leasing fees, etc.: 100,000 yen
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Total investment: 1 million yen
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Monthly rent: 35,000 yen
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Annual rent: 420,000 yen
In this case, the gross yield is 42%.
Of course, you need to deduct property taxes, fire insurance, vacancy periods, repair costs, management fees, and so on.
Even so, the vulnerability to interest rate hikes is completely different between an investment where you borrow 30 million yen and make monthly repayments, and a method where you invest 1 million yen in cash.
With a cash purchase, even if the interest rate rises from 1% to 2%, your repayment amount does not increase.
Even if a vacancy occurs, there is no loan repayment.
Even if rental income stops temporarily, you do not need to cover monthly repayments from your living expenses.
This is why low-cost vacant house investment is resilient to interest rate hikes.
However, you must not misunderstand.
While low-cost vacant house investment is resilient to interest rate risk, it carries building risk, repair risk, and tenant acquisition risk.
It does not mean you should buy just any cheap property.
Rather than just “buying cheap,” it is important to “keep the total cost to get the property into a rentable state low.”
(Important) Interest rate forecasts to use for future real estate investment
It is impossible to accurately predict the future of interest rates.
However, based on the current situation, you should at least consider the following three scenarios.
Scenario 1: Policy interest rates continue to rise for a while
This is the case where inflation continues and the Bank of Japan proceeds with additional rate hikes.
In this case, investors with a large amount of variable-rate debt will suffer more.
In particular, for properties with a high debt service coverage ratio, the remaining cash flow will decrease with each additional rate hike.
Scenario 2: Interest rates remain at a high level for a long period
This is the case where, even if rapid rate hikes stop, we do not return to the era of low interest rates.
In this case, the conditions for refinancing and new loans will become stricter.
The expansion strategy of “selling and buying the next property” will also not be as easy as it used to be.
Scenario 3: Rate hikes stop due to economic deterioration
This is the case where the economy worsens and the Bank of Japan refrains from further rate hikes.
Interest rates might stabilize.
However, there is a possibility that vacancies will increase or rents will fall due to the economic downturn.
In other words, it does not mean you are safe just because interest rates do not rise.
Whether interest rates rise or not, the risks of vacancies and rent declines remain.
That is why it is important to buy properties that you can continue to hold in any scenario, rather than betting on interest rate forecasts.
The 5 investment rules I will prioritize from now on
1. Calculate based on a 2% interest rate and a 20% vacancy rate
Before purchasing, do not calculate based only on current interest rates.
At the very least,
check if you still have cash flow after including these.
It is safer not to buy properties that would result in a deficit under these conditions.
2. Look at the total investment amount, not just the property price
Hearing that you can buy something for 500,000 yen makes it feel cheap.
However, if it requires 3 million yen in repairs, it cannot be called a bargain property.
The numbers you should look at are
purchase price + miscellaneous expenses + repair costs + leasing costs + costs until operation begins
.
Calculate how much is needed to get it into a rentable state.
3. Keep the loan amount small
There is no need to completely deny the use of loans.
However, borrowing a large amount from the start is dangerous.
Start small with your own funds, recover the rental income, and increase your cash.
After that, utilize financing if necessary.
This order makes it harder to be forced out during an era of rising interest rates.
4. Look at rental demand, not population
Do not judge based solely on the population of the entire municipality.
From that property, check:
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whether you can commute to work
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whether hospitals and schools are nearby
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whether you can go shopping
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whether there is a parking lot
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what kind of tenants are in that area
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how many properties in the same rent range there are
Even in areas where the population is declining, specific rental demand may remain, such as from single people, households on welfare, the elderly, foreigners, or factory workers.
5. Decide on an exit strategy before purchasing
Think about how to sell before you buy.
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Sell while there is a tenant
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Sell to an investor
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Sell for residential use
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Sell to the owner of the adjacent land
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Sell as land
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Demolish and turn into vacant land
Properties with only one exit strategy are dangerous.
I purchase properties only after considering, “Even in the worst-case scenario, who can I sell this to?”
What will happen to real estate investors in the future
From now on, the gap between real estate investors will widen.
Even if you own similar properties in the same area,
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those with low debt
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those who have cash on hand
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those who have prepared for repair costs
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those who are good at attracting tenants
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those who understand local demand
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those who have multiple potential buyers
will remain even after interest rates rise.
On the other hand,
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those with large loan amounts
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those assuming full occupancy
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those who have not accounted for repair costs
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those who cannot lower rent
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those who are expecting an increase in sale prices
are investors who may gradually find themselves cornered.
Real estate investment is not a game where the person who buys the property wins.
It is a game where the person who can hold onto it until the end wins.
If you are just starting out, your first property can be small.
When people hear ‘real estate investment,’ many may imagine apartments or condominiums costing tens of millions of yen.
However, there is no need to take on a large debt from the start.
Zero-yen properties, 100,000-yen properties, 300,000-yen properties, and old detached houses under 500,000 yen.
There are also ways to find such properties and renovate them until they are ready to be rented out.
Of course, it takes effort.
Property research, registration, disposal of remaining items, repairs, tenant recruitment, contracts, and management.
Not everything is easy.
However, if you can keep your loan amount down and your total investment small, you will be less likely to be swayed by rising interest rates.
If you can quickly recover your investment through rental income, you will also have cash left over to move on to the next property.
Instead of borrowing heavily to expand all at once, buy small, recover quickly, and accumulate cash.
In an era of population decline and rising interest rates, this way of thinking will become increasingly important.
Conclusion
The most dangerous thing in future real estate investment is not ‘rising interest rates’.
It is assuming that everything will be fine even if interest rates rise, and failing to do the math.
It is assuming that everything will be fine even if the population declines, and failing to look at the region.
It is assuming that everything will be fine even if vacancies occur, and failing to keep cash on hand.
You cannot decide interest rates yourself.
You cannot stop population decline on your own, either.
However,
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the price you pay,
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how much you spend on repairs,
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how much you borrow,
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which area you choose,
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what kind of tenants you target,
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and when you recover your investment,
are all things you can decide yourself.
Investors who are resilient in an era of rising interest rates are not those who can predict the future.
They are those who have built a system that ensures they won’t be forced out of the market even if their predictions are wrong.
And I believe that one of the most resilient forms of real estate investment for the coming era is debt-free, low-cost vacant house investment.
Instead of forcing yourself to buy expensive properties, acquire them cheaply, repair only what is necessary, rent them out quickly, and recover your investment quickly.
This accumulation of efforts becomes the strength to survive an era of rising interest rates and population decline.
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※This article summarizes a perspective on real estate investment and does not recommend any specific property or loan. Before purchasing, please check individual factors including vacancies, repairs, taxes, insurance, interest rate hikes, and exit prices.