The Day Long-Term Interest Rates Exceeded 3%—Why You Should Judge Based on 'DSCR Resilience' Rather Than Whether Fixed or Variable Is More Profitable

■ Two years ago, I chose interest rates based on ‘profit or loss’

When I started real estate investing 10 years ago, my criteria for choosing an interest rate was ‘which is more profitable, fixed or variable?’

Variable rates had lower initial repayments. Fixed rates offered predictability. I operated based on that kind of cost-benefit analysis.

I realized that was completely wrong when variable rates exceeded 2.5% and I recalculated the DSCR for my Property B (a single apartment building, 72 million yen loan balance, 22 years remaining).

DSCR in the 1.8% interest rate era: 1.41
DSCR in the 2.5% interest rate era: 1.23

With a difference of only 0.7 points, the DSCR dropped from ‘comfortable’ to ‘on the verge of the cutoff line’.

■ The question of ‘is fixed or variable more profitable’ was wrong

In the loan screening process of several banks, a DSCR (Debt Service Coverage Ratio) of 1.2 is used as the practical cutoff line.

If it falls below 1.2, it becomes difficult to get loans for additional properties. Your scaling stops.

The judgment that ‘variable is currently more profitable’ was based only on the repayment amount. It did not consider the impact on loan evaluation.

The essence I had overlooked was the question, ‘Will this property continue to pass additional loan screenings even if interest rates rise?’—in other words, ‘Does it have DSCR resilience?’

■ What is DSCR resilience? (Calculation example)

The formula for DSCR is simple.

DSCR = Annual NOI (Net Operating Income) ÷ Annual Debt Service

NOI is the net income after deducting management fees, property taxes, insurance, repair costs, etc., from rental income. Annual debt service is the annual total of monthly repayments.

Looking at the example of Property B:

NOI (annual): 6,480,000 yen
Debt service (at 1.8% interest, annual): 4,596,000 yen → DSCR 1.41
Debt service (at 2.5% interest, annual): 5,280,000 yen → DSCR 1.23

When the interest rate rises by 0.7 points, the repayment amount increases by 684,000 yen per year (57,000 yen per month). Even though the NOI remains the same, the DSCR drops significantly.

Furthermore, the Japan Housing Finance Agency’s ‘Survey on the Actual Conditions of Private Housing Loans (March 2026)’ also confirms that there is an increasing trend in referring to cash flow indicators such as DSCR in financial institutions’ repayment capacity evaluations.

■ Three conditions for choosing a property with ‘DSCR resilience’

There are three conditions I look at when determining the continuity of a loan.

The first is that the NOI is stable. The rent must be supported by demand, and the location and layout must be such that a few months of vacancy would not be fatal. The meaning of vacancy risk differs between a 50,000 yen rent property for singles in a rural area and an 80,000 yen rent property for families in a suburban area.

The second is that a DSCR of 1.2 can be maintained even if interest rates rise by 1%. If the DSCR falls below 1.2 in a scenario where the current interest rate is increased by 1%, it cannot be said to have ‘DSCR resilience.’ I check this every month using Real Estate Simulator Pro. It allows me to perform interest rate sensitivity tests after reflecting actual move-ins, move-outs, and repair costs.

The third is having the capacity to deal with rising interest rates. This includes whether there is cash on hand for early repayment or a management system in place to reduce vacancy rates. ‘DSCR resilience’ is not determined solely by property attributes; it also includes whether the owner can handle the situation.

■ Decisions I actually made

When long-term interest rates exceeded 3%, I checked the DSCR of my entire portfolio at a glance.

Two out of seven buildings were around a DSCR of 1.25. While not in the danger zone, if rates rise another 0.5%, one building will hit the 1.2 line.

I took two actions.

1. I made an early repayment on Property C, reducing the remaining debt by 5 million yen. This brought the DSCR back to 1.31. 2. I delayed the plan for an additional acquisition by two months. I prioritized the stability of the DSCR for existing properties before undergoing new loan screening.

By focusing on the question ‘Will I pass the next screening with my current DSCR?’ rather than ‘Should I switch to a fixed rate?’, my decision-making became faster.

■ From ‘Profit or Loss’ to ‘Continued Approval’

When I first started investing, I only thought in terms of ‘which has lower repayment amounts?’

Ten years later, my decision-making axis has changed.

‘At this interest rate level, will I continue to pass the next loan screening? Is the DSCR being maintained?’

Loan evaluation over yield. This is the core philosophy of my real estate investment.

Every time long-term interest rates move, I have developed the habit of checking ‘DSCR resilience’ before looking at the increase or decrease in repayment amounts.

I created Real Estate Simulator Pro because I wanted to automate the calculations for this every month.

Reference: Bank of Japan ‘Trends in Long-Term Government Bond Yields’ Reference Statistics (published August 2026), Japan Housing Finance Agency ‘Survey on Private Housing Loans’ (March 2026)
■ Two years ago, I was choosing interest rates based on ‘profit or loss’

When I started real estate investment 10 years ago, the criteria for choosing an interest rate was ‘which is more profitable, fixed or variable?’