Real Estate Investment Area Scoring: My 5-Axis, 20-Point Evaluation Method
Real Estate Investment Area Scoring: My 5-Axis, 20-Point Evaluation Method
I am Oscar Real Estate, a salaryman based in Nagoya who owns multiple income-generating properties within Aichi Prefecture.
In this article, I will write about "area scoring."
For those who have concerns such as, "This property has a good yield, but I'm worried about the area," or "I don't know which areas in Nagoya are suitable for investment," I am revealing the area evaluation method I actually use.
By evaluating areas using numbers rather than intuition, you can break free from vague judgments like "it seems okay."
Why area evaluation is important
No matter how high the yield of a property is, if the area is in decline, the risk of future vacancies and rent decreases increases. Conversely, if the area is excellent, you can expect stable long-term income even if the yield is somewhat low.
Real estate investment returns are determined by "Property x Area." If either one is missing, long-term success is difficult.
Overview of 5-Axis Area Scoring
The area scoring method I use evaluates each of the five axes on a 20-point scale, quantifying the area out of a total of 100 points.
Evaluation Axis | Points | Data to Check
1. Demographics | 20 points | Population change rate and household trends
2. Industry/Employment | 20 points | Major companies, number of employees, and job-to-applicant ratio
3. Transportation Access | 20 points | Distance to station, number of lines, and access to central Nagoya
4. Municipal Financial Strength | 20 points | Financial strength index and tax revenue per capita
5. Rental Demand | 20 points | Vacancy rate, rent levels, and number of competing properties
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Total | 100 points
Each axis is evaluated on a 5-level scale (4, 8, 12, 16, or 20 points).
Evaluation criteria for each axis
1. Demographics (20 points)
Areas with increasing populations tend to have stable rental demand and lower risks of future rent decreases.
The data to check can be confirmed for free on e-Stat (the portal site for Japanese government statistics).
Data to check
National Census (population changes every 5 years)
Basic Resident Register (annual population by municipality)
Can be checked for free on e-Stat (portal site for Japanese government statistics)
[20 points] Population and household growth over the last 10 years
[16 points] Population mostly flat, household growth
[12 points] Slight population decline, but households maintained
[8 points] Both population and households in a downward trend
[4 points] Significant decline in both population and households
Within Nagoya City, central areas like Naka-ku, Nakamura-ku, and Higashi-ku tend to receive high ratings, while suburban and rural areas receive low ratings.
(2) Industry and Employment (20 points)
Areas with stable employment tend to have tenants with higher economic stability and lower risk of rent delinquency.
Data to check
Aichi Prefecture active job opening ratio (Hello Work statistics)
Location status of major companies and factories
Location of universities and vocational schools
[20 points] Concentration of major companies/factories and university locations
[16 points] Many medium-sized companies with stable employment
[12 points] Centered on local commerce and service industries
[8 points] Lacking major industry and employment
[4 points] Significant industrial hollowing out and corporate withdrawal
Aichi Prefecture has one of the top employment environments in the country as a hub for the automotive industry (Toyota-related). The Kariya, Toyota, and Anjo city areas have many factories and related companies, resulting in high ratings.
(3) Transportation Access (20 points)
In the Nagoya metropolitan area, the "travel time to Nagoya Station and Sakae area" is directly linked to rental demand.
Data to check
Check travel time to Nagoya Station using Google Maps
Walking distance from the nearest station
Number of train lines and times for first/last trains
[20 points] Within 20 minutes to Nagoya Station by train, within 5 minutes walk from station
[16 points] Within 30 minutes to Nagoya Station, within 10 minutes walk from station
[12 points] Within 45 minutes to Nagoya Station, within 15 minutes walk from station
[8 points] Requires bus use, over 60 minutes to Nagoya Station
[4 points] Lacking public transportation, car-essential area
(4) Financial Strength of Local Government (20 points)
Local governments with strong financial power can maintain infrastructure and public services, so the appeal of the area is easily preserved over the long term. This can be confirmed using the Financial Strength Index (published by the Ministry of Internal Affairs and Communications).
Data to check
Financial Strength Index (Published by the Ministry of Internal Affairs and Communications. 1.0 or higher indicates financial independence)
Published financial status of municipalities
[20 points] Financial Strength Index 1.5 or higher (Kariya City, Toyota City, etc.)
[16 points] Financial Strength Index 1.0–1.5
[12 points] Financial Strength Index 0.7–1.0
[8 points] Financial Strength Index 0.5–0.7
[4 points] Financial Strength Index below 0.5 / strained finances
In Aichi Prefecture, Kariya City (Financial Strength Index over 2.0) and Toyota City (over 1.5) are among the top in the country.
5. Rental Demand (20 points)
Checking the number of vacant properties and rent levels on SUUMO or Homes, and conducting direct interviews with management companies and brokerage firms is the most accurate method.
Data to check
Number of vacant properties (number of competitors) on SUUMO or Homes
Rent levels for properties with similar conditions
Direct interviews with management companies and brokerage firms
[20 points] Low vacancy rate / strong demand from both singles and families
[16 points] Stable demand / competition exists but at an appropriate level
[12 points] Demand exists but supply is slightly excessive
[8 points] Noticeable vacancies / downward trend in rent
[4 points] Chronic vacancies / significantly low rent
Examples of scores in the Nagoya/Aichi area
These are (some of) the scores for areas I have actually evaluated.
Area | 1. Population | 2. Industry | 3. Transportation | 4. Finance | 5. Demand | Total
Nagoya City Naka Ward | 20 | 16 | 20 | 16 | 20 | 92 points
Kariya City | 16 | 20 | 12 | 20 | 16 | 84 points
Nagoya City Moriyama Ward | 16 | 12 | 16 | 16 | 16 | 76 points
Nagoya City Kita Ward | 12 | 12 | 16 | 16 | 16 | 72 points
Ichinomiya City | 12 | 12 | 12 | 12 | 12 | 60 points
Ama City | 8 | 8 | 8 | 8 | 8 | 40 points
How to use the scores
70 points or more: Actively consider. Suitable for long-term holding even if the yield is slightly low.
55–69 points: Consider with conditions. Only if DCR/IRR are sufficiently high.
54 points or less: Generally pass. The risk of area decline may outweigh the profits.
Bonuses and penalties to add to the score
In addition to the base score, points are added or subtracted based on property-specific conditions.
+5 points: Within 5 minutes walk from the station
+3 points: City gas
+5 points: New construction or within 5 years old
-5 points: Propane gas
-5 points: Wooden structure over 20 years old
-3 points: Area with a particularly high aging rate (= high possibility of being replaced by new construction in the future)
Summary
I will summarize the 5 axes of area scoring.
1. Demographics: Choose areas with increasing or stable populations
2. Industry/Employment: Areas with large companies and factory clusters are stable
3. Transportation Access: Within 30 minutes of Nagoya Station and within a 10-minute walk from the station are the benchmarks
4. Municipal Financial Strength: Use a financial strength index of 1.0 or higher as a benchmark
5. Rental Demand: Check using the number of competing properties and vacancy rates
Rather than choosing a "good-looking area" based solely on intuition, quantifying it with these 5 axes will significantly increase the accuracy of your area selection.
For those who want to know more
I have published a Kindle book that summarizes the actual records of property analysis using this area scoring, covering 9 properties in total, including those I bought and those I declined.
"Complete Records of Property Analysis by an Active Landlord" (Real Estate Investment Practice Series, Vol. 2)
▼ Purchase on Amazon
Complete Records of Property Analysis by an Active Landlord
https://www.amazon.co.jp/dp/B0H3CRJ3HC
▼ Click here for all works in the series
Vol. 1 How to Start Real Estate Investment Without Failure→ https://www.amazon.co.jp/dp/B0H7SPS2P5
Vol. 2 Complete Records of Property Analysis by an Active Landlord→ https://www.amazon.co.jp/dp/B0H3CRJ3HC
Vol. 3 Complete Records of Financing by an Active Landlord→ https://www.amazon.co.jp/dp/B0H7XTF62X
Vol. 4 Complete Records of Taxes by an Active Landlord→ https://www.amazon.co.jp/dp/B0GX346J1R
Vol. 5 Complete Records of Management Practices by an Active Landlord→ https://www.amazon.co.jp/dp/B0H4X38FLM
Please search for "Oscar Real Estate" or "Real Estate Investment Practice Series" on Amazon, or check the link in my profile.
This article is based on the author's personal experience. Please make investment decisions at your own risk.