Calculating the appropriate bidding amount

Calculating the appropriate bidding amount.
It is necessary to secure more than 12% rate of return to have a successful property investment in Japan, Property investment becomes failure when a property is acquired through bank loans with monthly amortization costing more than the monthly rental fee revenues.
Rate of return is the recommended indicator to determine whether an investment property will succeed or not. To compute, first, divide the total property cost with 110% denominator. Then multiply the total monthly rent for the whole year with multiplier 80%. Note that our denominator is not 100% but 110% because of the additional 10% which represents the miscellaneous expenses incurred when acquiring the investment property. Meanwhile, our multiplier is not 100% but 80% because we deducted 20% which represents property tax, reserve fund for renovation, deficit incurred during periods without tenants, etc. It’s a rule of thumb that worst case scenarios should be assumed when embarking in an investment.
The standard rate of return when buying a property should be more than 12%.
Rate of return = Revenue from the monthly rental fee ÷ 110% of the total property cost
Sample Case Problem:
6-room apartment, with one room monthly rental fee amounting to about 38,000 yen
Budget for renovation is 2,500,000 yen.
Given the above condition, how much would be the appropriate bidding amount if the target rate of return is 15%?
Total Monthly rent:
38,000 yen x 6 x 12months = 2,736,000 yen
Net Income from the Monthly Rent:
2,736,000 yen x 80% = 2,188,000 yen
Cost of Investment:
2,188,000 yen ÷15%=14,592,000 yen
Deducting the renovation cost:
14,592,000 yen – 2,500,000 yen = 12,092,000 yen
Deducting the miscellaneous expense incurred by the auction bidding
12,092,000 yen÷110%= 10,992,000 yen
Appropriate bidding amount:
10,992,000 yen