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How to Calculate Real Estate Investment Returns in Dubai

Posted by Kelt&corealty on April 25, 2024

Real estate investment is deemed one of the lucrative investment opportunities. This specific sector offers a number of investment options such as residential and commercial investment options. Real estate investment is able to generate both passive income and long-term capital appreciation. Furthermore, investing in the real estate sector develops tangible assets that can be leveraged for multiple reasons. Additionally, the property value tends to increase over time, acting as a hedge against inflation.

Understanding The Concept Of Real Estate Investment Calculation:

The prime objective of an investment is to earn profit. Investors should make informed decisions to maximize their returns. Given that, investors should assess the financial performance of a specific real estate by calculating different metrics related to that property. In this specific domain, an investor can calculate rental income potential, and operating expenses such as maintenance costs, taxes and insurance.

Why To Calculate Real Estate Investment Returns:

  • It is crucial to calculate real estate investment returns for the following reasons.
  • This calculation helps investors gauge the effectiveness of this specific investment and compare it with other alternative investment opportunities
  • Investors evaluate the potential of this particular investment and they can make an informed decision based on the obtained results
  • This assessment also enables investors to assess the risk associated with this particular investment and determine its potential to justify the associated risk
  • Having an idea about returns also allows investors to allocate resources effectively 
  • Calculating real estate investment returns instills a sense of confidence in investors

Roi Real Estate Calculator:

ROI refers to the return on investment. Basically, it is a financial ratio that suggests the profitability of a business. This is a value that indicates the margin of profit for a specific investment. This is a way to determine how much profit you can make in a real estate investment. 

Divide the net profit on the investment and divide it by the initial investment cost to find the percentage return on investment (ROI). You need to subtract the original cost of investment from the total return. This formula can be applied to any investment to find the profit ratio. 

ROI= Gain On Investment – Cost Of Investment / Cost Of Investment

Supposedly, you buy a property in Dubai of AED15 Million worth and sell it after two years for AED 20 Million then your ROI on that specific property would be (AED 20 Million – AED 15 Million / AED 15 Million ) AED 5 Million.

How To Calculate Roi On Rental Properties?

The above-mentioned formula also assists in calculating ROI on rental properties. However, one must consider variables that can influence the result. These variables include but are not limited to repair, maintenance expenses, the amount of money borrowed, etc. Include all these extra expenses in the cost section to determine the exact ROI in Dubai real estate.

What Is A Good Rate Of Returns On A Rental Property?

The parameters for a good rate of return vary from property to property. Factors such as the value or price of a specific property, the spending of an owner on a property, how much rent is charged, the location of the property, and the taxation rate in a specific area. Given these factors, ROI can differ. However, normally, investors seek 8 to 12% profit.

ROI For Cash Transactions:

It is quite easy to calculate ROI if you buy a property with cash. It is a simple calculation.

Let’s analyze an example of a rental property purchased in cash

Suppose the total value of a property is AED 100,000. It is the price that you paid

The closing cost of that particular property is AED 1000

The remodeling cost is about AED 9000

Rent collection from that property is AED 1000 per month

After A Year

You collected AED 12,000 in rental payment 

Expenses such as taxes and bills are AED 24,000 for the year, making AED 200/ month

Given this, your annual return is (AED 12,000 – AED 2400)= AED 9,600

Now, explore and learn how to calculate real estate investment yield

ROI = AED 9600 ÷ AED 110,000 = 0.087 0r 8.7%

ROI For Financed Transaction 

Many people consider mortgages instead of cash to buy a property in Dubai.

In this case, one needs to reconsider the annual returns. Closing rates will also be higher in this scenario. You will also have to pay a 20% down payment. In this type of transaction, your out-of-pocket will increase by adding a down payment, higher closing rates and remodeling costs. 

Now, you need to consider monthly principal and interest payments. This cost will be added to monthly expenses, reducing monthly and net profit. To find ROI, divide the annual return by the sum of the out-of-the-property expenses.

What Is Home Equity?

This term refers to the part of a property’s value that the owner owns outright, without any outstanding mortgage against it. It is the difference between the outstanding balance on your mortgage and the current market value of that property. As you pay your mortgage payments, you build up equity in your home.

Costs That Can Reduce Real Estate ROI:

While calculating ROI, an owner must consider factors that can impact or reduce it. These factors include but are not limited to repairs, painting, landscaping, the advertising cost of that property, appraisal costs, the commission of a broker or agent, remaining mortgage payments, etc. These costs can significantly reduce returns on a real estate investment.

Flipping And The 70% Rule:

Flipping is a business of buying distressed properties that need renovation and proper overhaul. The market value of such properties is quite lower than other ones. Investors purchase or invest in these properties to enhance their values. This process may involve proper repair and comprehensive renovation.

You need to consider the 70% rule to assess whether a specific property will yield a profit and how much this investment is beneficial for you. This rule has been designed to identify returns on such profit as it involves essential cost and after-repair value.

This rule states that an investor should not pay more than 70% of the After Repair Value (ARV) minus the renovation cost. Consider the ARV of a property and multiply it by 0.7. Then subtract the renovation cost from the obtained amount. Now, you get the maximum reasonable price for a specific property. You should not pay more than that amount. 

How Is Investment Real Estate Taxed When You Sell The Property?

When the owner sells a property, the money that he makes above what he initially paid for that property is called a capital gain. If someone owns a house for over a year, then he will pay taxes at a lower capital gains rate. However, if he owns a property for less than a year, then he will pay taxes at a normal or regular rate, which might be higher.

Summing Up:

Real estate investment is worth considering investment mainly because of its high returns. Dubai’s real estate is one of the best markets in terms of profit margin and investors’ interest. People who aim to invest in Dubai’s property sector should know about real estate calculators in Dubai to find ROI in real estate in Dubai before investing their money. Furthermore, Dubai real estate rental yields attract more investors. However, one must calculate ROI. Use this equation (ROI= Gain On Investment – Cost Of Investment / Cost Of Investment) to get profitability.


What is the average return on real estate investment in Dubai?

If you invest in Dubai’s property sector, your average return will range from 5% to 8.4%. It means your yearly return in Dubai’s real estate market can be somewhere between 5% to 5.4%. The demand for property is increasing day by day, improving the possibility of higher return on investment.

How do you calculate the percent return on a real estate investment?

You need to subtract the original cost of the investment from the total returns in order to calculate the profit on any investment. Take the net profit and divide it by the original cost to calculate the percentage of ROI.

What is the difference between ROI and IRR?

Both ROI and IRR are used to measure the profitability or performance of an investment. ROI depicts the total growth since the beginning of a project or purchase of a property. However, the Internal rate of return accentuates the annual growth rate of an investment.

What is the best ROI Dubai property?

Dubai offers numerous investment options to investors. Investors can earn huge profits by investing in Dubai’s property sector. Areas such as Downtown Dubai, Discovery Gardens, and Town Square offer considerably high returns.


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