How To Calculate Returns On Investment On A Property

You own a piece of Dubai, but is that property a financial winner? To know for sure, you need proof. The performance of your investment property in Dubai isn’t a mystery; it’s a story told through a few essential numbers.

We’ll break down the simple calculations that can show you exactly where your investment property in Dubai stands.

Cash flow:

This is the simplest measure. Cash flow is the money left in your pocket each month. First, add up all the rent you collect. Then, subtract all your monthly expenses. These expenses include your mortgage payment, property taxes, insurance, and any repair costs. A positive number means your property is putting money in your pocket every month. A negative number means you are losing money each month.

The cap rate:

The capitalization rate, or cap rate, gives you a percentage return on your investment. It ignores any mortgage you might have. You calculate it using this formula: (Yearly Rental Income – Yearly Expenses) / Property Price. Then multiply by 100 to get a percentage. This rate helps you compare different properties quickly. A higher percentage means a better potential return.

The ROI:

Return on Investment (ROI) gives you the full picture because it includes your mortgage. First, calculate your annual profit (rent minus all expenses, including the mortgage). Then, divide that number by the total amount of cash you invested for the down payment and any initial repairs. Multiply by 100 to get a percentage. This tells you how well the cash you put in is performing.

The power of appreciation:

Your property can make money in two ways. The first is from rental income, which we have already calculated. The second is from appreciation. This is the increase in the property’s value over time. If you buy a property and its market value grows, that is profit for you. This gain is only realized when you sell the property.

Factoring in vacancy and costs:

Smart investors do not spend every rent dollar they receive. They set some money aside for future costs. The two big ones are vacancy and maintenance. You should save a part of your rent each month to cover periods when the property is empty. You should also save for big repairs, like a new roof or a broken appliance.