Introduction
The main goal for any investor is to get a return on their investment in the shortest time possible and with the highest returns.
When it comes to real estate investment, however, returns do not come that fast. It takes time, and the percentage of ROI is classified as average.
Related: Dubai Real Estate Opportunities for Kenyans
What is Return on Investment (ROI)
ROI is a metric used to measure the profitability of a real estate investment against is cost. It includes both rental yield and capital appreciation.
There are two types of ROI that you might be interested in. They include rental ROI which we will call rental yield and capital appreciation ROI.
Rental ROI: This metric measures the amount of profit made annually through charging rent for a property against the price you bought the property for. If you purchased your property through a mortgage, your ROI will be lower compared to an investor who did a full cash transaction.
Capital Appreciation ROI: This metric measures the increase of value of your property asset against the purchase price.
However, it is important to note that if you are renting your property, ROI measures both profit from you renting out your property as well as the appreciation of that property.
Let us use real figures to explain this:
We have a property in Dubai that costs AED 1,000,000 and you are charging annual rent of AED 90,000 with expenses of AED 8,000 per year.
Your rental yield would be: (1,000,000 ÷ 80,000)×100 = 8% per year rental yield
You would then add the amount of money the property has increased by in that one year and perform the calculation once again to get the ROI for that one year including rental yield and capital appreciation.
Let’s say the property after one year is valued at AED 1,100,000, noting an increase of AED 100,000.
((100,000+80,000) ÷ 1,000,000)×100 = 18% per year
All this is assuming you bought the property in cash.
What is the Average ROI for real estate investments in Dubai?
The average Return on Investment for a property in Dubai is 8 to 9% for rental ROI and about 10% for capital appreciation ROI.
Of course, these figures vary depending on factors such as the location of the property, property type, and financing option chosen among other factors
How Long Does it Take to Break Even on Real Estate Investments?
Using the figures above, below is how long it would take you to break even:
If you are renting your property and are looking at ROI it would take approximately 11 years to break even.
For capital appreciation, it would take about 7 to 8 years for your property to double in value.
Conclusion
Dubai’s real estate industry has been in a period of growth that has lured many investors to this Emirate. This is because of the higher-than-normal rental yield as well as capital appreciation. If one is in a position to invest in Dubai, why not? Just ensure you do your due diligence.
