An investor is considering a AED 900,000 apartment advertised with a 7% gross rental yield, financed with a mortgage, and wants the real return picture.
The Walkthrough
- Start with the advertised gross yield as a reference point
The advertised 7% is based on annual rent divided by purchase price — useful as a starting reference, but not the full picture once costs are added. - Subtract service charges and annual costs
Building service charges, maintenance and any management fees reduce the actual income received, lowering the return below the advertised gross figure. - Account for the mortgage financing cost
Since this purchase is financed, mortgage interest payments are a real ongoing cost that a cash buyer wouldn't have — this significantly changes the return calculation. - Calculate cash-on-cash return, not just yield on the full price
Since only the down payment plus fees was actually paid in cash (not the full AED 900,000), cash-on-cash return measures return against that actual cash invested, not the full property price. - Compare cash-on-cash return against the advertised gross yield
The two numbers are often meaningfully different — cash-on-cash return, adjusted for financing and costs, gives a more realistic picture of actual investment performance.
The Takeaway
The advertised 7% gross yield on this apartment doesn't account for service charges or mortgage financing costs — once cash-on-cash return is calculated against the actual cash invested (the down payment, not the full price), the real return picture often looks meaningfully different from the number in the listing.
Try It With Your Own Numbers
This example used specific figures to make the process concrete, but the same steps apply whatever your actual numbers are. Run the Property ROI Calculator with your own details — free, in under a minute, no sign-up required.
Frequently Asked Questions
Is cash-on-cash return always lower than gross yield?
Typically yes when financing is involved, since mortgage costs reduce net income relative to the actual cash invested, though the exact gap depends on financing terms and cost structure.
Does a cash purchase (no mortgage) change this calculation significantly?
Yes — without financing costs, cash-on-cash return is closer to the gross yield figure, since the full purchase price is the cash invested and there's no interest expense to subtract.
What service charges should be included in this calculation?
Building maintenance fees, any management company fees, and other recurring property-related costs should all be factored in for an accurate net figure.
Does vacancy period get factored into ROI calculations?
A realistic ROI calculation should account for expected vacancy between tenants, since that period generates no rental income while costs continue.
Is 7% a good gross yield for the UAE market?
It varies by area and property type — comparing against similar properties in the same location is more meaningful than a single market-wide benchmark.