Rental yield tells you how much a property earns relative to what it costs. There are two versions. It pays to understand the difference before comparing investments.
Gross yield
You calculate it by dividing annual rent by the purchase price, then multiplying by 100. Illustrative example: a unit that costs AED 1,000,000 and rents for AED 70,000 a year has a gross yield of 7%. It is a quick figure to compare with, but it ignores costs.
Net yield
Subtract from annual rent the costs you bear as owner, then divide the result by the total cost of the purchase, not just the price. The total cost includes the DLD fee and registration costs.
Which costs to subtract
- Annual service charge.
- Maintenance and repairs.
- Rental management, if you hand it to someone.
- Vacant months between tenants.
- Insurance, if you take it out.
How to use it well
Do not rely on a brochure figure. Ask for real rents of similar units in the same area, and calculate with vacant months included. And remember that on an off-plan purchase there is no rent until handover. Count that time in your plan.
An example with illustrative numbers. Annual rent: 70,000. Service charge, maintenance and one vacant month: 12,000. Result: 58,000. If the total purchase cost, with fees, was 1,040,000, net yield is a little over 5.5%. Against 7% gross, the difference is clear. That is why you should always ask for both figures, and be wary of anyone who only shows you one.