The two numbers
Gross yield = annual rent ÷ purchase price. It is the number in the marketing, and it is only useful for a first sort of a long list.
Net yield on cost = (annual rent − service charge − vacancy − management − maintenance) ÷ (purchase price + transaction costs). This simplified measure depends on the assumptions and excludes items such as financing and tax unless you add them.
Worked through on a real shape of deal
Consider an illustrative AED 1,400,000 one-bedroom property with potential rent of AED 105,000 a year. These are assumptions, not a live listing or forecast.
Scroll the table sideways to see all columns.
| Line | Amount | Illustrative assumption |
|---|---|---|
| Potential gross rent | AED 105,000 | 7.5% of the purchase price |
| Service charge | −AED 14,000 | Approximately AED 17 per sq ft on 825 sq ft |
| Vacancy | −AED 8,750 | One month without rent |
| Management | −AED 7,350 | Illustrative fixed allowance; fees and VAT depend on the agreement |
| Maintenance and renewals | −AED 4,000 | Illustrative allowance |
| Net rent before financing and tax | AED 70,900 | After the assumptions above |
| Net yield on cost | ≈ 4.8% | AED 70,900 ÷ AED 1,491,000, including assumed purchase costs of about 6.5% |
On these assumptions, the headline 7.5% gross yield becomes about 4.8% net on cost. The result will change with actual rent, vacancy, service charges and other expenses. Financing costs and tax are not included.
Where the yield differences actually come from
- Service charge per sq ft. Charges vary by building and can materially affect net yield. Check the current charge for the specific unit.
- Size and turnover. Unit sizes, rents and turnover differ. Compare evidence from similar homes rather than relying on a general rule.
- Building age and tenancy. Verify occupancy, the lease, rent collection and maintenance history for a specific property.
- Supply arriving nearby. A handover wave in the same community competes with you for tenants. Check what is completing in the next 24 months before assuming today’s rent holds.
- Short-term letting. Permits, management, furnishing, vacancies and other costs can change the result. Compare net returns, not just gross income.
Comparing an off-plan launch with a ready flat
An off-plan home generally produces no rent before completion. Compare the payment schedule, possible delay, financing and opportunity cost with an uncertain future value; none is a guaranteed return.
A tenanted ready property may provide rental income sooner, but occupancy and rent are not guaranteed. Check the actual lease, service-charge statement, condition, costs and comparable market evidence.