Quick answer: A 1,000,000 flat with 30% down, 5% finance over 25 years, 6,000 rent a month, 5% vacancy and 15,000 running costs has a cap rate of 5.34% and a yearly cash flow of 4,294.44, a 1.23% cash-on-cash return.
How it's calculated
Net operating income (NOI) = yearly rent × (1 − vacancy) − running costs (service charges, maintenance, management, insurance). Finance payments are not running costs.
Cap rate = NOI ÷ price: the return the property would give if bought with cash, used to compare properties. Cash flow = NOI − yearly finance payments. Cash-on-cash = cash flow ÷ the cash you invested (down payment plus purchase costs such as the 4% Dubai Land Department fee or the 5% Saudi real estate transaction tax).
Debt cover (DSCR) = NOI ÷ finance payments; lenders often want 1.2 or more. This is a one-year view; for the return including price growth and a future sale, use the real estate calculator.
Worked examples
- NOI: 72,000 × 0.95 − 15,000 = 53,400
- Cap rate: 53,400 ÷ 1,000,000 = 5.34%
- Cash flow and cash-on-cash: 53,400 − 49,105.56 = 4,294.44; ÷ 350,000 = 1.23%
Frequently asked questions
What is a good cap rate?
There's no fixed figure; it varies by city and property. Higher cap rates mean more income per unit of price but often more risk or less growth. Compare with similar properties nearby.
Why is my cash flow small when the yield looks good?
Finance payments include principal, which is really saving into the property. Cash flow is what is left in your pocket; equity grows as well.
What running costs should I include?
Service charges, maintenance, property management (often 5% to 10% of rent), insurance, and any fees such as Ejari or municipality charges.
What is the difference between gross and net yield?
Gross yield is yearly rent divided by the price. Net yield, or cap rate, takes off vacancy and running costs first, so it's the fairer figure.
What is cash-on-cash return?
Your yearly cash flow after finance payments, divided by the cash you put in, including the down payment and purchase costs.
What vacancy rate should I use?
Base it on how long similar homes in the area stand empty. 5% is about 18 days a year, and a month empty is about 8%.