ROI (Return on Investment, or Investment profitability) is a financial indicator that measures the effectiveness of real estate investments. In the context of the purchase of real estate in Dubai, ROI helps investors evaluate how profitable is the investment in a specific real estate object in terms of income and expenses.
Why is ROI important?
Evaluation of profitability: ROI helps to understand how profitable your investment solution is. This is useful for comparing various objects and choosing the most profitable option.
Finance planning: Knowing the expected profitability, you can better plan your financial flows, real estate management and future investments.
Attraction of investors: if you consider the possibility of attracting investors for your project (for example, to buy several objects), a high ROI can make your real estate more attractive.
Understanding the risks: Understanding ROI helps to evaluate potential risks and possibilities of loss with insufficient profitability.
How is ROI calculated?
Calculating the ROI is quite simple. The formula looks as follows:
Net profit total investment cost
Input parameters:
Net profit: this is the income from renting or selling real estate minus all the costs associated with it:
Rent income: the amount you receive from tenants.
Management costs: including taxes, commissions and service costs.
Formula for calculating net profit:
Net profit income from rental costs
The total cost of investment: this is the amount of all costs related to the purchase of real estate, including:
Initial expenses (purchase price)
Taxes
Registration costs (legal services, registration, etc.)
Additional costs for repair or improvement of real estate.
An example of calculation
Suppose you bought an apartment in Dubai for 1.000,000 AED. You get 100,000 AED per year from rent, and your annual management costs amount to 20,000 AED.
Net profit = 100,000 AED - 20,000 AED = 80,000 AED
The total cost of investment = 1.000,000 AED
ROI = (80,000 / 1.000,000) × 100 = 8%
Thus, your ROI will be 8%, which indicates that you get 8% of the invested funds in the form of net profit per year.
Conclusion
Knowing and understanding of the ROI when buying real estate in Dubai allows investors to make more reasonable decisions and minimize the risks associated with investments.