How much money can you make by investing in real estate in the UAE? Find out how to calculate your profit.

Dubai: Investors from around the world looking to invest in real estate consider the UAE one of the most lucrative destinations. Experts say that real estate in the country is attractive to both new and experienced investors. The area offers a higher return on investment, known as return on investment or ROI, compared to several established global real estate markets.

The majority of business entrepreneurs in the UAE invest in Dubai as they can earn gross rental yields of 5 to 9 percent, making the city an affordable place to buyreal estate, notes Marwan Al', CEO of Medait Star Real Estate, a Dubai-based real estate company, in a statement'gives the investor a rough idea of which asset type is more profitable and whether it's worth investing in at all'.

In short: What is ROI in real estate?

ROI in real estate is used to estimate the annual income from an income-producing property and the final income from the sale of the property. "ROI is a useful performance indicator for comparing different investments," says Jeanne Yoshinke, CEO of Dubai-based Property Monitor. "It allows you to focus on the income generated by an investment, regardless of its size. "

The expectations of ROI are not the same for everyone. Yoshinke further explains that ROI expectations can vary from investor to investor because of two main''factors:

• The costs of operation they choose.

Different ways to calculate return on investment (ROI)

There are many different methods of calculating ROI. Among them, the most used practices are 'cost of capital', 'return on''Return on invested capital' and 'internal rate of return' (IRR), and an investor should know the pros and cons of each, says Ayman Youssef, vice president of Coldwell Banker UAE, based in Dubai.

How to calculate '\'Return on Investment'\' or '\'cost of capital'\'?

He points out that the cost of capital, also called return on invested capital, is the simplest way to calculate ROI when buying real estate for cash. "It is calculated by dividing the annual profit on the property by the total purchase price. It is necessary to factor in the cost of maintaining the property and the total purchase price into this calculation, which can lead to incorrect figures. The creation of costs includes any''Transaction costs such as service charges, maintenance or repair costs, management company commission if you choose to outsource your property to a management company. "\''Total acquisition cost'\''is the purchase price plus all transaction costs, including a 4 percent Dubai Land Authority fee, a 2 percent agency commission and any other administrative fees,'' he added.

FORMULA: The return on invested capital is calculated using the following formula: Return on Invested Capital = [(Annual Rent - Annual Operating Expenses) ÷ Total Acquisition Cost] x 100

Calculation Illustration: For a cash buyer who wants to buy a property worth 1 million''Dirhams:

• Total acquisition cost = Dirhams 1,066,280
• There is a distribution:
• Property Value = 1 million Dirhams
• Dubai Land Authority fee (4 percent of property value + AED 580 administrative fee) = AED 40,580
• Real Estate Services Fee (2 percent of property value) = AED 20,700
• Other administrative fees (ATM, stamp and other) = AED 5,000
• Total acquisition cost = 1,066,280 Dirhams