The difference between rental yield and ROI

Often in real estate we hear people talking about return on investment (ROI) when actually what they are referring to is rental yield. Although similar, yield and ROI are quite different as in order to calculate both figures, there are a few things that need to be taken into consideration.

Rental Yield

The yield which is expressed in percentage, takes into account the income and service charges. It is a prospective figure that is calculated on an annual basis with the assumption that the service charges and rents won't change throughout the tenancy contract. This is in essence the net profit an investor would make on a yearly basis on his property.

ROI

The return on investment on the other hand is a term that indicates the amount of money returned to an investor after deducting all costs when he decides to sell his asset. The ROI is also expressed in percentage and is used to evaluate the profitability of an investment. But the key difference with the yield is that a return is worked out based on the whole period an investor would have kept his asset for as it includes interest (if property bought on a mortgage), capital appreciation (new infrastructure or new retail options in the area will have a positive effect on the value of your home) and any other costs related to a property (service charges, maintenance, refurbishment, energy bills). Where yield is prospective, ROI is retrospective.

Therefore when trying to work out what financial gain you want to achieve when buying a property, make sure you differentiate the rental yield and return on investment to set realistic goals.

Should you consider investing in Dubai's Real Estate, please don't hesitate to contact me as I have opportunities delivering high rental yields and ROI's.

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Engel & Völkers Real estate agent Ludovic Mapessa BRN: 36641
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