Rental Yield Explained: Gross, Net, and Cash-on-Cash

"Rental yield" appears in almost every Dubai property conversation, but the number being quoted is almost never the same thing twice. Understanding the difference between gross, net, and leveraged yield — and knowing which number to demand when evaluating a property — prevents the most common investment mistake: buying a "7% yield" that actually earns 4%.

Gross Yield: The Starting Number

Gross yield = (Annual Rent / Purchase Price) × 100.

If you pay AED 800,000 for a unit that rents for AED 60,000 per year, gross yield is 7.5%. This is the number most widely cited in property marketing and portals. It ignores all costs.

Net Yield: What You Actually Earn

Net yield accounts for the expenses that reduce your income:

• Service charges (Binayah's data: AED 10–25/sqft/year, averaging ~AED 15,000 for a 1,000 sqft unit)
• Agent commission for leasing: 5% of annual rent on a one-year lease
• Void periods: even a strong market has 2–4 weeks of vacancy per year on average
• Maintenance and minor repairs: budget AED 5,000–10,000 per year for a mid-tier unit

For the same AED 800,000 unit at AED 60,000 gross rent: subtract AED 15,000 service charge, AED 3,000 agency fee, AED 3,000 void (4 weeks), AED 5,000 maintenance = net income of AED 34,000. Net yield: 4.25% — nearly half the headline number.

The Binayah rule of thumb: assume net yield is 75–85% of gross yield. If gross is 7%, expect net of 5.25–5.95%.

Cash-on-Cash Return: The Mortgage Lens

If you're financing, the relevant number is cash-on-cash return — your net income divided by the cash you actually put in (down payment + acquisition costs).

Example: AED 800,000 purchase, 25% down (AED 200,000), 4% acquisition costs (AED 32,000). Total cash invested: AED 232,000. Annual mortgage cost: AED 28,000 (75% LTV at 4% over 25 years). Net income: AED 34,000. Cash-on-cash: (34,000 - 28,000) / 232,000 = 2.6%.

Leverage amplifies both gains and losses. If rental rates drop 10%, your cash-on-cash becomes negative.

What Drives Dubai Yields

JVC leads at 7.2–8.5% gross because prices are low (AED 700–900/sqft) and rents are strong for the asset class. Business Bay yields 6.2–7.1% with higher absolute rents but also higher prices. Premium waterfront (Palm, Marina) yields 4.5–6% because prices are high relative to rents — these are primarily appreciation plays.

The Yield Curve Question

Should you buy at current yields or wait for yield compression? Dubai yields have been relatively stable because both prices and rents have risen in tandem. There is no evidence of structural yield compression coming from oversupply — the pipeline is absorbed quickly. But if mortgage rates in source markets (Europe, Russia) rise substantially, demand for investment purchases could soften.

The Bottom Line

Ask for net yield, not gross. If a developer or agent can't tell you the service charge rate per sqft, they don't know the number. The difference between a 7% headline and a 4.5% net is the difference between a profitable hold and a cash-flow drain.