Yield, Growth, and ROI: Understanding Real Estate Returns

1. Yield (Cash Flow Focus)

• Measures income from rent relative to property price.
• Example: AED 1,000,000 property rents for AED 70,000/year → 7% yield
• Does NOT include price growth (the property could rise or fall in value; yield only looks at rent).

Yield is the annual rental income a property generates relative to its purchase price.

Formula:$$\text{Yield (\%)} = \frac{\text{Annual Rent}}{\text{Property Price}} \times 100$$Example:

• Purchase price: AED 1,000,000
• Annual rent: AED 70,000

$$\text{Yield} = \frac{70,000}{1,000,000} \times 100 = 7\%$$YIELD Key Point:

• Focused on cash flow (monthly or annual income).
• Higher yield = better rental income relative to price.

2. Growth / Capital Appreciation

• Measures increase in property value over time. It is just the change in property value.
• Example: Property bought for AED 1,000,000 → sold for AED 1,200,000 after 3 years → 20% growth
• Often called “price growth” or “capital growth”.
• Focused on long-term wealth building, not immediate cash flow => only on price increase, not rental income.

Growth / Capital Appreciation Formula

$$\text{Growth (\%)} = \frac{\text{Current Property Value} – \text{Purchase Price}}{\text{Purchase Price}} \times 100$$

Annualized Growth (optional, for multiple years):$$\text{Annual Growth (\%)} = \left(\frac{\text{Current Property Value}}{\text{Purchase Price}}\right)^{\frac{1}{n}} – 1$$Where n = number of years held.

Example

• Purchase price = AED 1,000,000
• Selling price after 3 years = AED 1,200,000

$$\text{Growth} = \frac{1,200,000 – 1,000,000}{1,000,000} \times 100 = 20\%$$

$$\text{Annual Growth} = (1.2)^{1/3} – 1 \approx 6.27\% \text{ per year}$$GROWTH Key Point:

• High-growth areas = better long-term wealth building
• Focuses only on price increase, not rental income

3. ROI (Total Return)

• Combines both yield (rent) + growth (price appreciation), minus costs/fees.
• Example from above:
  • Rent over 3 years = AED 210,000
  • Price growth = AED 200,000
  • Costs = AED 50,000
  • ROI = (210,000 + 200,000 – 50,000) ÷ 1,000,000 × 100 = 36%

ROI measures the total return from an investment, including:

• Rental income
• Capital appreciation (price growth)
• Minus costs (fees, maintenance, taxes)

Formula (simplified):$$\text{ROI (\%)} = \frac{\text{Profit (Rent + Price Gain – Costs)}}{\text{Total Investment}} \times 100$$

Example:

• Purchase price: AED 1,000,000
• Annual rent: AED 70,000 × 3 years = AED 210,000
• Property sold after 3 years for AED 1,200,000 → Gain = AED 200,000
• Costs (fees/maintenance): AED 50,000

$$\text{ROI} = \frac{210,000 + 200,000 – 50,000}{1,000,000} \times 100 = 36\% \text{ over 3 years}$$

ROI Key Point:

• Includes both income and appreciation
• Gives a fuller picture of total investment performance

=> So ROI = Yield + Growth – Costs

Simple Way to Remember

• Yield = What the property pays you now (cash flow)
• Growth = What the property gains in value over time
• ROI = The total benefit of owning the property (cash + growth – costs)

In Dubai:

• JVC, International City → High yield, moderate growth → best for cash flow investors
• Dubai Hills, Palm Jumeirah → Moderate yield, high growth → best for long-term wealth
• Some investors combine both by buying multiple properties in different areas.

✅ Now you can see all three metrics in formula form: