What Is Cashflow and Why Does It Matter?
Cashflow is the amount left over each month after you have paid all costs: service charges, property management, maintenance, insurance, a vacancy reserve and any mortgage payments. Positive cashflow means your property generates money for you every month, regardless of what happens to its market value.
Many investors focus too heavily on gross rental yield and overlook the true costs. An apartment with an 8% gross yield can deliver a net cashflow of 5-6% after all costs, which is still excellent compared with the 1-3% typical of most European cities. The difference lies in the details, which we cover below.
Monthly Cashflow Calculation: Studio in JVC
Let us work through a realistic example for a studio apartment in Jumeirah Village Circle (JVC):
Purchase price: AED 500,000 Annual rent: AED 40,000 (8% gross yield) Monthly gross rent: AED 3,333
Monthly costs: - Service charges: AED 625 (AED 15/sq ft, 500 sq ft) - Property management (7%): AED 233 - Maintenance/repairs reserve (5%): AED 167 - Vacancy reserve (1 month/year): AED 278 - DEWA interim costs during vacancy: AED 50 Total monthly costs: AED 1,353
Net monthly cashflow: AED 1,980 Net annual yield: 4.75%
With a cash purchase (no mortgage), this is a solid positive cashflow deposited into your account every month.
Cashflow with a Mortgage: Two-Bedroom in Dubai Marina
Many investors use a mortgage to enhance their return. Here is a calculation for a two-bedroom apartment in Dubai Marina:
Purchase price: AED 1,800,000 Mortgage: 75% LTV = AED 1,350,000 (interest 5.5%, 25 years) Own capital: AED 450,000 + AED 90,000 costs = AED 540,000 Annual rent: AED 120,000 (6.7% gross) Monthly gross rent: AED 10,000
Monthly costs: - Mortgage payments: AED 8,274 - Service charges: AED 1,875 (AED 18/sq ft, 1,250 sq ft) - Property management (6%): AED 600 - Maintenance reserve: AED 400 - Vacancy reserve: AED 833 Total monthly costs: AED 11,982
Net monthly cashflow: -AED 1,982
With a mortgage, the cashflow in this case is negative. You contribute monthly, but build wealth through amortisation and capital appreciation. For positive cashflow with a mortgage, you should target areas with higher yields, such as JVC, Dubai Sports City or Al Furjan.
Costs Investors Often Overlook
Beyond the obvious costs, there are expenses that affect your cashflow but are frequently missed:
Between tenants: at each tenant change, you typically pay one month's rent as commission to the agent. If you have a new tenant every 2 years on average, this amounts to 4% of your annual rent.
DEWA connection: when a tenant leaves and the DEWA connection must be placed in your name, you pay a deposit of AED 2,000 for apartments or AED 4,000 for villas, plus a monthly base charge.
Chiller costs: in some buildings, cooling charges are billed separately and borne by the owner. This can add AED 200-500 per month.
Insurance: although not mandatory, building insurance is advisable and costs approximately AED 1,000-2,000 per year for an apartment.
Strategies for Maximum Cashflow
To maximise your cashflow, target the areas with the highest net rental yields: JVC (7-8% net), Dubai Sports City (6-7%), International City (8-9%), and Al Furjan (6-7%). These areas have lower purchase prices and relatively high rents thanks to strong demand from young professionals and small families.
Furnished lettings generate 15-25% more rent than unfurnished. Short-term rental through platforms such as Airbnb can raise the gross yield further to 10-12%, but entails higher management and maintenance costs. Preferably buy in cash or with a low-LTV mortgage to avoid negative cashflow. Augusta Properties helps you select optimal cashflow properties and set up efficient property management.