The math behind a real estate opportunity in Dubai

4 Replies

Hi everyone,

I live in Dubai and I'm starting to consider to buy a property to rent here in Dubai. The market at the moment sells at good discounts compared to 2/3 years ago and probably will see another correction in the upcoming months.

I would like to hear your opinion about two possibiliteis I have and, for convenience, I'm going to convert all the numbers in USD (rounded for easiness)

I receive from my employee an allowance to rent on my own of 46.800 USD a year. I spend 28.500 USD (utilities paid) to rent an apartment, the rest, 18.300 USD comes in my pocket.

Let's consider I want to buy an apartment at 360.000 USD (fees included) that can give me a rent of 24.500 USD a year. Having saved from my allowance 18.300 USD, would be like having a rent of 42.800 USD.

The bank offers me two options:

1. Mortgage at 4.25% variable (fixed rate not possible)

2. Personal loan of 231.000 USD to be payed in 4 years at a fixed rate of 3.25%

If I run the numbers in my Excel sheet, of course the personal loan gives me a negative cash flow for the first four years of about 15% but, after the loan is paid, the same would jump at 22% per year.

In summary, my Company contributes in paying my apartment and in 4 years it would be mine.

What do you think is best, mortgage or loan?

Luca

@Luca Dal Molin have you considered doing a short term vacation rental in Dubai?

I think the property price will be higher for the more touristy areas but the income will also be good.

hey Luca. I have some thoughts of the matter you present. First of all, im super impressed with your dicipline for saving. Very impressive. Second, whats ur primary goal for investing? Do you have a stratety?Dubai might not be your best fit, depending on your strategies are. When it comes to owning real estate in dubai, i think it is wise to consider the unpredictable nature of the political system. This week gulf news wrote that the President of UAE has rounded the federal tax authority. This will impact ur investents here for sure. If u want cashflow and if you are comfortable letting others run your business u should look to other markets.

If however you are set on Dubai, i think you should limit your P&I by paying slowly on the rent. In a growimg market, the less you pay the more you keep for further investments

when the interest rates are this low you want to borrow as much as possible and pay down as little as possible to maximise ur investment

@Percy N. I'm not too much in the subject but here in Dubai there's so much offer of resorts that I don't feel I would risk investing using this strategy. On the other side renting here has net yields of about 7,5%. even if vacancy rate could be another issue to consider.

@Morgan Nilsen Morgan, I definitely agree with you, I expressed the same concern last year here in the forum. I've been here in Dubai for three years now and I've always stayed away from the market just because I think there are other interesting opportunities abroad. That said I also think that there are some areas that might be worth being considered, at least to run some numbers and see what comes up. We both experience the peculiarities of the economical situation here and me I'm the first to say that it's not easy to predict what will come up in the medium term. There are areas like Marina that I consider much better than others but at the same time the population here is changing and some nationalities that are interested in cheaper areas are taking over the western expats with more cash disposal. And then,,,the Expo...will they continue to keep the economy running until that day??

PS. a big thank for taking care of the Biggerpockets community here in Dubai. I'm always on the go, often even in my days off but I really hope I can join you for a meeting soon!!

Luca

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