Cash on cash return

The rule

Net yield tells you what the asset earns. Cash on cash tells you what you earn, which is a different question the moment you borrow.

Put one and a half million of your own money into a property producing sixty nine thousand of net operating income and you have made 4.3 percent on your outlay. Put down four hundred and seventy five thousand, borrow the rest at 4.5 percent over twenty five years, and the picture changes completely: the debt costs about seventy five thousand a year in payments, the net operating income is still sixty nine thousand, and your cash flow is now negative.

That is not automatically bad. Part of that mortgage payment is principal, which is your own equity accumulating. But it is a very different investment from the unleveraged one, with a very different risk profile, and gross yield will not tell you which one you are holding.

The rule leverage obeys

Leverage multiplies the gap between the asset's return and the cost of the debt, in both directions.

• If net yield on total outlay is above the mortgage rate, borrowing raises your cash on cash return.
• If it is below, borrowing lowers it, and the deal only works on capital growth.

In Dubai in 2026, with net yields on many mid market apartments landing between four and five and a half percent and mortgage rates around four to five percent, a great many purchases sit almost exactly on that line. Which side of it a specific deal falls on is decided by the service charge, which is why the service charge deserves more attention than it usually gets.

The number that matters more than the return

Break even occupancy. Take the costs that do not vary with whether a tenant is in place, service charge, insurance, maintenance reserve, and the mortgage, and divide by the rent net of management. That is the share of the year the property must be let simply to stand still.

At sixty percent, the deal can absorb a bad tenant and a slow re-letting season. At ninety two percent, one vacant quarter turns a profitable asset into a monthly bill you fund from salary. Two properties with identical cash on cash returns can have wildly different break even occupancy, and that difference is the actual risk you are taking.

The arithmetic

Where it breaks

• It counts the whole mortgage payment as a cost, including the principal portion, which is actually equity accumulating. It therefore understates the total return, deliberately, because it is measuring cash flow rather than wealth.
• It is a year one number. It does not follow the loan as the interest share falls, nor rent as it grows, nor service charges as they rise.
• It ignores capital growth entirely, which in a growth market is most of the return and in a falling market is most of the loss.
• A high cash on cash return produced by high leverage is not skill, it is risk. The same leverage that lifts it turns a modest price fall into a wiped out deposit.
• It assumes the mortgage rate holds. On a variable rate product in a rising rate environment, this year's positive cash flow can be next year's negative.

When to use it

On any leveraged purchase, alongside the net yield rather than instead of it. Check break even occupancy before you check the return.

Sources

1. UAE mortgage rules and LTV limits 2026
2. Dubai rental ROI by area and property type, 2026

Last reviewed 26 August 2026. Commercial relationship disclosure: the author works in Dubai real estate brokerage. See the disclosure standards. Disclosure standards.