How do I calculate the breakeven point for my short-term rental investment?
To calculate the breakeven point for your short-term rental investment in Dubai, follow these steps, considering key expenses and potential income:
Calculate Initial Investment Costs
Property Purchase Price: Include the full price of the property, plus any associated fees such as DLD registration fees (4% of property price) and agent commissions (2%).
Furnishing & Setup Costs: Budget for furnishing, which can vary depending on the size and quality of the property. Some investors allocate 5-10% of the purchase price for interior design and appliances.
Operating Costs
Annual Operating Costs: This includes regular maintenance, property management fees, and utility costs. For professionally managed properties, management fees typically range from 15% to 20% of rental income.
Permit and License Fees: In Dubai, you must register your property with the DTCM. The license fees are around AED 1,520 per year.
Tourism Dirham Fees: This is an additional cost, collected per night from guests (ranging from AED 10 to AED 15 per bedroom).
Estimate Potential Income
Occupancy Rate: The average occupancy rate for short-term rentals in Dubai is 50% to 70%, depending on location and season. During peak tourist seasons, occupancy can significantly increase, boosting your rental income.
Average Daily Rate (ADR): In areas like Business Bay and Downtown Dubai, daily rental rates can range between $150 to $350 per night, depending on the type and size of the property.
Annual Rental Income: Calculate your projected income by multiplying your ADR by the expected occupancy rate and the number of days available in a year.
Breakeven Point Formula
The breakeven point occurs when your total income equals your total costs. Use this formula:
Breakeven Point = Initial Investment Costs+Annual Operating Costs/Annual Rental Income
For example, if your property cost AED 2 million, and your total annual income is AED 200,000, while your annual operating expenses (including management and utilities) are AED 40,000, the breakeven point would be roughly 10-12 years.
By carefully managing costs and leveraging Dubai’s peak tourism seasons, you can optimize your return on investment and reach the breakeven point more quickly.
