Buying a Finished Unit to Let: A Worked Return Calculation

A finished unit can be let immediately, which is its advantage. A calculation showing what it actually returns.

Buying finished to let removes construction risk and produces income quickly, which is genuinely valuable. Whether it is a good investment depends on the same arithmetic as any other property, applied honestly.

The situation

An investor is considering a finished two bedroom apartment to let, and wants to establish the return before making an offer.

Assumptions (illustrative)

• Purchase price: SAR 680,000.
• Transaction costs: assumed SAR 21,000.
• Immediate works identified by inspection: SAR 18,000.
• Furnishing for letting: SAR 25,000.
• Expected annual rent: SAR 44,000, based on comparable units.
• Assumed vacancy: 1 month per year.
• Service charge: SAR 7,500 per year.
• Management fee: 5 per cent of collected rent.
• Maintenance allowance: SAR 4,000 per year.
• All figures are illustrative assumptions used to demonstrate the method.

Step 1: Total capital committed

SAR 680,000 plus SAR 21,000 plus SAR 18,000 plus SAR 25,000 equals SAR 744,000.

The return should be measured against this figure, not against the purchase price, which is the most common error in rental calculations.

Step 2: Collected rent after vacancy

SAR 44,000 multiplied by eleven twelfths equals about SAR 40,300.

One vacant month a year is a moderate assumption for a unit that lets reasonably well.

Step 3: Operating costs

SAR 7,500 service charge plus SAR 2,015 management plus SAR 4,000 maintenance equals SAR 13,515.

Service charges continue during vacancy, which is why vacancy costs more than the lost rent alone.

Step 4: Net annual income

SAR 40,300 less SAR 13,515 equals SAR 26,785.

This is what reaches you in a typical year before any financing cost.

Step 5: Net yield on capital

SAR 26,785 divided by SAR 744,000 equals about 3.6 per cent.

The gross yield on the purchase price alone would appear as 6.5 per cent, which is why the distinction matters.

Step 6: Testing a weaker year

Two months vacancy and a SAR 10,000 repair reduces net income to about SAR 13,100, or 1.8 per cent.

A single difficult year halves the return, which is normal for rental property and should be expected rather than treated as failure.

What changes the answer

• Higher achievable rent improves the return substantially, which is why the rent assumption should be evidenced.
• A lower service charge in a comparable building would materially change the outcome.
• Self management saves the fee but costs time and requires availability.
• Capital growth is not included here and forms a separate part of total return.

What the numbers tell you

• Measure return against total capital committed, including works and furnishing.
• Evidence the rent assumption from comparable units rather than from the seller.
• Include service charges, which continue whether or not the unit is occupied.
• Test a weaker year before buying, since one will occur.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

If you are buying a finished property, Domira can inspect it, verify the documentation and price the findings with you before you commit.