Yield — The Most Important Investment Metric
Yield measures what percentage of your investment returns to you each year as income. In real estate, two key yields are calculated: gross yield (before expenses) and net yield (after ongoing expenses). In Israel, the average rental yield stands at 2%–4%, which is relatively low compared with other Western countries.
Gross Yield Formula
Gross yield = (Monthly rent × 12) ÷ Property price × 100
Example: An apartment at ₪2,000,000 rented for ₪5,500 per month:
5,500 × 12 = 66,000 annual ÷ 2,000,000 × 100 = 3.3% gross yield.
Is 3.3% good? Relative to a bank deposit (currently around 4%–5%) — not impressive. But you also need to factor in the potential for property appreciation.
Net Yield Formula
Net yield = (Annual rent − Annual expenses) ÷ Property price × 100
Annual expenses include: municipal tax (if you pay — usually the tenant pays), building committee fees, structural insurance, ongoing maintenance and repairs (average 0.5%–1% of property value per year), property management (if using a management company — 5%–10% of rent), vacancy (period without a tenant — allow one month per year on average), and taxes.
Monthly Cash Flow — The Real Test
Net monthly cash flow = Rent − (Mortgage repayment + Ongoing expenses + Maintenance reserve)
Example: Rent ₪5,500. Mortgage ₪3,500. Expenses ₪500. Positive cash flow: +₪1,500. If the mortgage were ₪5,800, the cash flow would be negative — meaning every month you are "subsidising" the property out of your own pocket. This is legitimate if you believe in future appreciation, but you need to be aware of it.
Return on Equity
Another important metric: ROE (Return on Equity). How much return are you getting on the equity you actually invested?
If you bought an apartment for ₪1,500,000 with ₪500,000 in equity and a ₪1,000,000 mortgage, and your annual net cash flow is ₪12,000 — your return on equity is 12,000÷500,000 = 2.4%. Not impressive. But if the property appreciated by 3% in a year (₪45,000 on ₪1.5M), your total return on equity is (12,000+45,000)÷500,000 = 11.4%. This is why people invest in Israeli real estate.