Rental Yields in Israel: Why Net Returns Matter More

A common mistake among real estate investors is calculating expected returns based only on income versus property price (“gross yield”) without accounting for additional costs such as taxes, maintenance, insurance, or management fees. But it is precisely in these overlooked expenses that the difference between profit and loss may lie when considering rental yields in Israel.

By Dror Nir Castel, Nadlan Center

The most important parameter for any real estate investor is one thing – yield. Yet discussions of yield, especially in property investments, tend to focus on purchase price versus expected rental income, while “forgetting” about significant additional costs. When those are factored in, investors quickly realize that the actual yield is often far lower than what was promised in the sales office.

Gross yield is calculated only on the basis of rent received compared to the property price. The simple formula is: annual rental income divided by purchase price, multiplied by 100. For example, an apartment purchased for NIS 1 million that generates NIS 60,000 annually in rent has a 6% gross yield. Net yield, however, deducts all ongoing costs of the investment – municipal taxes, maintenance, renovations, insurance, management fees, and rental income tax, where applicable. If annual expenses total NIS 10,000, the true net yield falls to 5% rather than 6%.

Expenses that must be included in net yield calculations typically include: income tax above the exemption threshold, maintenance and repairs, building insurance, and periods when the property is vacant. Other costs, such as municipal taxes, utilities, and building fees, are usually borne by tenants; however, if the lease states otherwise, these costs must also be factored in. On average, net yield is typically 0.5%–1% lower than gross yield.

Across Israel, different regions show different gross yields. Peripheral areas often present higher yields of 3.5%–5% or more, while high-demand areas like Tel Aviv, Jerusalem, and the Sharon average 2%–2.5%. Cities in the second ring around Tel Aviv may show slightly higher figures. Yet the higher the yield, the greater the risks – weaker demand, potential declines in property value, and longer vacancy periods.

Take Ashkelon and Be’er Sheva, both cities in Israel, for example. Both offer rental yields above 3%, but also face high supply and exposure to security risks, which can lengthen vacancy periods and eat into net yield. In contrast, Tel Aviv yields are lower, but stronger demand ensures nearly constant occupancy and a better chance of property appreciation. This makes the net yield more stable, even if smaller.

Real-world analysis underscores the point. Appraiser and economist Shlomi Cohen, of Yaakov & Cohen Appraisers, examined a May 2025 deal for a 4-room, 93 sqm apartment (plus 50 sqm balcony) in Ramat Gan purchased for NIS 3.2 million. With a monthly rent of NIS 8,800, the gross yield came to 3.3%. However, once costs such as vacancies, maintenance, insurance, and taxes were factored in, the net yield dropped to just 2.3%.

What should investors do? First, calculate all expenses upfront. Sometimes a high gross yield hides steep costs, such as management fees in luxury or large projects, or vacancies in security-sensitive areas. A full simulation – taxes, property tax, maintenance, and vacancy risk – should be performed before purchase. Second, be wary of “too good to be true” yields. Low property prices with promised high gross yields may mask risks, under-demand, or misleading assumptions.

Remember that in high-demand areas, while yields are lower, associated costs take a smaller bite out of the return (a NIS 10,000 renovation significantly impacts yield in a cheap peripheral apartment, but not in an expensive Tel Aviv unit). This makes the gap between gross and net yields narrower in central locations.

In conclusion, investors must evaluate raw yield figures alongside real expenses when considering rental yields in Israel. Careful planning of all cost components prevents surprises. Even a single percentage point difference in net yield can make or break a deal. With thorough due diligence and verified data, investors can fairly compare opportunities and choose properties that align with their investment goals.