web analytics
March 31, 2015 / 11 Nisan, 5775
At a Glance
Blogs
Sponsored Post


The #1 Thing You Should Know About Real Estate Investing in Israel


If you buy a property as an investment, there are two ways you can profit – either you sell it for more than you paid, and/or you collect rent. Let’s look at each of these and see why they often don’t work out:

Selling for a profit

If you buy a property for an investment, hoping to sell years down the line at a profit, remember, that it’s not always easy to sell an apartment. Though people talk about the dearth of housing in Israel, there are “For Sale” signs all over, even in Jerusalem. The best way to ensure a quick sale of property is to sell it at a low price, often at a loss. But even if you don’t need the money and can afford to hold onto the property, remember you have the “friction” of buying and selling in the form of taxes, lawyers’ fees, real estate agents, assessors, mortgage costs, and more.

Collecting rent

In some parts of Israel, rental income represents 2% of the value of the property. So if you’re looking at a rental apartment to provide cash flow, you haven’t found the best return. Moreover, there’s no guarantee that you’ll have renters for 12 months a year. If you presume that, on average, you’ll only be full 10 or 11 months a year, account for the fact that your income would be around 8% lower than if you were full all year round. And if you can’t rent the property out at all, then your money is tied up in a non-performing asset.

So if you are considering investing in real estate in Israel, the #1 thing that you need to know is that buying physical real estate could be a bad investment. That’s why for real estate investing, I prefer using REITs (real estate investment trusts), which trade on a stock exchange, pay dividends, are easy to buy and sell with low cost, and can be bought in the form of a mutual fund.

There are many reasons to buy property in Israel, not only financial. Some Zionists want to solidify their connection to Israel, or hope to one day retire there. Before you buy real estate (or any investment vehicle), make sure you understand your motivation and the pros and cons.

If you want to know about practical investing in Israel, sign up for my company’s investment newsletter and get a free investment ebook as a gift.

About the Author: Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd, a financial planning and investment services firm located in Jerusalem. He specializes in working with clients who live outside of the United States and want to maintain a U.S. brokerage account. Doug’s newest book, co-authored with Susan Polgar, about how using chess strategies to improve your finances, Rich As A King can be purchased at www.richasaking.com. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, FSI. Accounts held at Pershing LLC., Member NYSE/SIPC, a subsidiary of The Bank of New York Mellon Corporation. Neither Profile nor PRG gives tax or legal advice. Before immigrating to Israel, it is advisable to consult with a tax attorney who is knowledgeable about Israeli law. Contact at doug@profile-financial.com


If you don't see your comment after publishing it, refresh the page.

Our comments section is intended for meaningful responses and debates in a civilized manner. We ask that you respect the fact that we are a religious Jewish website and avoid inappropriate language at all cost.

If you promote any foreign religions, gods or messiahs, lies about Israel, anti-Semitism, or advocate violence (except against terrorists), your permission to comment may be revoked.

3 Responses to “The #1 Thing You Should Know About Real Estate Investing in Israel”

  1. Stephen Leavitt says:

    Doug,

    I have some questions/issues with 3 of your points, if you could address them.

    1) You begin the section on Rent by saying that rental income represents 2% of the value of the property – “in _some_ places in Israel”. While that statement is true, it is also true that rental income can represents 4%-5% of the value of the property – in _other_ places in Israel. It comes down to initial neighborhood research, watching your market,( and as with any investment, past performance is no guarantee… ).

    2) You say that if you don’t collect rent for 1 or 2 months out of the year, your income could be 8% lower.

    True, but if we compare revenue based on the value of the investment in the property, then the difference in annual yield would typically be less than 1% of the value of the property.

    As far as I understand the math, wouldn’t a 1% drop in the annual yield of any investment would also reduce your income to a similar extent?

    And of course, signing long term contracts with your renters could help reduce the risk of an empty apartment.

    3) There is no question that buying real estate makes your position less liquid, and there are additional costs related to the investment, but the advantage is that you own a property that is more secure, and for that matter can even provide you basis for collateral for additional real estate investments.

  2. Plus972 says:

    If you’re looking for the latest in real estate marketing in NY, be sure to check out http://www.NYREMarketing.com

  3. Stephen,
    Thanks for your excellent comments. Let me address them one by one:
    1. It is true that depending on the location of the property that you buy and rent out, you will receive different levels of rent. As with most investments, no matter whether they are traded securities or property, buyers must beware that there are no free lunches. If you are receiving above average income, you need to understand what risks are involved.
    2. I think that you can do the math in several ways. I was looking at it from the point of view of someone who buys a property in order to live on the income. If investors expect to make $12,000 per year, but only end up with $10,000, that could be a material risk for some folks. However, I understand your calculation that if we look at that difference in terms of percentage of purchase price, then the lower income would not seem as problematic.
    3. I have found that people value liquidity much more when they don’t have it. This is why I often caution people about sacrificing access to their money. Also, I am hesitant to use the word “secure” related to almost any investment; however, if you own your own home, unencumbered by a mortgage, then you can feel secure that you will always have a place to hang your hat. And that is a value in and of itself.
    Doug

Comments are closed.

Current Top Story
Israel's favorite circus opens its 20th session Tuesday.
Knesset Opens the Tent to its 20th Circus
Latest Blogs Stories
The seventh Lubavitcher Rebbe, Rabbi Menachem Mendel Schneerson

Wherever you are Chabad gives you that missing piece–the home you left behind, nourishing body&soul

American-Jews-100413

How do you put a love of Judaism into a middle-aged man when it was never there in the first place?

MK Haneen Zoabi being ejected from the Knesset Floor in July 2011. She flew into an uncontrollable rage while the Prime Minister was speaking.

It is perfectly understandable how someone who has no background in Israeli politics could mistake Bibi’s speech as racist…

Moshe Gafni

Israel’s Charedi world is in financial crisis. If the trend worsens it may be their breaking point.

Why do you need to file an FBAR if you’re a US citizen abroad? What happens if you don’t?

Jews caring for one another, that is how I would explain Israel to someone.

As Iran becomes the North Korea of the Middle East, Nasrallah doesn’t understand where all his friends went.

I pray each member of Knesset will represent the interests of the State of Israel & ALL its citizens

At no time did Kahlon say that he preferred to see Bibi in another term as PM-I don’t trust him!

“Israel has nuclear weapons & it isn’t afraid to use them if necessary-Does that frighten you? Good”

American Jews think they know what’s best for Israel-better than Israelis. Here’s my take…

An old Arab man yelled at me “You’re stupid!” I returned the compliment; He had murder in his eyes.

Why do people feel the need to check their email 50X a day, constantly dipping in & out of Facebook?

Betar is the world-wide Zionist youth movement that refuses to be silent, and as our founder Ze’ev Jabotinsky wrote: “Silence is despicable.”

Life in Europe’s pre-War Yeshiva world makes today’s rulings look like the Taliban has taken over.

Moshe’s the 1st family member in thousands of years to have the honor of serving in a Jewish army

More Articles from Doug Goldstein, CFP®
Doug Goldstein

Why do you need to file an FBAR if you’re a US citizen abroad? What happens if you don’t?

Doug Goldstein

Why do people feel the need to check their email 50X a day, constantly dipping in & out of Facebook?

How can you turn your passion into your business? How can you build your business around your life?

Find out about peak oil and how the production & sale of cheap oil has affected other oil sources

How do emotions affect the way that people make financial decisions?

Doug Goldstein talking to … Doug Goldstein

Discussing the mindset of $ and appreciating its value, and how to develop your inner entrepreneur

Why is it necessary to be accountable in business and in life? And how does it differ from guilt?

Printed from: http://www.jewishpress.com/blogs/goldstein-on-gelt/the-1-thing-you-should-know-about-real-estate-investing-in-israel/2012/06/17/

Scan this QR code to visit this page online: