Mastering Israeli Real Estate: Four Critical Keys

Let these steps be the foundation of your home search and purchase process

Key 1: Identify the Location

“Location, location, location” is one of the most well known rules in real estate. Indeed, a home’s location is central to its desirability and value. What’s often overlooked, though, is whether that location is actually good for you.
When searching for a neighborhood in Israel, the most important element is whether it meets your lifestyle needs. Research the educational institutions, synagogue, local amenities, shopping, transportation options, and so on to see if the area fulfills your requirements. Visit the neighborhood and ask yourself if you would want to befriend the residents and whether you like the atmosphere. These are questions only you can answer, no matter what others may push you to think or believe.

Exploring Property Options

Familiarizing yourself with the neighborhoods should take place well before you ever look at apartments. Once you know an area, it’s easier to evaluate your priorities for the property itself. Ask yourself:

What makes a place feel like home?
What are your non-negotiables?
What are you willing to compromise on?

You can’t have everything you want but you can have the things that really matter to you.
A client approached us looking for a centrally located apartment in Jerusalem. The size of the apartment didn’t matter — small was fine. But he had two major requirements: that it should be near the Light Rail and it should be close to an observant Jewish neighborhood. At first his requirements seemed diametrically opposed: vibe, action, and city life and religiously observant people, minyanim, and Jewish community services.

We hit the sweet spot on Agripas Street. One side of the building leads right out to Jaffa Road — and the Light Rail, shops, eateries, and more. But it’s also close to the Zichron Moshe neighborhood and all the religious Jewish life to be found there. He bought the property.

Key 2: Create a Financial Plan
A budget requires two things: dollars and lots of sense. After all, beyond the ticket price, one needs to calculate for other expenses like realtors’ and lawyers’ fees, upgrades, renovations, mortgage rates, inflation, and so on. To avoid unexpected budgetary developments, plan to spend 19 percent more than the apartment’s ticket price.
That number may sound shocking, but you will want to search for an apartment you can actually afford, even if “surprises” pop up. Having a realistic, firm budget makes you a more powerful negotiator when presenting an offer. Realtors, developers, and sellers will quickly see you can’t be pressured to raise your numbers.

Of course, if you enlist our help, we would negotiate on your behalf. One of the ways we’ve been able to help clients with strong budget considerations is by getting together a group of a few people to buy together, which injects more money into the overall budget.
Four clients approached us around the same time, looking to invest a similar amount of money in property here. We knew that their individual budgets could buy each of them a place in Tzefat. But if they all bought in the same development, we could leverage that to their advantage.

We found an incredible investment opportunity in Nof Kinneret, right outside Tzefat: a brand-new, boutique building featuring four apartments. We put together an investment group of our four investors and coordinated their buying of this building together.

Our investment group meant more buying power, which translated into major upgrades for each of the apartments, such as en suite bathrooms for each bedroom, and a lower asking price on the property. They not only secured their investments in Israel, they will get an excellent ROI when their properties are rented out.

Key 3: Construct the Contract

What’s nonnegotiable in home-buying? A lawyer.

That’s no joke. Once a buyer reaches contract, he needs a carefully worded, thorough agreement. By engaging an experienced attorney, a buyer can protect himself and gain leverage. A tightly written contract incorporates points customized to the buyer and the property, preventing unpleasant future “surprises.” A good lawyer, or a buyer’s advocate (such as our team at The Getter Group) can include a unique appendix, inventorying even the smallest details and employing protective clauses and safeguards.

Often-overlooked contract issues include important technicalities:
Do the listed address, property size, and other information correspond with the official municipal records?
Has the payment schedule been updated?
Are timetables consistent with the facts on the ground?

Once a contract is signed, it’s sealed. A smartly crafted contract protects you before that ink ever hits the paper.

The Legal Implications of Pre-Contracts

When you first find a property you want to buy, you may be asked to sign a zichron devarim, for a secondhand property, or a tofes harshama, for a newly built (or on-paper) property. These documents can have significant legal ramifications and financial implications and must be reviewed by a trusted lawyer prior to signing. It is vital to mention here that one should not rely on the seller’s lawyer to review and explain these pre-contracts, as you need to ensure that your rights and interests as a buyer are protected.

A woman came to us for help after having signed a tofes harshama, an official registration of intent to buy an apartment on paper. She had not approached us before signing this document but was now concerned that she was overpaying.

As soon as we saw the agreement and the penthouse property she had signed for, we knew she was right. She’d made a terrible mistake and would be spending NIS 20,000/m2 too much. (That’s nearly $5,500 extra per square meter.) Because she had already signed the agreement, there was nothing we could do to help her in terms of the price. Nevertheless, we tried to figure out how we could get her more value for the money she was already spending.
We took the specifications of the apartment and sent the information to a top designer, who wrote a report on the space and what could be done with it. We then sent the designer’s report to the seller (a development company) along with an official appraisal, showing that the buyer had agreed to spend NIS 500,000 over the apartment’s true value.

We asked the developer to come up with solutions of what they could do to maximize the value of the money the buyer already agreed to. We negotiated top-quality, high-end fixtures and finishes for the client, so at least the extra money she was spending would go toward her property — and not just the developer’s pocket. The developer agreed.

Inflation, Inflation

In another case, a client approached us with a tofes harshama that he planned to sign. We looked over the fine print and saw that he would have to start paying the madad (CPI) immediately from the time he signed that registration of intent.

The purchase price of many new properties in Israel is usually linked to the madad, which is constantly changing with inflation. Many mortgages and loans are also linked to the madad, which can significantly add to the long-term cost of a loan. Having to pay the madad this early in the process could add tremendously to the apartment’s cost.

We suggested that the client request a revision of that document, so that he wouldn’t have to start paying immediately, because he wouldn’t be signing the official contract for another two months. He was able to get the document amended and saved at least NIS 60,000 right off the bat.

Key 4: Figure Out the Financing

Mortgages require a similarly cerebral approach — especially in the Israeli system. Perhaps you are already familiar with the large down payments required in Israel, particularly when it comes to foreign buyers. (The Bank of Israel requires down payments of 50% for foreign buyers.) What’s less well-known is that Israeli mortgages cover only a home’s base price—and usually only 50% of its value, though we certainly in many cases manage to help people — even foreign buyers — get larger loans. An Israeli mortgage generally can’t be increased beyond a certain amount to cover additional fees, taxes, renovations, furnishings, and other costs.

Before you get overwhelmed with thoughts of these expenses, calculate what you can really afford. The Bank of Israel generally allows buyers to sign on mortgages that require payments amounting to no more than 40% of one’s monthly income. Experts recommend building in an additional 2% buffer (to account for rate fluctuations, income changes, and so on).

When it comes to finally securing financing, individual buyers hold little bargaining power with banks and may be unable to obtain a mortgage at all. In Israel, mortgage brokerage services aren’t viewed as a luxury. A knowledgeable professional can make all the difference in facilitating a mortgage. They have the connections and expertise to secure the most competitive rates, and have already read the fine print.

One of our clients thought he had a great relationship with his bank and sought out a mortgage there, which the head of the bank presented to him as having “great terms.” When our own mortgage broker looked into his specific case, she was able to create a package for him that saved him a whopping $99,000! Now that’s what we call “great terms.”

Furthermore, while the average loan rate in Israel is 9%, and the average mortgage rate is 5.5%, our mortgage broker is regularly getting our clients rates at around 4.8%. That difference of 0.7% on an NIS 3 million mortgage over the course of a 25-year-loan is NIS 409,055! Who wouldn’t want to save this?

In another case, a client bought an apartment and sometime later I saw that there was an option for a very low fixed-rate mortgage, at only 2.5%. This was a very unique opportunity and an amazing rate, so I contacted the client and we refinanced his property, even though the sale had technically been completed several years before.

Remember Your Why
When there are so many details to keep track of, it’s easy to lose sight of the big picture: you’re buying a home in Israel! Keeping that end goal in mind – and getting the professional assistance you need – can ease the process significantly. We know how overwhelming the process can sound, but the end result is worth the effort many times over.

Not only are you securing a place in Israel for yourself, your family, and future generations, you’re also making an excellent and solid financial investment. One day, all the hard work, decision making, bureaucracy, and negotiating will be distant memories (and hopefully good ones). You’ll have a home here, and that’s what matters most!

The information provided in this article is for informational purposes only, based on the most accurate data available at the time of writing. However, we cannot guarantee that all the information presented herein remains complete, current, or error-free. Therefore, readers are advised to independently verify any information for the most recent updates.