Buying a home is a challenge, financially, in Israel. According to data from the Taub Center for Social Policy Studies in Israel, housing is more expensive in Israel than in 174 out of 175 of large American cities. Apartment prices have increased by 70-80% over the last several years, whereas wages have only risen by 20-25%.
Whether or not you were involved in Israel’s real estate market before making it Aliyah, there is one important thing you should know:
Buying a home is the biggest purchase you’ll ever make, but it’s important not to view it as an investment.
A home can’t easily be liquidated, and it can’t provide quick access to cash in emergency situations. Affordability is more important than value appreciation. Your primary residence should be viewed as your castle – a place where you feel comfortable and happy.
Does that mean you should forgo real estate as an investment? Not necessarily. Real estate can certainly fit in your portfolio.
Purchasing and renting apartments is one such way, and has been a favored investment vehicle for Israelis for quite some time. Rent-to-value ratios are low in Israel (2-4% of the property value per year), but appreciation is consistent. The rental tax exemption makes this an even more attractive investment option. Just keep in mind that being a landlord is hard work. It requires quite a bit of time, money and energy to manage a property.
You also have the option of partnering with other people to buy property, or invest through the Tel Aviv Stock Exchange Network. Investments can be made in a Real Estate Investment Trust (REIT), or a real estate company. These alternatives may be a good fit if you want to get involved in real estate without the hassle of having to play landlord.
There’s also another option: invest in property overseas. Israelis are one of the largest foreign investors in commercial real estate in the United States, particularly in New York. Halman Aldubi purchased the Brill building in New York as part of a $310 million deal. Not everyone has that much to invest, but you don’t need that much to get started.
New York is just one area Israelis are investing, but other areas offer more affordability and good returns. Condos in Myrtle Beach, for example, are valued at $167,000 on average, making them more accessible to investors.
The U.S. offers a low-interest environment, and direct investment gives investors more control over the success of the property.
If you prefer to keep your investments at home, there’s also the option of crowdfunding. Crowdfunding was limited in Israel until 2016, but you can now take advantage of this investment vehicle. The concept is simple: An entrepreneur lists an opportunity on the platform, an investment committee conducts a due diligence examination. You have control over which opportunities you invest in, and you don’t need to make a large investment. Ownership percentage is determined by the size of the investment.
Real estate can, and probably should, be part of your portfolio, but don’t count on your house to be the investment.