Chapter 10: Buying an Apartment as an Investment

When buying, the purpose is important. If you are planning to use your apartment only three times per year for example, and one of those times is during Sukkot, it will necessarily become important to choose an apartment with a Sukkah balcony. The same kind of purpose-based reasoning is applicable to investment when your primary purpose in purchasing the apartment will be profitability.

It should be noted that apartments have always been considered a smart financial investment historically because, in contrast with other commercial real estate investments, apartments are often much more tied to residential and demographic trends like urban planning and zoning, which can make their investment returns easier to predict accurately than other forms of property investment. Moreover, recent reforms in the Israeli real estate market such as mekhir lemishtaken and others, have according to many analysts injected supply elasticity into the Israeli real estate market, increasing its attractiveness and creating favorable conditions for the investor.

When purchasing an apartment as an investment opportunity, it is advised to carefully consider the effect of the apartment relative to its resale value and investment potential. Besides the condition of the apartment, the building, and its environment, consider things like whether the area is up-and-coming, and whether there is strong demand within a certain investment demographic for the apartment. It is recommended to look at zoning and urban plans as well, to research if new transportation, commercial, or development projects are planned close by, and if so, to discover if and how they might affect the property value. Be aware that if new zoning regulations are slated to come into effect, you may need to pay additional taxes.

In general, if considering an apartment as an investment, we recommend upholding the following:

• Unless in a very special case, never invest with money you don’t have. If possible, we recommend buying the apartment with cash. If you can’t afford to pay in cash, at the very least, you should be able to afford all mortgage payments without including future income to be generated by the apartment itself (i.e. rents).

• Conservatively underwrite all of your anticipated expenses. Consider the cost of taxes, utilities, upkeep, and repairs. Be honest, and carefully analyze all of the income and expenses related to the investment. Produce a cumulative, accurate estimation of all charges anticipated.

If it’s your first time investing, consider starting small. Some real estate investors begin small by purchasing a duplex or a house with a separate apartment unit, for example, and living in one unit while renting out the other. Although this can be a good way to get your feet wet, keep in mind that if choosing this route, you will be living in the same building as your tenant.

As you become more comfortable, you may consider buying a larger property with more income potential. Once you own several apartments, it will become easier to purchase and manage the property and earn a greater return on your investments.