Here is a tip for investors looking for good returns on investment properties in Israel. Conventional real estate wisdom in Israel would have you purchase a property in the central, heavily populated areas where renters are easy to find. This is not a bad strategy to follow; in fact these areas also experience higher property price appreciation on average. However, because property price is inversely linked to the ongoing yield collected from rent, investing in these areas mean a significantly lower yields when it comes to your monthly collection from the property.
But, there is a new, up and coming market that revolves around Israel’s student population. Israel’s students are older (they have to serve for several years in the army when they get out of high school) which means they rarely live in dorms, and are overall more responsible than your average renter. Popular colleges attract student in mass, which positively impacts the real estate market in the vicinity of the college.
Consider buying an apartment in the geographical outlying areas near a local college. Purchase prices are lower because of the distance from the center of Israel, but rental prices are still reasonably high. Also, the government gives tax and other benefits to buyers to encourage investment in these areas. As an example, investors in Sderot (a town in the south of Israel) who followed this guideline are seeing a 9.3% return on average, which is fantastic for a residential rental property.
Here are three such markets, the type of investment required, and the yields you can expect:
Sderot
Sderot is a southern town, near Ashkelon. The property prices in this town are low because of it’s proximity to the Gaza strip, yet it also has a well established college (Sapir College) attended by 7,500 students. Most of the people who own properties in Sderot live in them. This means there are very few apartments for rent. With 7,500 potential renters each year, rental prices in the town are higher than you would expect and keep rising. Sderot is a new market so it still has a lot of potential. We watched this exact dynamic occur in Beersheba, the largest city in the South, in the area surrounding the Ben Gurion University. Average prices of a 4-room (Israeli’s count the living room), i.e. 3 bedroom apartment are 200,000-250,000 Shekels ($53,000-$65,000). You can rent this apartment out for approx. 1,500-1 ,750 Shekels/month ($400-$460), for nearly a 9% annual yield. If you want to buy in Sderot, look for a newer house, one that is close to the college, and can appeal to the student population.
Carmiel
Carmiel is a northern town, North of the big city Haifa. Carmiel has some industry, a stable population and a prestigious engineering college (Brauda College). With 4,000 student per year, demand for rental properties has steadily increased. Carmiel is also a good place to consider for a real estate investment because it will soon have a railway station built, making the center of Israel quickly accessible. Whenever a station is built in a town, it leads to a significant rise in its population and real estate values. Currently the average price of a 4-room apartment in Carmiel is about 680,000 Shekels ($179,000). You can expect to rent it out for about 3,000 Shekels per month ($790). Investors are seeing yields of approx. 5.3%-5.5%.
Ashkelon
Ashkelon is a southern town with an ocean front. The Ashkelon college has gained in popularity and attracting student population to the town. Ashkelon also experienced a rise in prices because foreign investors perdominantly from Russia and France have taken an interest in this town. An average apartment will cost you approx. 550,000 Shekels ($145,000) and you can expect to rent it out for about 2,200 Shekels/month ($580). Investors can expect an average yield of 4.8%.
WMI has carefully selected a handful of real estate agents that we know to be trustworthy and professional. You can contact us with a simple email and get in touch with our recommended real estate agents. We can also provide you with our recommendations on a trusted property manager to work with.
