Foreigner's guide to property market: Investment properties

A new real estate column: Property expert Lyle Plocher gives advice and tips for those from abroad looking to invest in Israeli property.

By LYLE PLOCHER
Rehavia building 521 (photo credit: Marc Israel Sellem)
Rehavia building 521
(photo credit: Marc Israel Sellem)
There are several different motivations that a foreign person buying property in Israel might have for making an apartment purchase. If you don’t already know which category you fall into, it is important to clarify your goals and intentions.
Buying for ideological or religious reasons
Someone who falls in to this category doesn’t really look at potential financial returns.  Although there may be an expectation that over time the value of their investment will increase, they are looking at the idea of having a “second home” in Israel as a way that they can add to strengthening the country or their purchase may be a stepping stone to making Aliyah.  If you are buying an apartment for ideological or religious reasons, you will probably want to purchase in a neighborhood of similarly minded people. 
Buying for vacation use plus some rental income
Other individuals who are considering a property purchase in Israel are looking at their purchase as a way to have a “place of their own” for vacation purposes, instead of staying in hotels. If you fall into this category, you will need to identify a “Property Manager” who can take care of renting the apartment for you during the times you are not there. You will also want to make sure that the apartment that you purchase is in an area that is desirable for “short term rental."  There are a handful of Hotels in Israel where you can buy a suite and stay in it for a certain number of weeks per year and then in your absence, the Hotel or Management Company will handle all details of renting and maintaining your suite and will split the profits with you.
Buying strictly for investment purposes
If you fall into this category, the name of the game is obviously deciding where you can get the best financial return on your investment. This particular segment of the real estate market in Israel has been very strong during the past few years of rapidly increasing prices. At the peak of the market as many as 35 percent of the apartments in Israel were “purchased for investment." The Israeli government and the Bank of Israel have been introducing measures over the last year or so to try to “cool off” this segment of the market. 
The trend over the last year or two for many investors has been to move from selecting properties in the center of the country to peripheral cities such as Beersheba and Haifa. As prices have become so high in the center, the returns have diminished and only those investors who are willing to count on “future appreciation” alone, have remained in the larger cities. Regardless of where you target your purchase, find a competent real estate agent who understands and perhaps specializes in the rental market to assist you. This person will be able to tell you what kind of rents the property can generate and may be able to manage the property for you as well.
Special opportunity for US Citizens
If you are a US Citizen and have a self-directed Individual Retirement Account, you can actually use your IRA to purchase an apartment in Israel for investment. There are certain rules you must follow, but it is totally allowable and legitimate to use funds in your IRA to purchase investment real estate in Israel. The most critical rule regarding using your IRA is that you are not allowed to use the property as your second home or as a vacation home. It has to be strictly a non-owner occupied investment property. If you need a referral to a company in the US who can explain the rules for using your IRA in this manner, write the author of this article.
Lyle Plocher is the Director of Buy Property In Israel and can be reached by email at lyle@buypropertyinisrael.com.