By Izzy Leizerowitz
31 October, 2023
Investing in israel Real Estate in 2023? Start Thinking Out of the Box!
Traditionally, Anglo investors buy apartments in projects all over Israel at a pre-construction discount, wait until the building is finished, and then rent them out creating an income stream, or sell them at a profit to buyers wanting a finished product.
Veteran and experienced investors venture out beyond the traditional model and will invest in real estate funds that build all types of properties including commercial real estate projects such as hotels, short-term rental buildings, and commercial offices. Investment amounts are larger but so are the returns on investment.
What can the small investor, who doesn’t have the funds to buy an apartment even in pre-construction, invest in today with decent returns? Right now, there are projects all over the country in desirable neighborhoods and cities, where the developer will allow you to buy in as early as the land rights phase. In return for your patience and faith in the success of the project, one can see forecasted profits of over 37% at the end of the project. So, what happens when you proceed with this investment strategy?
You start by investing in the real estate rights on land before detailing the completion and approval of the project plans, and the construction planning (TABA & Permit approvals), prior to the start of construction.
Immediate advantages of buying in the land rights phase:
- The amount of money needed to get into the investment at this stage is much lower than when permits are approved. For example, a current project in Netanya near the sea is offering land rights for a 110 square-meter apartment down the road, for 803,000 NIS or $201,000 USD in phase 1, much lower than the preconstruction pricing that will be issued when permits are approved.
- Land improvements accrue to the purchaser, providing long-term value.
- Purchase Tax to the buyer is at 6%, not 8% resulting in significant savings.
- Buyers/investors always have the right to sell land rights at any time before construction, allowing investors to realize profits.
Using the Netanya project, phase 2 project planning may happen as early as February 2024, and construction may not start until 2026. Finally, in September 2028, you can realize your total forecasted profitability. By then you have invested a total of projected costs approximating 2,200,000 NIS or $546,000 USD, but the appraised value of the finished product even by today’s values minimally 3,500,00 NIS or $875,000 USD, resulting in a handsome 38% profit. But you do need patience and commitment. Israeli investors have been doing this for years and have seen great results, and now I suggest you think about implementing this strategy as well. Of course, you can sell your land and project rights at any time and realize smaller but real profits from your investment up to that point.
In conclusion, private land in Israel always appreciates in value. Projects created by reliable developers and in good locations will always yield decent profits for large and small investors.
If you have patience and commitment in the process, you will get a finished home at a much-reduced cost, or you can sell it at a very attractive profit or continue to use a business model of renting out the home as an income-generating property and continue to make money on this property.
Keter Advisors is a leading real estate consulting firm in Israel, and we can help you explore any or all phases discussed in this article. Reach out to us at www.keteradvisors.com, or call us at 972.52.682.9367 if you have any questions or ant more information. Thank you.