Nineteenth century billionaire Andrew Carnegie famously said “Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.” Is this still true, and does it apply to real estate investment in Israel?
The Rational Behind Real Estate Investment
The data suggests that millionaires still make more money from owning property than any other investment, because real estate consistently increases in value over time and outperforms other investments. The wealthiest people collect property portfolios the way they used to collect cars!
While other businesses may come and go, people will always need homes, and the need for housing generally increases year after year. There’s an inherent demand for real estate, because land can be used for so many different purposes, whether commercial or residential. Many people use real estate as a way of protecting their wealth against market fluctuations. Although the real estate market can go down as well as up, the overall value is always increasing, never decreasing.
Real estate is a real asset – it is tangible. It is also not as vulnerable to fluctuations as the stock market, which is subject to many factors outside your control. Unlike many equity investments, including banks and blue-chip companies, brick-and-mortar investments are unlikely to disappear overnight, Real estate is also flexible – if it appreciates you can sell it, and if the market is flat you can rent it out or live in it yourself. Property can be refinanced, redeveloped, and even repurposed if the market changes.
Today, cash kept in a bank is effectively depreciating, because interest rates are below the rate of inflation. This means that money is cheap to borrow, and many people take out bank loans to invest in real estate.
The Reality of Real Estate Investment in Israel
In Israel, it is not so easy to raise mortgage finance as it is in the U.S. and other easy-credit economies. Generally, banks in Israel will insist that the purchaser puts up at least 40% of the purchase price before taking a mortgage for the remaining 60%, and they often require proof of income.
The safest properties for investment in Israel are generally family-size apartments or homes in upscale locations that are always in demand. They provide a consistent cash flow and there will always be a steady supply of good tenants. Israel’s increasing demographics – through high birth rates across most sectors – are all good signals for investing in family homes. The same may not be true in other countries, where divorce rates and the fashion to remain single are favoring smaller property sizes.
Israel is a small country with an expanding population, high marriage and birth rates, and a constant flow of Olim (new immigrants). There are also many political and economic obstacles to releasing more land for development. This means that, despite government attempts to increase the supply of new homes, demand continues to outstrip supply. High property prices in Israel, that make it difficult for young people to rent, have created a strong rental market with good and steady rates of return.
Investing in real estate does not generally yield quick returns, but it’s the best option for long-term investment. At Creative Estates we recommend investing in residential or commercial properties that produce rental income year-round, and making sure that your investment is well managed so you don’t incur unexpected costs that can reduce your profitability.
Talk to Shaun Isaacson of Creative Estates Israel about the best real estate investment options currently available in Israel. Contact us today.