Saturday, September 23, 2017

Two clients recently asked us to help them purchase an investment apartment in Israel. Liat lives in Israel and wanted to buy a small Jerusalem apartment for her children, which they could flip in a few years to acquire a larger home in a less expensive community. Jonathan wanted to get a “piece of the rock” that he could sell in a decade and use the profits to purchase a larger apartment for his family’s use.

Liat: Short-Term Horizon

Liat’s son and young family are just starting out and, in about four years, will want to purchase a four-bedroom apartment. We decided that the best low-risk, strong short-term upside investment opportunity would be to purchase “on paper” in a new project being developed in a large population center, where demand outstrips supply.

Ramat Baka is being constructed by a third-generation builder, and will be ready in about two years. It is located on the border of two lovely Jerusalem communities, Arnona and Baka, and is within a 15-minute walk to Emek Refaim and 40 minutes to the Kotel. Offering excellent access to transportation, shopping and communal facilities, Ramat Baka has been a strong success, as over 40 percent of the units have been sold in slightly over half a year.

Liat observed that prices for one-bedroom units in the immediate vicinity rose from 1,550,000 three years ago to 1,900,000 earlier this year. Accordingly, Liat purchased a one-bedroom unit in Ramat Baka for around 1,600,000 NIS, with the expectation that soon after completion, this unit will be valued at 2,000,000 NIS. Liat’s son expects to sell the apartment and use the profit to purchase a larger unit in a lower-priced community.

Jonathan: Long-Term Horizon

Jonathan lives in London, England, which has seen its currency and real estate values dip after Brexit. Consequently, many British clients want to hold on to their assets, with the expectation that both the pound and the properties will rebound soon.

Jonathan’s plan is to purchase a large Jerusalem home when he retires in 10 years. To achieve that long-term goal, he wanted to immediately buy a property with upside potential—with as little cash as possible—which he would sell to help fund his future Jerusalem home. We identified an interesting project in a lovely older neighborhood in southern Tel Aviv that is just starting to gentrify. The developer is creating a new community on an almost six-acre plot, which will feature lovely parks and nine buildings containing over 600 residential units.

This project is in its infancy and will not be ready for six years. Jonathan deposited seven percent on contract signing, which will be held by the project’s attorney for the next 1.5 years until the building permit is received. Upon the developer obtaining the building permit, my client will pay an additional 13 percent, and the entire 20 percent will be deposited into an account controlled by the financial institution that is giving the bank guarantee. The final 80 percent payment will be due upon receipt of the keys in about six years.

Jonathan purchased a three-bedroom unit for around 2,100,000 NIS, or 22,000 NIS per square meter, and the unit’s expected value upon completion is 3,340,000 NIS, or 35,000 NIS per sqm. This profit will go a long way toward helping Jonathan purchase his dream home in Jerusalem.

Obviously, no one has a crystal ball and we can only look back at recent history to project future property values. Nevertheless, I am excited to revisit these transactions in a few years’ time and see how these investments have worked out.

By Gedaliah Borvick

 

 

 

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