Investing in Ashkelon Real Estate: How to Avoid Mistakes
Putting money in the bank, until recently, gave little to no interest and did not offer any appreciation of capital. It was a no brainer to put money into buying apartments. Not only did they produce an income stream of 3 to 4 percent, but that income, as long as it was below a certain threshold, was tax free.
If you ask Hebrew speaking Israelis, they will likely tell you apartment prices in Israel never go down, and a property is always a great investment. This has been the common wisdom for many years. In the time of hyperinflation, money under the mattress would lose value almost daily. The wise investor bought apartments.
Is this still true? Well, it depends.
The Allure of Buying New Apartments for Investing
Many investors look for an income stream, appreciation, or both. Putting money in the bank, until recently, gave little to no interest and did not offer any appreciation of capital. It was a no brainer to put money into buying apartments. Not only did they produce an income stream of 3% to 4%, but that income, as long as it was below a certain threshold, was tax free (first apartments only). On top of that, many apartments appreciated in value and investors were able to flip apartments, pay the capital gains tax, and still make a profit.
Today’s market presents pitfalls that can affect the traditional wisdom. Real estate investors had gotten used to ROI’s of 3% to 4%. But in Ashkelon, the popular investment was in older buildings in inexpensive area of town. Typically, they were apartment buildings without elevators and Mamads. The ROI on these apartments was 3% to 4% and there were lots of available tenants. Over the past year and a half, four things have happened:
1. Many tenants no longer will rent apartments without Mamads.
2. New apartments became available in Ir Hayayin and Ir Yamim, all with elevators and Mamads.
3. The war, the move to lower salaries in the hi-tech sector and uncertainty in the economy made people cautious about buying new apartments and taking on new rental apartments.
4. Since April 2022, the Bank of Israel has been raising or holding interest rates, except for a small decrease, the BOI has been cautious about inflation and as of May 2025 has been holding the interest rate steady.
As a result in the increase in interest rates and the hesitancy in the economy, we are seeing apartment owners who are trying to rent their apartments and the rent they are able to receive at this point is below the payments they need to make to pay their mortgages. In some cases, owners are waiting it out, hoping that either interest rates will drop or the economy will change and tenants will decide to pay the rent that the owners expect. In some cases, the delta between the two is so large that it is likely that the owner will be paying a mortgage that is far higher than what they will receive in rent. In these cases, where the owner has taken a mortgage that is too large and too high an interest rate, the purchase will probably not see an income stream for years, if at all.
The Advantage of Buying Second Hand Apartments for Investing
When comparing the ROI of apartments in different price ranges, one can see that new high-end apartments have a limited market for tenants and that the return on the medium- and low-priced apartments might give a higher return for an income stream. The question arises, will the medium-priced apartments have as much appreciation as the high-end apartments?
We hear the expression: “a rising tide raises all boats” but the question is, will an apartment near the sea go up as much as one on the front line with a sea view? Israel has limited amount of apartments on the sea and as a result, apartments with a sea view sell (and rent) at a premium. I believe, a lot depends on the economy. If the economy is booming, it is more likely that the fancier location will draw buyers and tenants, but if the economy is stagnant or in recession, that apartment may remain low for periods of time.
Disclaimer: Nothing contained herein constitutes tax, legal, insurance or investment advice, or the recommendation of or an offer to sell, or the solicitation of an offer to buy or invest in any investment product, vehicle, service or instrument. Stephen Epstein is not an investment advisor and these remarks are simply an observation from working in the field. Before making any financial decisions, consult professionals in the field for advice.
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