The entire process of buying property should start by some good online research. Even if ultimately the actual purchase is carried out with the help of a broker, it is essential to begin analyzing the area online so as not to “go in blind”.
The two main property databases in Israel are Yad2 and Madlan. In my opinion, Madlan is a much more convenient and user friendly site, however Yad2 (unfortunately) has many more adds. Sources such as ‘homeless’ and ‘win-win’ are rarely useful. In addition, many Facebook groups are dedicated to home offers and searches, however, these are more useful for finding and advertising rentals than for purchasing.
There is a fundamental difference between searching for an apartment for investment purposes and for residential purposes: different variables influence the purchase decision, thus changing the method of search. Today I will focus on the search of an apartment for investment.
As I have already said in the past, risky investments or investment that require more work, are expected to yield higher returns (annual rent divided by full purchase price). In other words- the expected returns in large city centers are much lower than in peripheral cities or in bad neighborhoods.
Therefore, the first step in choosing an investment property involves finding the right balance between risk and return and the effort required, and choosing the desired investment area. This is an individual decision based on risk tolerance, availability of time, funds, mortgage capabilities and more.
To calculate the expected return on a house, we must estimate the rent it would yield, and then compare it to its price. In the following paragraphs I suggest a method to track houses and their expected rent.
I recommend looking for all the properties in a given city (if it’s a small city) or in the surroundings (in case of a bigger city) and copying all relevant information to a table: Address, Neighborhood (very important!), Square meters, number of rooms, price, brokerage (yes / no), contact info, and notes. Then, add a column “rent”. In some cases, the apartment is already rented and can be added without difficulty. When sellers / brokers point out “can be rent it at X”, that price should be ignored completely. In most cases it describes the seller’s fantasy or the empty promises of Realtors.
Note! -It is important to pay attention to the neighborhood, as there are significant differences between the neighborhoods (sometimes even in adjacent ones): housing prices and rental rates, the inherent risk in the neighborhood, and other characteristics.
Unfortunately, the neighborhood is usually not mentioned; however, by using map display and Google maps it can be easily located. In the process of researching apartments one should read about the different neighborhoods. Madlan and Yad2 have useful real estate indicators (מדד הנדל”ן) in addition to more information from various sources such as local FB group, media websites, realtor blogs and whatever else you can find.
Keep in mind whether the apartment comes from a realtor or not, since this adds 2.4% to the price. There is nothing wrong with buying through realtors, though it is important to know the affect this has on the final price. Necessary Renovations should also be added to the price.
To estimate the potential rent, I summarize all the rental ads, organized by neighborhood and number of rooms. I also factor if the apartment is renovated or furnished.
The next steps are a bit more complex: understanding the nature of different neighborhoods, prioritizing of assets in each region, analysis of problematic points and coordinating a visit to the potential properties.
Bonus: link to a copy of my google sheet: https://goo.gl/udWxLe