Understanding Mortgages in Israel

6 months have gone by, we need new regulations!

2013-08-22T09:54:00.000+03:00

Wow, can you believe six whole months have gone by and no new regulations.
The regulator of the banks, Dudu Zaken has announced additional regulations.

A direct quote from the announcement:

A banking corporation shall not approve a housing loan (mortgage), the monthly repayment of which exceeds 50 percent of monthly income. Housing loans where the monthly repayment is between 40 percent and 50 percent of monthly income shall be weighted at 100 percent for the purpose of calculating the capital adequacy ratio.

Dudu Zaken, Chief Bank Regulator
A banking corporation shall not approve a housing loan where the portion of the loan at variable-rate interest exceeds 66.7 percent (two-thirds) of the loan. This limitation shall apply to loans with variable rate interest of all durations, and comes in addition to the existing limitation limiting to one-third the portion of a housing loan granted at variable-rate interest for a period of less than 5 years.
A banking corporation shall not approve a housing loan for a term to final repayment of more than 30 years.

You can read the full text of the official announcement in English on the Bank of Israel's website.

None of our clients have ever transgressed items 1 or 3, and regulation 2 is really just a corollary of a regulation announced about a year and a half ago restricting highly volatile loans (those whose interest rates re-adjust more frequently than once every five years).

I have always taken issue with number two. Every case should be examined upon its own merits. Someone taking out a 30% loan (compared to the value of the property) should not be subject to the same regulation as one taking a 72% loan. If the payment is only 18% of monthly income, the borrower should be subjected to a more liberal set of rules.

Unfortunately unscrupulous brokers in the past sold people cheap loans that are very dangerous in the long run. It is these same brokers that have forced these regulations.

If you are a regular reader, you know I am no fan of regulation. However, if anything should be regulated, it should be the brokers. The problem isn't the banks, it's the people pushing people into cheap loans with empty promises. Unfortunately there are too many brokers around today. If you have the time an inclination, read this article about the quality of mortgage brokers in Israel, originally published by Globes.

Why pay 7000 shekels a month when you can get away with paying 4500, right? That's the line of all of the brokers. Advice to someone looking for a mortgage: cheapest is not best.

I still object to the basic premise that cheap loans are driving up housing prices. If this were the case, why not simply dictate minimum loan prices and be done with the problem?

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Where should you be saving?

2013-07-07T11:53:00.000+03:00

Real estate transactions are expensive. Outside of the cost of the property, you have to pay taxes, legal fees, agent fees, bank fees, movers, cleaning and polishing and most of us like a new kitchen and at least some furniture. Be prepared to pay a total of around 10% more than the cost of your home.

This is a lot of money. And unfortunately we can't take it into account in your mortgage. When you are approved for a mortgage it is a factor of the appraised value of the property or the purchase price, the lower of the two. If you are buying a house for 2.5M NIS, with a 1.65M mortgage, you should have enough money to cover not only the remaining 850K, but probably another 200K for all of the additional transaction costs.

This is a lot of money and most of us don't have it just lying around. If you're like most people you will want to save wherever you can. If you look at my list above (and most people will have additional items), where can you cut?

Taxes are not our option. The tax man has his cut. If you have a legitimate reason to postpone the payment, it can sometimes be put off for a few years.

If you have to choose whether to save on a lawyer or an estate agent, forgo the agent. I have been dealing in Israeli real estate for 7 years, and I'm yet to meet an agent worth the fee. They think that their job is to put an ad in the Yad2 and not in personally representing you. If you respond to an ad for real estate, let them know to begin with that you will not pay any fees. If the seller wants an agent, let him pay for it. You probably have a pretty good idea which neighborhood you are interested in. Hit the ground, knock on doors on Friday morning and ask people what they know.

Don't scrimp on a lawyer. Get a good lawyer. Legal problems are very common in real estate transactions. Property rights are often convoluted. I have probably seen more problematic properties than unproblematic properties. I have seen people buy properties without building permits, contract to purchase homes with irreconcilable liens upon them. Even if you are buying a new property and the contractor forces you to use his lawyer, pay a professional to review your contract.

Do not ask friends if they know a good lawyer, hopefully they didn't encounter any problems and are oblivious to what can happen. In general, try someone from a big firm. There are thousands of lawyers, and we have only worked with a few hundred, but we know enough that we can recommend good ones. Even though you are likely reading this because you speak English, don't make English a consideration when choosing your lawyer. You want someone educated in an Israeli university, who learned real estate law at a big firm and works mainly in real estate.

Another place people like to save is on the mortgage advisor. This is a bad idea. Unfortunately there are now hundreds of brokers and their ilk in Israel. They advertise on the radio, newspapers, even TV. These guys know nothing more about mortgages than they did about the vacuum cleaners they were selling last week. Going to the bank for "nothing" will cost you far more than taking our advice. This is our profession, this is how we make a living. Don't save a few grushim that will end up costing you dearly.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Rates too low?

2013-05-30T09:08:00.001+03:00

24/3/66

The Bank of Israel lowered the interest rate for the second time this month. You can read the official announcement here. Normally the Bank will only change the rate once a month. An additional reduction in the rate, just a week after the last reduction is a sign that the Bank's economists think that waiting another 3 weeks to reduce the rate is would endanger our economy.

[The Bank of Israel traditionally publishes its rate decisions on or about the 25th of each solar month, stating what the rate will be for the following month. This is a tradition and not a regulation. They can announce rate changes at any time.]

Most of the people reading this are those interested in purchasing real estate or refinancing an existing mortgage, and not in macro-economics. The reasons for this reduction are all macro-economic (meaning factors that affect the national economy and not a specific market). Ideally, everybody wants to lower the price of real estate. However, the viability of our exporters is far more important. OECD economists expect the economies in the EU to worsen.

The news sites are full of stories about mortgages and real estate prices, because this is what they do. It's just like how every single Hag Matzot or election day the TV stations send crews to film people at the airport. It's not news (yes, people actually holiday on the holidays), it's just what they do. They are now doing the same thing with the interest rates. They can't be bothered to examine the real reasons for rate changes, or maybe even understand them, so they will write a thousand articles about a 100 shekel a month payment reduction. Please ignore the hype.

The awsome shekel. Beware its might,
it endangers the economy.

Interest rate adjustments help prevent further appreciation of the shekel. In the first few days this has worked. The problem with the strategy is that there is a very limited number of times it can be employed. (I have written extensively about exchange rates in the past. Please click on the exchange rate link in the tag links section of the sidebar.)

For the record, I don't think that reducing the interest rate will raise real estate prices. Raising the rates didn't cause the prices to fall. Supply and demand determine real estate prices. Secondary factors such as rentals and taxation play into the equation, but another few hundred shekels a month on the mortgage payment isn't going to make a difference.

If a few hundred shekels a month affects your purchase decision, then you should be buying something far less expensive. Before you even start thinking about what you want to buy, take the time to have a professional consultation with us (definitely not with the bank) to determine what you should be looking for. Unfortunately too many people are buying apartments that are too expensive for them.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Embrace the Penalty

2013-03-12T10:07:00.004+02:00

1/1/66

Happy New Year! Today is the first day of the 66th year of our Redemption. Celebrate!

Many Israeli mortgage types have what is commonly called a penalty associated with them if repaid early. In actuality there is no real penalty, but a regulated capitalization fee associated with it. This fee is defined by the Bank of Israel, and the banks do not have to charge it.

In the United States, early repayment penalties (also called prepayments) are a negotiable part of a loan. Typically they range from two months interest to 80% of six months interest. Many times these penalties only apply if a loan is refinanced and not if the property is sold, and sometimes only during the first two years of a loan. In the UK, it is usually a set amount defined in the loan.

In Israel, we rightly called this a capitalization fee and not a penalty. There is no penalty whatsoever applied, even though it feels as if there is one. Most of our existing clients have loans that aren't subject to capitalization fees, though new clients typically do. Here is a detailed explanation of the Israeli capitalization fee that I wrote a few years ago, including links to the regulation and calculation of the fee.

Egyptian locust.

We have seen cases in the past where clients are apprehensive to pay this fee. As these fees can at times reach hundreds of thousands of shekels, their apprehension is understandable. Should the fee prevent you from refinancing?

In most cases it should not. Right now rates are fantastic, and if the chances that you are going to move in the next ten years are slim, then you should reconsider refinancing, regardless of how scary the capitalization fee sounds. In most cases the capitalization fee is only a portion of the money that you already contracted to pay. By incorporating this fee into a new mortgage with better terms, we can usually shorten the amount of time remaining on your mortgage. If you can add a few hundred shekels per month to the amount you pay the bank each month, most people should expect to save hundreds of thousands.

If you want to check the status of your loan, please call your bank, request a pay-off report (דו"ח יתרת תשלומים לסילוק משכנתא) and send it to us.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

And the rents continue to rise

2013-02-19T13:57:00.001+02:00

The latest official real estate statistics are out. Right now I would say that there are no clear trends in the market. Overall the prices of real estate continue to rise slightly higher than general inflation, but there are "pockets" where the price have decreased.

רקפות. עונת הטיול הגיעה

The price of apartments in Tel Aviv fell. I don't find this surprising as they were grossly over priced to begin with. An interesting statistic that I saw on Globes was that there is a higher number of bachelors purchasing apartments, as opposed to traditionally only families purchasing. The price of larger apartments (four or more rooms) fell and the statistic about bachelors is typically for small apartments.

Don't be alarmed, the sky isn't falling yet. Prices continue to rise in general. The market is small enough that the marketing of a single project can greatly alter the numbers. If there was a new building of cheap 5 room apartments in a downscale neighbourhood sold in the past few months, it can influence the average greatly. The marketing of a project of small apartments increases the number of bachelors purchasing. [I hope that we see the marketing of many, many projects of small apartments all over the country. The sub-dividing of large apartments throughout the country is very undesirable. The proper planning and infrastructure for smaller apartments is a much better alternative.]

I hope to see real estate prices remaining stable over time, going down slightly in real terms. In the past two years the government (and Bank of Israel) have tried to influence the market through regulation aimed at cooling down demand for new housing. Hopefully in a few years tens of thousands of new apartments currently under construction will be sold and occupied. In the meantime, there is little that can be done about housing that is unaffordable for the average family.
[Hot off the presses! Flash update. The Bank of Israel has released a new regulation that will make it even harder to get a loan. Don't they read my blog? Stan the man used to, but he quit. All they are doing is exasperating a bad situation. I will try to learn this new regulation in depth and write about after the banks give us some indication of how it will affect mortgages. In the meantime read about the new mortgage regulation. They have learned from previous rounds of unsuccessful regulation and are making the new regulations retroactively effective from the beginning of the secular year.]

Which brings us to the real problem: rents continue to increase. The harder that it is to purchase a home, the more people need to rent. As rents continue to rise, investment in real estate becomes more attractive, and it is very difficult to see any way out of this situation without a lot more building. More regulation won't help, more building will.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Cheap is not good

2013-01-29T12:44:00.000+02:00

People's natural inclination is to look for the best deal. Have you heard the Eldan commercials on the radio? People want to keep on talking about the great deal that they got. I haven't checked the statistics, but I'm sure that Zap or a similar website is in everyone's bookmarks.

We occasionally get clients who think the same is true for mortgages. It is not. There are so many factors that go into selecting the proper mortgage. Price is only one of them, and not by any means the most important.

Say you took out a 1 million shekel loan. If you shop around and get the best rate you might get something around 0.2% less than the going rate. Big deal. It isn't even worth the time that you wasted getting the quotes. You should have a monthly payment of at least 6000 shekels on this loan (if your payment is less than this scale, contact me now about refinancing into a more responsible loan).

[If your payment is too low, your debt will grow more rapidly than you are paying it off. There are several ways to deal with this problem, a different one will be appropriate for each case, but they are all more expensive than the cheap loans.]

The same people who want to save the 100 shekels a month usually also prefer to pay around 4000 shekels a month for the same loan (instead of 6000). If you are in this position, I urge you to reconsider your purchase decision. The banks love giving you a cheap mortgage. It's where they earn the most. You may save 200 shekels a month in a virtual saving while your debt grows.

There are other reasons why the last thing you want to do is go into your bank. Some are available here. Many tricky mortgages such as for construction-by-owner projects and new home purchases leave the banks plenty of room to make back any small concessions that ostensibly they made to you along the way.

Even if you think you are comparing oranges to oranges (the same loan type) in different banks, you're not. We don't choose a bank based upon who is cheapest. When are you likely to refinance? What is your payment schedule? How old are you? Different banks are good at doing different things. Choosing cheap usually means choosing inferior.

By the way, we're not cheap either. The services of a professional advisor are expensive. You can go to your bank at no perceived cost. You can get free advice on the internet. Or you can pay a professional to make sure that you are not getting yourself in to all sorts of trouble.

In other news, the Bank of Israel didn't have to change the interest rate. They just issued $2B in bonds. The bonds were over-subscribed by $7B. They should have offered a lower interest rate on them. As these were thirty year bonds, the massive over-subscription shows that the there international markets have great confidence in the Israeli economy.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Now is more than likely not the best time to buy an investment property

2013-01-01T11:38:00.002+02:00

I haven't written much over the past few months. There isn't really a lot to say. I find that I'm turning away about 4 out of every 5 people who are interested in a mortgage. While this isn't very good for my business, it is the right thing to do as too many people have bitten off way more than they can chew.

Real estate prices are too high. They aren't artificially high, just good old supply and demand too high. The cheapest "normal" flat costs 1.5M shekels. Regular people can afford neither the down payment nor the monthly payment on a mortgage on the remainder.

A few months ago the Banking Supervision Department of the Bank of Israel changed the current regulations on new mortgages by publishing a draft recommendation. [The Supervisor of Banks doesn't really have the authority to dictate policy to the commercial banks, so they publish drafts and recommendations instead of actual policy papers. The last time the Supervisor dictated anything was in 2006 and that was more about life insurance than mortgages.]

If you prefer to trust me rather than reading the actual document, the regulator limited the loan amount that you can take out on an apartment. They also warned that they'll go even further if they fail yet again to artificially deflate the price of real estate. If you are buying your family's home you are now limited to 60% financing. If you already own a home, you will be limited to 50% financing.

As with all of the previous regulations, while this sounds good, it will back-fire. As I've written many times before government intervention will make the situation worse, not better (also try clicking on the regulation tag on the right). Instead of lowering real estate prices, this regulation will cause them to further rise. As regulation causes it to become more and more difficult to purchase a property, fewer people buy homes and the competition for rental properties grows. Higher rents make investment properties more attractive, but now only the rich can afford them. Rather than improving the lot of the middle class these regulations make it harder and harder for them to ever buy a property. The ONLY solution to high real estate prices is a massive liberalization of the building regulations (see previous link).

David Zaken,
Supervisor of Banks

I have little doubt that if this regulation doesn't change soon, we will see the development of alternative financing mechanisms that will be more expensive and less secure than mortgages. In the meantime plausible workarounds are few and lead to dangerous situations.

Back to Shlomo Homebuyer and Moshe Realestate-Investor. The mortgage banks are interpreting the Bank of Israel's draft recommendation differently, some more strictly than others. We can get a little more flexibility from the banks for our clients, but there are few cases where getting more flexibility is actually in the client's best interest.

With the current regulations, we are recommending that our clients should invest in real estate if and only if they meet all of these criteria:

They can pay 50% of the purchase price in cash. No workarounds, no alternative financing methods.
They can afford a payment of at least 650 shekels a month per 100,000 loan. More is better.
They aren't dependent upon the monthly rent to make the mortgage payment.

If you meet these criteria, then Israeli real estate is probably a very good investment for you. This is particularily true if you are willing to invest in a few interesting places that look very promising over the next ten years. Given the current worldwide investment alternatives, a few apartments in Israel looks like an attractive investment. The next best bet in the world is negative-yield German bonds. While that sounds like a good idea, German bons are issued in Euros, so you might want to think four times before buying them.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Regular payments, not windfalls

2012-08-29T20:40:00.000+03:00

The newspapers are full of the news: housing prices continue to rise, mortgage lending is at an all time high in Israel, affordable housing is more of a pipe-dream today than it was a year ago. (Housing prices have actually increased less than the consumer price index for the last year, which means that while the nominal price of housing has increased, its real price has decreased very slightly).

A few months ago the screams were all about the price of rentals. This is the natural corollary to the increase in the price of housing. People can't afford to buy, so they are forced to rent, bidding against other renters for the same apartments and pushing the prices up.

In Rishon Letzion a 4.5 room house that costs 3.5M NIS fetches a monthly rent of 6000 (this sounds like a lot, but a 2% annual return is generally not considered a great investment). Say you somehow had a ton of money and were able to buy this same house with only a 1.5 million shekel mortgage, you lucked out and inherited 2 million. You would still have to pay at least 8000 a month for mortgage and related costs. A monthly payment of 10,000 would be a much better payment.

Windfall means that the wind knocks down a whole bunch of

fruit at one time. If you know it's coming, you can prepare by
spreading out blankets under the tree. Otherwise you'll be wasting
good fruit.

So how are people managing to buy houses? These numbers aren't for some special exclusive neighborhood in Rishon, these are standard prices for standard homes in the old neighborhoods, or for an apartment in the newer quarters. Perhaps these apartments are nice, but certainly far from exclusive. These are fairly normal numbers that normal people are paying.

Most people make horrible mistakes and get the cheapest mortgages available. The banks love this, as the cheapest loans are the most profitable for them. Instead of paying 8000 or 10000 a month for the loan here, they will get a loan for only 6000 shekels a month.

With a loan like this, you aren't mortgaging your home, you're mortgaging your soul. People justify the loans by irrational assumptions about their future earnings. If you know that you have a verifiable windfall coming in at some future point, we can plan for it and build an affordable mortgage for you that takes this into account. However, if you are basing paying off a loan on wishful thinking, think again.

Mortgages are dangerous.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Breaking a broken system

2012-07-05T16:16:00.000+03:00

I haven't written here for some time because I get tired of repeating the same things.
Our system is broken. All of the attempts to fix it have been based upon the ridiculous idea that government, any government, can solve supply and demand problems through some magical formula. They can't.

Real estate prices are too high. The government has tried myriad ideas to alleviate the problem to no avail. In the meantime all that we have are higher real estate prices and much higher rents. I wrote about this inevitable outcome a year before any social protests were contemplated, read it here Bank of Israel regulations will cause higher rents.

The cost of borrowing was too low. The regulator of the banks came up with a great idea: let's limit the borrowers to only expensive programs. The results are that a huge portion of mortgages are now being made in the worst possible types, indexed to inflation for long amortization terms.

Then they came up with an even better idea, just regulate expensive loans. The only problem with this is the Golden Rule of Economics--supply and demand trumps regulation. The regulator made loans of more than 60% loan to the value of property more expensive. It didn't work.

Now comes the worst idea yet: limit mortgages to 60% of the value. How many people have 40% of the value of their house in cash? This isn't going to cause real estate prices to go down, it will cause the grey-market for loans to flourish as people take out loans at two to three times the mortgage rate to make up for the gap between their down payment and what the bank will give them. Since these loans can't be recorded under the name of the purchaser, a new industry for quiet loans will develop.

More bad news: the banks just figured out a way to make the best loans much more expensive. You should be closing any loans as soon as possible before they get to be expensive.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

New home sales up 17% in April - Globes

2012-05-31T15:41:00.000+03:00

New home sales are up, and the prices are remaining stable. What happened to the plan for cheap housing?
New home sales up 17% in April - Globes:
If you read the article, you will see that the inventory is also increasing, which is very important.

In the meantime the Euro continues its freefall. I think that it still has long way down to go. Your best investment strategy right now might be to buy an Israeli property with Euro-indexed debt. Not for everyone, but a great idea for many.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

mixed signals, high prices

2012-05-04T14:30:00.000+03:00

There continue to be many mixed signals about the real estate and mortgage markets. Here is a quick summary, and then my analysis.

Key points:

The amount for mortgages in March has increased greatly (up over 14%).
The average mortgage loan taken has increased greatly.
The Bank of Israel will take measures to ensure that real estate prices don't drop.
Home sales are still down sharply, and only a fraction of what they were a year ago.
The Bank of Israel core lending rate remains stable at 2.5%, and the prime rate remains 4%.
Inflation in March was announced as 0.4%.
Israel is entering an election cycle.

Doesn't it sound like some of these headlines contradict the others? The secret is that a huge portion of mortgages being taken right now are for bad money. Banks have made more loans, but not necessarily for real estate.

Good money is for the purchase of real estate. The mortgage banks are fine with all sorts of loans, so long as they go to the purchase of real estate. The purchase of a residence, mortgaging your home to help a child or parent to purchase, and even the purchase of investment properties are all considered good money. Home improvement loans are also OK. Taking out a mortgage on your home to finance a business is shaky. Taking out a loan to cover debt is bad money, and while it is certainly attainable, it comes at a much higher price. The increase in loans isn't because of a sudden increase in property sales (see #3), but rather because people are being forced into increasing the debt on their homes to cover their other debts.

Nahala Home Mortgages usually doesn't deal with bad money. You don't even have to pay for a consultation with us, to get this valuable advice about covering debt with a mortgage in Israel. By employing the strategy that we outline there, we make sure that our clients get OK conditions as opposed to bad conditions.

My analysis:
We are in the midst of a vicious, self-feeding cycle of high real estate prices. All regulatory efforts, by both the Bank of Israel and the Ministry of Housing, have only exacerbated the situation and caused both rents and real estate values to rise. This cycle will continue for some time. Prices haven't fallen because high rentals make investment properties more attractive. Recent regulations have made it even harder to get a mortgage, meaning that more people are forced to seek rentals, keeping rents too high, making investment properties even more attractive.

A year ago I wrote a piece on how the government could alleviate these problems. I outlined a plan to reduce real estate prices. Unfortunately, none of these straightforward items have been implemented, and the sorry efforts at trying to fix the situation only make it worse.

We don't see any real way that there will be a profound reduction in real estate values. While banks are making loans for bad money, they would much prefer to make loans for good money. Right now we are able to get good loans for those purchasing.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

What's up at the CBS?

2012-04-02T08:46:00.001+03:00

It seems that one of my favorite stalwarts, the Central Bureau of Statistics has been getting it wrong with its-methodology for calculating the unemployment rate.
Globes has an excellent summary of it here: Unemployment rate revised to 6.5% - Globes:

I'm just wondering what other miscalculations they may be making. I'm especially concerned about inflation. I just don't believe that we had 2.6% inflation last year. I don't believe that there was no inflation last month. I think that the inflation figures will also be revised some time soon, and at that point anyone with an indexed mortgage better take cover.

Ugly days are ahead.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Horrific tragedies and rent prices

2012-03-29T12:55:00.003+02:00

I'm sure that everyone heard about the horrific tragedy in Rehovot a few days ago. If you didn't, here is a link: האב ניסה להציל את ילדיו מהאש - ומת עמם - חינוך וחברה - הארץ

Rehovot Fire, official fire department photo

Under normal circumstances, a tragedy like this would cause a horrible outcry. Take a look at the picture of the appalling dwelling that went up in flames. This was a temporary structure with illegal makeshift electric and other connections. Nobody should be surprised that such a tragedy occurred. We should be thankful that there are so few stories like this.

Rehovot is not alone in this story. There are tens of thousands of not-legal dwellings in the country, if not more. In this particular neighborhood in Rehovot, almost every house has a caravan or has closed in a parking space to be an additional apartment. Be'er Sheva, Bat Yam, Tel Aviv and Netanya are notorious for the number of regular apartments that have been divided into several dwellings. In Jerusalem and Bnei Brak it's hard to find an apartment building without any non-code additions, and make Rehovot look like the epitome of the building code. Even in my beloved almost tranquil Mazkeret Batya more than a few parking spaces have been converted to rented units.

So where is the regulator? Where is the enforcement arm? How come the whole country isn't in an uproar over multiple families occupying single family dwellings? This is the results of a chronic lack of sufficient apartments. Ever since last year's disastrous mortgage regulations, it has become harder and harder to buy a home. Don't misunderstand me, these makeshift dwellings have been around since long before the bank regulators, however the situation has been exasperated by the lack of real estate transactions in the past year.

[As a complete aside, the arnona (municipal tax) calculation could be amended immediately to alleviate at least a portion of the problem. Right now, there is a straight tax based upon the dwelling size. This makes it more attractive to rent out a unit in your house when the tax has already been paid for. If instead they took something like 400 shekels + 2 shekels per square meter and started over for each unit, there would be a more realistic calculation of costs. Three families use more municipal services than the one for which the tax was intended to cover. There is something inherently unfair about these non-approved dwellings.]

Were the laws and regulations enforced, we would see a huge increase in demand for rentals. As the government is already trying to find a way to reduce rents, this is not on anyone's agenda. But what happens if there is another incident, God forbid, like the one in Rehovot. People get excited about the cost of a candy bar or a tub of cheese, but they could care less about the safety of young children? I at least hope this is not the case. As the implication of protesting these dwellings is raised rents, it's hard to see anyone taking to the streets.

This is a situation that can't be maintained indefinitely. In the long run these dwellings need to be either shut down or regulated. More than likely a combination of both will be the result. In both cases, it means that rents need to rise. I know that rents are thought to be really high right now. However, I don't see any way they won't go up compared to inflation in the next ten years.

While this is counter to the current market direction, I believe that now is the best time to be investing in rental properties. This is true for long-run investors and not for people looking to make a quick turn around.

Don't do anything without consulting your Israeli Mortgage Expert first.

Just the tip of the iceberg

2012-03-22T16:29:00.004+02:00

The Bank of Israel continues to misrepresent its drastic market interference.
Here in Globes, בנק ישראל: קיפאון בנטילת משכנתאות חדשות בפברואר - גלובס: they are quoted as saying there was "only" a 1.3% reduction in the amount of mortgages taken. While the newspaper rightly points out that this is over a third off of last April, they all fail to realize that this is only the beginning.

I'm in a mortgage bank a few times every week. They're empty. They've been empty for months. So where did the 3 billion shekel in mortgages come from? Mostly these are executions of loans taken out months ago. Many times people will purchase a house "on plans" and make payments over time. Many real estate transactions are also executed over a period of months. The mortgages that we are being reported upon now are mainly old money, not new. In the coming months we are going to see a much smaller number.

What does this mean for you? More than anything else, it means that the banks are hungry for your business. Because they have fewer clients coming in, they are trying to make more money on each. But with the proper Israeli Mortgage Expert advising you, you can get a mortgage that will be fantastic for you.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Israelis investing in US real estate primer

2012-03-14T15:30:00.001+02:00

Jason Myers, an Israeli and American licensed lawyer wrote a piece that I published on my Hebrew blog. I'm not going to translate it, but if you are an Israeli considering an American real estate investment, you should definitely read it here: important information for Israelis buying US real estate.

Florida investment home. Make sure to talk to
Jason before you buy one of these.

If your Hebrew isn't strong enough, contact Jason directly, his contact information is at the bottom of that post.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Time to refi?

2012-02-21T13:23:00.001+02:00

I thought that we were done with refinancing a few years ago. However, in the past few weeks I have learned from some new clients that the message of the refinance didn't reach everyone's ears a few years ago. One of these clients has a whopping 6.5% loan, all of it indexed to inflation. Another refinanced just four years ago, but he refinanced everything into indexed loans (after using the wonderful free consulting services of his bank).

If you haven't refinanced your mortgage in the past few years, there is a good chance that we can save you a boat load of money. Here is some basic information about refinancing an Israeli Mortgage.

If you are looking to save a few shekels a month, a refinance usually isn't worth the effort in the long run. If you are able to add a few hundred shekels or more to your current mortgage, we can probably save you a few hundred thousand shekels over the life of your loan. As always, I need to point out that the right mortgage will differ from one family to the next.

Unfortunately, since last year's drastic change of regulation, all new mortgages including refinances have to meet the new guidelines. For most refinance clients, the biggest change is that only up to a third of the total loan amount can now be in loan types that are considered highly-volatile (all those whose rate re-adjusts more frequently than every five years).

There is also a good side to this change. It is encouraging people to get loans that are better in the long-term. Some of these loans are slightly more expensive in the short-term, but are much less expensive over time.

You might save hundreds of thousands by refinancing if any of the following are true for you:

Your outstanding debt is 400,000 or more
A large portion of your loan is indexed to inflation
Your loan is more than five years old
You can afford to increase your monthly payment by 10% or more

A refinance will not be an option if you have bad credit, have missed payments or can't document your income.

Please call up your bank and ask for a pay-off report and then send it to us. We will give you a quick evaluation if a refinance is right for you. You can send it to us through our mortgage contact form.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Gas, The Dollar, and Your Mortgage

2012-02-08T15:50:00.000+02:00

It's been quite some time since I've had an opportunity to touch upon a few of my favorite subjects, and I'm glad to have this opportunity. For most of us, the news goes in one ear and straight out the other. Only a few days ago they were talking about a small natural gas discovery off the coast of Israel, with reserves of only 42 M cubic meters. If you missed it, you can read about it on the Calcalist site.

Gas Exploration by the shores
of Zion. Copyright Calcalist

Do you remember the dollar, the official currency of the United States? What about the Euro? We get hourly reports about these two. For those of you who have understandably become confused with the never-ending year story-arc of Israel's foreign currency exchange rates: the US$ once had a high exchange rate to the New Israeli Shekel and its predecessors the Israeli Shekel and the Israeli Lira. In the good years we expected a mild depreciation of our coin compared to the US currency, in the bad years we expected severe depreciation. At its height the exchange rate was almost 5 NIS to each US$. A few years ago, this trend turned itself around, and all of a sudden the Shekel was the coin to own. Since then the relative exchange rates have gone up and down. 9 months ago the exchange rate was close 3.30. Two weeks ago this rate was 3.87, as of this writing the rate is 3.69 and falling. The Euro pretty much just falls.

In the news they tell us about the effects of oil prices and reduced expectations of exports to Europe. Far less is reported about the purchase and sale of foreign currency reserves by the central bank, even though the bank publishes these reports on a regular basis. You can read the latest update from Bank of Israel here. Take a look at that link. Please notice that there is a direct converse relationship between the rate of exchange and the size of the Bank of Israel's foreign currency reserves. These reserves are actual dollars (listed in millions), not their shekel equivalent which would naturally fluctuate with the exchange rate.

If you would like to see figures for a longer period of time than available at the last link, you need not spend days understanding how to navigate the Bank of Israel's database, your humble servant has already done the work for you. Here's the graph. (Taken from this site within the BoI).

That sharp upturn in the middle of 2008 marks the beginning of the period when the shekel finally found its own feet. These numbers don't only reflect sharp business acumen that the governors of the BoI have displayed (and we are grateful for that), but mainly is a result of trying to keep the exchange rate from altering too quickly. If everyone is selling dollars because their value is declining, there could be a run on the market if the central bank doesn't step in and start buying them. If our exchange rate becomes too low, it becomes impossible to sell Israeli exports. The BoI will likely sell dollars as soon as it gets a chance.

We have also seen a few small reductions in interest rates by the BoI. As the Federal Reserve in the US has determined that they will not raise interest rates in the near future, the BoI again needs to take actions to prevent the weakening of the dollar as investors will want to buy a currency paying a higher interest rate and nobody believes in the longevity of the Euro anymore.

The connection between natural gas discoveries and the strength of the shekel is clear to me. In the near future Israel will be energy independent. We might even become an exporter of natural gas in four years. Our need for foreign currency is far diminished compared to the situation ten years ago. As our demand futures have gone down, so has the price, hence the exchange rate.

If you are looking for a cheap mortgage, be prepared for a bad fall. If you are interested in monumental long-term savings, call Nahala Home Mortgage's Israeli mortgage experts for a plan that will save your future.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Real Israeli Mortgage Rule #5--Consolidate Debt Early

2011-12-20T16:43:00.000+02:00

I haven't written a Rules article for a while. As more and more of my clients are asking about debt consolidation, I need to address this.

It is possible in many cases to get a debt consolidation loan using your home as collateral. This makes a lot of sense for many reasons: it reduces your monthly payments, the interest on a mortgage is much lower than the interest on corresponding loans and the amount of time over which your loan amortizes can be much longer.

However, mortgages are not simple, not without cost, and not quick. We also have to be more cautious than usual with the banks, as your being between a rock and a hard place is a prime opportunity for the bank to profit. Bank A is more than happy to relieve your debt from Bank B, but they see no point in offering you even their second best rates. We need to tell your story properly and bring it to the right branch of the right bank (this will differ from borrower to borrower). We still won't get you a deal like a purchase loan, but it will be under much better conditions than consumer debt.

Why are they still offering more debt?

It's amazing that we still hear the commercials on the radio encouraging us to take "just take 40K" as if it were a gift. The rates being charged are amazing, prime + 4.5, 12%, or even worse. If you have anything on "credit" from the wonderful credit card companies, you are likely paying even higher. Expect similar rates on your overdraft.

The most important part about a debt consolidation loan is that you need to get it well before you need it. The banks don't really care about your property too much. So long as you are within their lending guidelines, they'll make the loan.

What they really care about is the financial competency of the borrower. Can you make the payments? Do you have a history of missing payments? Is your credit history clean? Is this loan a one-time reset of your financial situation which will put your house in order?

It's OK if you have some overdraft. It's OK if you have some debt. However if you have been missing payments on debt, it will be difficult to refinance you into a bigger loan. If there is a good chance that you will need a loan, the time to refinance is as early as possible.

Real Israeli Mortgage Rule #5: It's OK to get a debt consolidation loan, but you have to get it before you need it.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Your mortgage and the daf yomi

2011-12-13T15:26:00.000+02:00

The page of Talmud that was studied today by Jews all around the world in the "Daf Yomi" (daily page) study system, was Maseketh Bikuroth, page 29 in the Babylonian Talmud. We started here at the very bottom of the page and continued on the next page:

משנה: הנוטל שכר להיות רואה את הבכורות אין שוחטין על פיו אא"כ היה מומחה כאילו באילא ביבנה שהתירו לו.

גמרא: ....בשלמא בעל מום משום דקא שרי ליה אלא תם אמאי דאם כן אתי למיחשדיה ואמרי, האי בעל מום, תם הוא, והאי דקא שרי לי משום אגרא

[Translation of Gemara from this site (pdf of the specific text): MISHNAH. IF ONE TAKES PAYMENT FOR SEEING THE FIRSTLINGS, THEY MUST NOT BE SLAUGHTERED BY HIS INSTRUCTIONS, UNLESS HE WAS AN EXPERT LIKE ILA IN JABNEH WHOM THE SAGES PERMITTED TO ACCEPT FOUR AS FOR SMALL CATTLE AND SIX AS FOR LARGE CATTLE, WHETHER UNBLEMISHED OR BLEMISHED.

gemara...WHETHER UNBLEMISHED OR BLEMISHED. Now, we quite understand this in the case of a blemished firstling, because in this case he permits it; but in the case of an unblemished firstling, why (does he take payment)? — The reason is that otherwise he might be suspected, and it might be said that the animal pronounced blemished is unblemished, and the reason he permits it is because he receives payment.]

Can we eat the calf? Not if we are relying upon the bank.

I never studied Torah in English. Quite frankly it looks a little corny to me. I understand the Aramaic better than I do the English. I'll try to work with what I have here. We are discussing whether or not it is OK to eat a first-born cow after it was pronounced blemished by a paid expert. Why? Because we fear that the expert will feel obliged to pronounce the cow blemished, otherwise he will be endangering his business.

[If the first-born offspring of a cow or sheep is a healthy male, then it must given to a Cohen. If it has some sort of permanent problem, then it remains with the owners. Therefore it is very lucrative to have your calves proclaimed "blemished" by "experts".]

My father recently wrote to me about problems with his dentist. It seems that every time he goes for a visit they want to remove another tooth. Have you ever taken a tire into to be checked? More often than not you need to replace at least two tires if not all four if you rely upon the advice of the guy "fixing" the tire.

When you go into your bank, it is exactly the same. The mortgage clerk at your local bank is paid by the bank, not you. His interest is the bank's interest, not yours. Despite whatever kind of nonsense they may say in their radio ads, they are trying to sell whatever products are the most profitable for the bank, not for you. Unlike us at Nahala Home Mortgages, where we get paid exclusively by our clients. Our only interest is the client's interest.

If you are considering taking on hundreds of thousands to millions of shekels in debt, this is not the time for cutting corners. Don't rely on your bank's advice, and don't rely upon what you heard from friends or read on the internet.

Every case is different and needs to be planned differently. You should always consult your qualified Israeli Mortgage Advisor before you make any decisions.

Limit your exposure to the Euro with a home in The Land

2011-11-17T13:09:00.001+02:00

Greece was just a prelude. As I have been saying for years, and repeating every few months, the Euro is a mess and getting messier. Greece's economy is minuscule compared to big countries like Italy. When Greece has problems the world is concerned. When Italy has problems, the world shivers with fright.

Greece's economy, according to official EU stats, is around 2.5% of the Eurozone, or 1.8% of the EU member states. Italy sports the world's 8th largest economy, 17% of the Eurozone, or nearly 13% of all of Europe. You can play around with the numbers yourself at Eurostat, the home of European statistics. The specific numbers that I used are available here. If you are an American or a former American think that Greece is like Rhode Island, and Italy is like California.

Greece and Italy will have new governments. Both countries are offering economists in an effort to calm the world. I won't pretend like I know who these people are, I only know what I know from the press. Italy's Monti looks like exactly the type of Eurocrat that got us into this mess to begin with. His main accomplishment in life was in developing and strengthening the Euro and in suing Microsoft. As I write these lines he is preparing to introduce his first lot of reforms to the Italian Senate. The yield on Italian bonds just went back up over 7%, meaning the markets have little faith in his success.

Greece's new man is Lucas Papademos, another economist who features great accomplishments such as being Greece's version of Stanley Fischer and a proud vice-president of the European Central Bank. [Meanwhile Greek students continue to violently protest. They ask for "Bread, Education and Freedom". I don't know if this translates well. I think they mean "freedom from" as in freedom from responsibility, working, etc., rather than "freedom to" such as freedom to work, freedom to prosper, freedom to disagree with the leftist mob, etc.]

These guys have come to bury Europe, not save it. Who got them into their mess? What did their central bankers do while Europe spent the next two generation's income? If these are the guys who are going to save the Euro, I say jump ship as soon as possible.

Let's say you have an Israeli mortgage which is indexed to the US$. At this point I really can't guess what is going to happen in the short term with the shekel-dollar exchange rate. My feeling is that the dollar will rise slightly only because the Euro is crazy and the dollar is regaining its luster as the coin of reserve. If you have income in dollars, I would probably leave my mortgage indexed to dollars because of uncertainty. Most other people should consider refinancing into mainly shekel based loans.

Italian olive oil. Olives are the sleeper
statistic that we should be watching.

But what do you do if you live in Europe, are a proud member of the Tribe, and are concerned about the solvency of your Euros? Can we protect your savings?

All members of the Tribe should have a home in The Land, and we pray that they will have the courage to eventually live here full time. A lot of our brethren from European Babylon have already purchased a home in The Land, most of them paying cash. Most of these homes are currently worth a whole lot more Euros then they were when purchased.

Here is my suggestion: buy additional properties in Israel. Transfer some money to Israel, or you can even mortgage a property that you already own here. For most properties, the payments on a 50% loan-to-value mortgage can be covered by a typical rent.

We have a huge variety of mortgage types available that will help protect your investment and balance out market uncertainties.

Don't try to protect your money by just buying a flat in Israel. Protect your money by buying two! Buy each of them with a 50% mortgage which will be paid by the incoming rent. Not only will you be protecting your money, you will be preparing for your future. Once you eventually come Up to The Land, the additional flat will provide you regular shekel income, a place for your kids to come live.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

So much for not slipping on the Greece

2011-11-01T11:54:00.002+02:00

It sure didn't take long for the Greeks to not save Greece.
http://mobile.nytimes.com/2011/11/02/world/europe/markets-tumble-as-greece-plans-referendum-on-latest-europe-aid-deal.xml
They're going to take a referendum. The question will be:
Would you rather:
1. Adopt really tough austerity measures, getting less while paying more, and save the Euro and Greece's good name. OR
2. Default on your sovereign debt, continue milking the next generation until complete collapse (it won't take long with no ability to borrow), destroy the euro and enjoy another short period of the easy life.
I'm taking bets on number two winning the referendum.

What do you get if you take away 500 and add 1000?

2011-10-27T16:29:00.004+02:00

The title is not a trick-math question. The answer is that you get 500 more.

In this case the 500 is billions of Euros.

EU leaders have announced that they have made a deal to "save" the Euro.

Here is a summary of the plan as I understand it:

The Eurocrats think that the economy is one big game. It isn't a summer camp game

or a reality television show, it is the real world and their silly climate and socialist games

are ruining lives. It shouldn't surprise us to see the state of their economy.

The European Financial Stability Facility will be increased by a 1 Trillion Euros. At the same time, banks will erase half of Greece's debt. This means that banks will erase 500 B in Greek bonds.
[Somehow the Greeks thought that this was not a good deal for them. It's kind of like a bank saying to you, "You can't make your mortgage payments because you're spending too much money on ski trips, cigarettes and a 4x4 that's never been off road, no problem, let's just say you owe us 500K instead of 1M."]

How many Euros are there anyway? We have different ways of measuring the supply of money. The most appropriate to answer this question is the measure called M3. You can see the official amount of Euros in existence in this document, published by the European Central Bank. If you scroll down to the very bottom of the document, you will find the number we are looking for: 9,817,812,345,678 more or less. They are going to wipe around 500 B off of this number, whilst adding 1T at the same time. So in the end, they are diluting the flimsy Euro by 5%.

In the very short-run, this will bolster the Euro and the stock markets. They have already factored in the possibility of a Euro-collapse, so a 5% dilution seems like good news.

In the long run, it is really bad news. The way to deal with Europe's crushing problems is a massive roll back of socialist programs. Instead, occupiers and rioters want an increase in social programs, and governments will have a hard time replacing socialism with freedom. If it costs them 5% just to set tiny Greece right, what will happen when Italy or Spain fails? How much will they dilute their coin then?

Europe has stymied economic and scientific growth through superfluous regulation. They have sacrificed innovation at the alter of European Cooperation and bad science. Rather than printing money, why don't they just ax this ridiculous program, 500K saved! We can easily find another 1000 such programs and save Greece much more easily.

Climate change and green jobs have squandered hundreds of billions and crushed economies. If you don't follow US news, try googling "Solyndra". This is just one of a long list of examples that would be hilarious if they weren't true. Unfortunately the story in Europe is far worse.

The road to recovery will not be easy. It will probably be impossible to undo all socialist programs quickly, but they need to start. More importantly, they need to remove the artificial barriers that have crushed European science and industry. Can they do it? I think not.

The Euro continues to be crud, and we continue to believe in its long term crudiness.

Who should refinance now?

2011-09-22T16:11:00.002+03:00

Is it time to refinance? For many of our clients, the time may be right.

For most of you in the middle of the road, this is the time to stay put. If you want to save a few hundred shekels a month, now is not the time. However, if:

You know that you are happy and that there is little chance that you will want to refinance any time soon. Or,
You don't mind a speculative short term play that you might have to refinance some time soon. Or,
You have a relatively small loan to your home's value and you want to use your equity to buy an additional property.

This could be a very good time to refinance, for vastly differing reasons. I will only discuss the first two here. If you are interested in using your equity to invest in foreign real estate, please read this post.

Falling Euro, copyright The Independent

The real estate market is standing still right now. If you hear the banks quoted in the press saying something like there is "a 20% reduction in new mortgages" you should know that they really mean an 80% reduction, but are afraid to exasperate the market that has been profoundly funked by the tent protests. In the meantime, the tents have rolled up, but there are still very few real estate transactions and the banks are still empty. Ironically, the socialist-despised market forces of supply and demand are making the banks compete for borrowers and are pushing down the costs of some mortgage types.

There is a huge however here: the change of rules by the Regulator of the Banks means that comparable mortgages to what you now have may no longer be available, especially if you are one of our long-time clients. For instance, if your current mortgage is 80% prime rate, you will only be able to have 33% of your loan prime after a refinance. However, we can currently get superior prices on non-indexed fixed rate loans. Right now these loans are being sold at under the long term average of the prime rate. If you are fairly sure that you won't be moving again, these loans are probably right for you. As always, it is critical that we manage the loan.

The second group can take advantage of a steadily weakening Euro to reduce their debt. As before, you can only take up to a third of your debt in a highly-volatile loan. However, the Euro might disintegrate. I have been talking about the Euro play for four years now. On Oct. 1, 2007 I wrote that it was a good idea to get Euro linked mortgages. Let's say that you took out a Euro indexed loan at the time that I wrote that piece. If you had a 1M NIS loan with interest only payments, you would currently owe 873K NIS. If you took the same loan indexed to the US$, you would now owe 940K NIS Compare this with the same loan indexed to inflation you would now owe 1.14M NIS.

Has the Euro completed its slip? I think not. I see no way that there will be any long term strength in the coin. Did you see where Italy was asking China to buy its bonds before being downgraded? It's so bad that countries like Brazil are lecturing Europeans about responsibility. See here: Brazil's Mantega: Europe Must Save Itself.

I think that there is a real chance that the Euro might slip 20% over the next year. This is a great time for us to get you a loan indexed to the Euro. Your debt will dissipate together with the Euro's value.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Do the banks and Super-Sol really differ?

2011-09-19T17:45:00.003+03:00

The Marker newspaper recently did a piece about the prices charged by the same chain in different locations. It was fascinating. You can even read it, translated into English, here:
Super-Sol charges more in Dimona than in Ramat Gan

Super-Sol deal, just like the bank

They wasted no effort on an easy story. They didn't compare your local Super-Sol Sheli to the mega Super-Sol Deal out in the hangar center or to some local discount chain. No, they were comparing similar stores in the same chain in different locations. The existence of these daughter chains is an example of price discrimination, a tell-tale sign of monopolistic power, where the supplier takes a different price from each customer.

It is easy to understand that there are some local conditions that can lead to variance in prices, like the high cost of rent in the city center or the high cost of bringing products to distant stores. (The burden of delivery to the retail site falls on the manufacturer or importer in Israel.) This in no way can explain why a store with expensive Ramat Gan rent has prices 30% higher than in Dimona. Only (lack of) supply and (no lack of) demand can explain this. Each store tries to maximize its profits according to the local market conditions and will vary their prices to make as much as possible from each customer.

The banks are no different. Each branch office tries to maximize its profits. You do yourself no favors by going to your branch. In fact, you are likely doing yourself a gross disservice. The bank is trying to increase its profit, not to serve.

However, as opposed to groceries, you don't buy a mortgage every week. If you live in Dimona, you're not going to go to Be'er Sheva for a package of crackers. Super-Sol knows this, so they charge you 30% more. The banks also want to do something similar, but we won't let them. We work with a few select branches spread across the country where we can get our clients the best deals. The chances are that this will not be your branch or the branch closest to your house.

If you haven't already read my post on the real rules of Israeli mortgages, please do.

Contact your Israeli Mortgage expert

You can't time the market, but you can buy verified not swampland

2011-09-08T16:03:00.004+03:00

You can't time the market. We never know when the markets hit the bottom or the top.
What we can do, however, is try to identify trends and when they reverse. There are trends in prices, exchange rates, inflation and salaries.

In Israel, real estate prices have been going up for some time. First the prices of exclusive properties went up, and then regular properties caught up with them. Right now, the market is more or less standing still. We're all waiting for some amazing government program to magically reduce the cost of real estate.

The only way that prices will substantially go down is to build a lot more. Eventually, this will happen. At some point we are even likely to see the building of too many units that will cause a big stall in real estate prices. But for now we expect to see real estate prices standing still.

In the long run, real estate prices tend to increase in line with inflation. At times the real estate prices increase more rapidly than the general inflation index, at times real estate prices increase after the general prices, but in the long run prices go up and real estate is not markedly different from consumer price index. (Housing costs is a major contributor to the CPI or מדד in Hebrew. The precise percentage of housing costs in the CPI changes from time to time. Currently, it is responsible for 20.7% of the total CPI.)

So let's say that you are sitting on a nice piece of Israeli real estate and want to take advantage of the increased value of your property-how can you do it? For most people, it is no longer the time to purchase a local investment property. For most people, this should be limited to under-priced markets.

For most people, I think that the time has come to invest in foreign properties. I know that this is counter-intuitive, and ostensibly appears to contradict my last post, but for some people this makes a lot of sense. It looks like your home value has reached a local peek. It looks like the shekel exchange rate is beyond a local bottom. It looks like in some areas abroad real estate prices have bottomed out.

Specifically, I think that Florida's Gulf Coast is a great opportunity for Israelis right now. The real estate prices in the Miami area have already started improving, thanks largely to Europeans snatching up under-priced properties. I think that the Gulf Coast offers better return on investment than the Atlantic Coast with prices still very low.

There is plenty of room for prices to increase, and in the meantime your current ROI is more than enough to cover the cost of a loan to buy.
This is an area that is very nice, and will always be a prime retirement and vacation location.
There is a large number of affordable housing, including condos which are easier for the absentee land lord to maintain.
The area is readily accessible from The Land, only about an hour's drive from Miami International.
There are lots of professional property management companies in the area.

We don't know what is going to happen with the exchange rate. The trend looks like the shekel weakening against the dollar. (If the Americans have an additional stimulus program or something this could change the short-term trend.) I hope that we can return to normalcy, with an exchange rate of 4 slowly depreciating over time. This means that taking out a shekel loan while getting dollar payments is a good deal in the long run.

Here's an example property for you, a condo in Estero, Florida. [For the sake of posterity, here is a screen shot of the listing that will inevitably be changed at some point.] This condo is selling for $40K. You can get $823 a month for this property. Let's use some conservative estimates and say that you lose a month every year between renters and have to pay the property mangers 14%. This still is leaving us with an annual return on investment of 18% a year. If we take everything that is left over, say $7500 a year, we can completely pay off a purchase loan (mortgaging your Israeli property) after only 7 years just from the rent.

This beauty sits on 2 dunam of prime real estate in Kalamazoo,
Michigan and can be yours for only $50K. Listing

Some caveats: this should only be done by people who in the worst case scenario can write off a bad investment. This should only be considered by people who owe a third or less on their own home. I don't believe in investments via newspaper or internet ads. Fly to Florida, look at properties yourself and decide what you want for yourself. Meet different property managers, speak with the locals. I think that there is no point in getting one property, but buying two or three in the same area makes a lot of sense.

There are other areas in the US where the prices are even cheaper than Florida. In Michigan you can get a house for $30K, but I don't think that it makes sense for Israelis. There might be additional markets that have a lot of the same advantages as those of Florida, it is only a great example of how you can get your house to work for you.

Play around with the map above. Check out sites like zillow to find target areas where you might be interested. If you want to get approved for a loan before you go to Florida, please contact Nahala Home Mortgages.

Coming soon: does the Euro have a bottom?