Last Updated on April 9, 2024

Buying property in Israel is incredibly difficult. According to a recent study, Israel is the second least affordable country in the world when it comes to buying real estate!

Just how unaffordable? If you put 5000 ₪ per month into a savings account earning 3% interest, it would take over 20 years of consistent saving to afford the down payment on a property worth 2M ₪ today. Which would still leave you with a monthly mortgage of over 13,000 ₪ (in today’s money).

Despite all of this, you probably know many people who own property in Israel. How did they do it???

(All amounts below are presented in today’s money to account for inflation over time. We have used 2% real property growth and 5% real stock market growth. This article is not investment advice. Past returns are no guarantee of future returns.)

Option 1 – Start (very) young

If you’re aged 13-25, this section is for you. If you have children aged 25 or under, it is your job to pummel these lessons into their developing brains and help them implement it.

Compound interest is most powerful when you start young. Let’s take Odiel, an 18 year old who was always conscientious about saving. Odiel puts away a portion of his income, knowing that any money he saves today will grow. The following table itemizes his savings over the years:

Age	Savings
Chisachon Lechol Yeled from 2017	50 ₪ /m
Bar/Bat Mitzvah	8,000 ₪
Savings from presents	1000 ₪ /yr
Working / side hustle from age 16-18	500 ₪ /m
Job for 6 months before army	3000 ₪ /m
Savings during the army, 18-21	1000 ₪ /m
Savings while single aged 22-28	5000₪ /m + Keren Hishtalmut
Family savings while married 28-33	3000₪ /m + 1 Keren Hishtalmut

Odiel managed to save over 1M ₪ by age 33, by consistently putting away what he can monthly. A good portion of this growth came between ages 22 and 33, but it’s important to remember how crucial the first 10 years were. This period not only contributed 170K ₪ to the final sum, but it instilled in Odiel the skills, habits, and determination that he needed to succeed. By the age of 33 (15 years from now), Odiel will have enough money for a 2M ₪ property (35% down payment, 9,500 ₪ mortgage payment):

Without any family help and without any large windfalls (inheritance, bonus, employee equity), Odiel will manage to buy the kind of property that today is worth 2M ₪.

Option 2 – Increase family income & invest

If you are bringing in a net family income (after taxes and deductions) of 20-40K ₪, you may be able to save 5-10K ₪ per month. This is the kind of savings rate you will likely need in order to save up for a 2M ₪ + property.

If you are not earning at such a high rate, what would it take to increase your income? This is an important question to ask yourself. Saving enough money each month is key to being able to afford to buy property without external help.

The next step is deciding where to invest/save that money. Let’s examine the two most popular options:

1. Depositing it into a savings account. A good savings account (“pikadon”) can earn significant interest – around 4.5% as of May 2023. However, these rates are often below inflation. This means that your money is still losing value. More significantly, the rates are usually significantly below the rate of growth of the property market. As time goes on, the money in your account can buy less and less of a property. It’s akin to throwing money into a money chest with a small hole on the bottom. You may be able to throw money in fast enough for the chest to fill up slowly, but it won’t be easy.
2. Investing in low-cost index funds. Low-cost index funds give you cheap access to the stock market. The stock market has historically given an annual return of 8-10% per year. However, this has come with short term volatility. When you invest for one year you historically have a 25% chance of losing money. Investing for 5 years gives a 13% chance of losing money. Over 15 years, there is a close to 0% chance of losing money, based on historical data. If you want to buy in the next 3 years, steer clear of index funds. If you have 4-7 years of saving ahead of you, you should consider index funds only if you are prepared to delay your house purchase in the event a major market crash leads to an unfavorable result during your specific time frame. The last thing you want to do is pull out your savings during a crash. For an investment of 8+ years, index funds are certainly worth considering.

Depending on your savings rate, you may not be able to save enough by leaving the money in a savings account. If you are in this position and decide to invest the money in the stock market, the key to succeeding is patience, consistent saving, sticking with your investment plan, and maybe a bit of luck. Although investing your savings may be the best shot you have at getting to the required balance, you will be sacrificing some control over the timeline. You should prepare for this practically and emotionally before choosing this path.

Let’s bring an example of investing your savings and then buying once you have enough money. Assume we would like to buy a 2M ₪ property. We start with 100K ₪ savings, add 10K ₪ additional savings per month, aim for a 35% down payment, and receive 8% return from low-cost index funds:

Within 5.5 years, we save 900K ₪ and are ready to buy! The monthly mortgage repayment will be 8,000 ₪.

Here are some other scenarios that can also work:

Years of saving required to purchase a 2M ₪ property:

	Low-cost Index Funds	Pikadon
10,000 ₪ saved /month	5.5 years	7 years
5,000 ₪ saved /month	10.5 years	16.5 years
2,000 ₪ saved /month	21.5 years	∞

Or in the form of a chart:

The difference between keeping the money in a bank savings account and investing it in the market can be dramatic. In fact, those extra years don’t just delay your goals. The longer you have to wait, the more expensive the mortgage repayment becomes (since the property price is expected to increase over time).

Years of saving required to purchase a 3M ₪ property:

Here we are also assuming a 35% down payment, however this implies a higher mortgage repayment than in the previous example. In order to bring the mortgage down lower, you would need to save for more years than presented below:

	Low-cost Index Funds	Pikadon
10,000 ₪ saved /month	9 years	16 years
5,000 ₪ saved /month	16.5 years	∞
2,000 ₪ saved /month	32.5 years	∞

It is worth stressing that regardless of the strategy, the key with this option is patience, consistent saving, and smart investing.

Option 3 – Start with an investment property

Buying an investment property can be another great way to grow your wealth in order to eventually purchase a family home. An investment property has some distinct advantages over stock market investing, as well as some clear drawbacks:

Pros:

• Lower taxation in many instances, particularly if it is your only property.
• Lower volatility. The market has typically been more stable, especially in Israel
• Leverage. The mortgage multiplies your invest and allows you to get to your goals faster.
• Higher correlation. Being in the Israeli real estate market can make planning and timing your future purchase easier.

Cons

• Greater effort and hands-on work
• Associated costs (purchase costs, maintenance etc.)
• High down payment
• Not liquid. Can be difficult to sell at your desired price when you need the money quickly for a down payment.
• No diversification
• Lower return (when not factoring in the effect of the mortgage)

Let’s see how it can be done with the Goldberg family. The Goldberg’s examined the examples brought in Option 2 and would like to see if they could buy a 3M ₪ property in less than 9 years.

They decide to first buy an investment property, before selling it and upgrading to their dream home. In this case, their investment property will be a 3-4 room apartment in Nahariya for 1M ₪. While this isn’t where the Goldbergs want to live themselves, they found a unique investment opportunity by searching outside the center of Israel. 

After 1.5 years they will have saved 300K ₪, enough for the purchase costs and the 25% down payment. There will be a 700 ₪ monthly gap between the rent they receive and their 4,200 ₪ mortgage. The will cover this gap and 800 ₪ of maintenance costs from our monthly savings (reducing the monthly savings to 8,500 ₪).

After 7.5 years of owning the property, their balance sheet will look like this:

Asset	Value
Property	1.16M
Mortgage	(0.54M)
Selling costs	(0.05M)
Stock Portfolio	0.91M
Total	1.48M

(Reminder: These figures are all presented in the equivalent of today’s money (real terms) in order to cancel out the inflation distortion.)

After going through all of that effort we have improved our position by 50,000 ₪ (actually in reality a little over 100,000 ₪ after accounting for the tax on the stock investment). Not a bad result, but hard to justify given the extra effort.

Is it worth buying an investment property on the way to buying a family home? Here are my conclusions and additional thoughts:

• If you are looking to save for a period of 7-10 years to buy a home, investing in stocks or investing in real estate are both good options
• The better return that you would expect from stocks and the lower costs are cancelled out over this period by the power of leverage through the mortgage and the rental income.
• In reality these results can look very different, depending on your specific investment choices and what happens in each of the markets.
• Most people will likely decide between these two options by considering the effort involved in real estate investing against their feelings regarding the volatility of the stock market.
• (Many who swear by real estate investment would laugh at this example. They claim that by selecting the best apartments and taking advantages of opportunities such as פינוי בינוי, it is possible to achieve significantly higher returns than the average.)

Option 4 – Buy a cheaper home

If you are willing to move out of the Merkaz and buy a cheaper home, the whole endeavor doesn’t only become easier. It becomes exponentially easier.

This is how much upfront cash is needed to buy properties at varying price points, assuming we keep the mortgage repayment under 8,000 ₪ per month:

In order to keep the mortgage payment under 8,000 ₪, those buying a 2M ₪ or 3M ₪ property will need to put down significantly more than 25% upfront. The solution? Consider buying a place for under 2M ₪. Like this lovely 115 meter, 5 room, semi-detached (דו משפחתי) in Katzrin, going for 1.35M ₪:

Obviously not everyone is going to be willing to move out to the “middle of nowhere” in order to find cheaper housing. Just keep in mind that there are significant opportunities to get more bang for your buck the farther you get from the most populated areas of the country. Given Israel’s small size, the growing trend toward remote work, and the general unaffordability of Israel’s major cities, this isn’t an option to immediately dismiss.

Option 5 – Get family help

This article isn’t about family help, but many people do use family help or combine some to buy a home.

What can family help look like? Let’s assume you want to buy a 2M ₪ property. Here is a potential financing plan:

Property value	2,000,000 ₪
Down payment (from family)	700,000 ₪
Associated upfront costs (from savings)	120,000 ₪
Mortgage size	1,300,000 ₪
Monthly repayment	7,050 ₪

Your family is giving you 700K ₪ ($200K) and you managed to save up an additional 120K ₪. Your mortgage repayment will be 7,050 ₪ per month.

If you are a US citizen, large gifts or an interest free loan from a family member can be taxable. To set this up properly and avoid gift tax, make sure whoever is providing the financial help first speaks with their US accountant and learns more about both the annual and lifetime gift tax exclusion. Should the family member wish to give a loan rather than a gift, they should first check the minimum required interest rate (AFR) and ensure proper procedures for documenting a bona fide loan before proceeding. Personal tax advice specific to their needs is very important in this situation. 

Option 6 – Don’t buy

You can be successful financially, even without buying a home. Contrary to popular belief there can be both better and simpler investment opportunities other than real estate in Israel. Despite the peace of mind owning a home can bring to some, given the cost and hassle of maintaining a property, many people prefer to rent and instead invest in other ways. It’s important to remember that renting is not wasted money any more than interest on a mortgage is wasted money.

We created a Rent vs. Buy calculator so that you can see what is optimal for your personal situation. Click here to download the calculator.

Summary

All the options analyzed require discipline and a high savings rate. With these two things, it is possible to buy a home without family help! I have worked with many clients who have succeeded in building up their own wealth and are ready to buy a home. Regular olim who managed to save up hundreds of thousands, if not millions.

Luck often plays a role. Both in terms of the money at your disposal and where in the market cycle you happen to find yourself. Taking advantage of luck required patience and faith. If you do your part and save consistently, you’ll put yourself in the best possible position to take advantage of future opportunities that present themselves. In other words, we can create our own luck.

Summary table of the different ways to buy a home in Israel:

	Property Value	Savings rate / month	Mortgage payment / month	Years of saving
Option 1 – Start (very) young	2,000,000 ₪	500-5000 ₪ over time	9,500 ₪	21
Option 2 – Increase family income & invest	2,000,000 ₪	10,000 ₪	8,000 ₪	5.5
Option 3 – Start with an investment property	3,000,000 ₪	10,000 ₪	9,300 ₪	9
Option 4 – Buy a cheaper home	1,350,000 ₪	4,000 ₪	6,500 ₪	8.5