"I found the apartment with the help of a real estate agent," Ronen says. "I didn't even negotiate with the seller. The price the agent asked for was very low because of the low demand for apartments in the neighborhood, and because the apartment belonged to a couple that was getting divorced.
"I fell in love with the neighborhood because it reminded me of Neveh Tzedek in Tel Aviv. There are only three streets in the entire neighborhood, running crosswise along the sea. Ha'aliyah Hashniya Street, which bounds the neighborhood, is located 300 meters from the sea. Most of the buildings are low - up to four floors - and there are ground-level buildings designed in an Arab style."
How do you expect to benefit from your investment?
Ronen: "I look for properties that will produce capital gains rather than income properties. I expect to realize a monetary profit from the apartment after prices increase. My policy is not to buy an apartment in order to profit from renting it out.
"My expectation that prices will rise in Bat Galim derives from its location on the shoreline. The neighborhood was built in the 1920s, many years before the enactment [in 2004] of the Law for the Protection of the Coastal Environment [permitting residential construction at a distance of 300 meters from the shoreline]. As a result, the houses in the first row of construction next to the water are simply built on the beach. Moreover, in Haifa, unlike many other seaside towns, prices actually decrease as you descend from the Carmel hills toward the sea."
Investors in some apartments have managed to earn handsome profits by subdividing them into a number of residential units. Ronen has no interest in doing this: "I had the option of subdividing the apartment into four units to collect monthly rental fees of $1,800. I preferred not to do that for two main reasons: first, division into four units would cost about $30,000-40,000. You must invest personal capital in that, and I prefer to use my capital for investments in additional apartments.
"The second reason has to do with sales. Right now, I can sell the apartment to a family or to investors who want to divide the apartment. If I divide it, I am precluding the option of selling it to a family."
What risks do you identify in your investment?
"As far as I am concerned, there is no risk except time. Prices in Haifa have been dropping for two decades, and I believe they have reached rock bottom. The only question is how much time it will take before they increase."
What has changed for better or worse since you purchased?
"A total of half a year has passed, but I see in advertising and in discussions with realtors that prices in the neighborhood have already begun to rise. An apartment like mine on the same street was recently purchased for NIS 610,000."
What is the annual cost of the property?
"The monthly mortgage payments are NIS 2,100. As a government employee, I received preferred conditions: prime rate minus 1.6 percent."
What are your annual earnings from the property?
"I rent the apartment for NIS 2,340 monthly [NIS 20,080 annually]. Altitude is significant in Haifa, and residents prefer to live on the mountain rather than near the sea. Thus, rent is relatively low."
What is your profit strategy?
"There are two options: subdividing into four units and selling to an investor as an income property, or waiting for the value of the apartment to increase and selling to a family or an investor who wants to subdivide the property himself. In an investment, I look for capital gains of at least $30,000. If the gains are less than that, the transaction is not worth it because of supplementary costs and taxation.
"I know that this is an interim-range investment. To reach the goal of $30,000, I have to wait at least until 2010."
What did you learn from the transaction?
"It is difficult and stressful to enter a market in the first or second wave of investors. The advantage is purchasing while prices are rock-bottom. On the other hand, no one knows when and if they will increase. It is much more difficult than investing in Bat Yam, for example. I bought an apartment there at the beginning of 2006, and there is a real housing crunch there that has raised the prices of apartments. One might say that my investment in Bat Galim is almost romantic."
Do you consider an investment like that to be some sort of gamble?
"One might say I am betting that the price of real estate in Bat Galim will rise, but I feel very good about the investment. I believe that the risk is offset by the fact that the price of apartments cannot go lower. In the worst case, they will remain as they are now, and that is also not a tragedy because I know that even now I can realize a profit."
Do you plan to engage in another investment of this type?
"Of course. I believe my next investment will be in Costa Rica."
What advice can you give to other investors?
"My rule of thumb is to examine whether monthly rental fees cover monthly mortgage payments. That provides a safety net that reduces pressure. Purchasing a heavily financed apartment produces high monthly mortgage payments that generate stress. That can cause the investor to negotiate poorly when selling the house. Rental fees allow for the restraint required to wait for prices to increase and for a good opportunity in which to sell."
