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Is an apartment a good investment these days? Judging from data collected by the State Revenue Administration, the Israeli public certainly thinks so: At the beginning of the decade 2,000-3,000 apartments were purchased as investments each quarter, but by 2007-2008, that figure had risen to 7,000-8,000. Local realtors in outlying areas used to get excited when someone came from the big city in search of an investment property, but now this is a normal occurrence.

TheMarker examined the investment property market in 18 neighborhoods countrywide and found annual rates of return ranging from the standard 3%-5% to double-digit figures. In Tiberias and Kiryat Shmona, rental apartments generate returns of up to 10%. In Be'er Sheva and Haifa they are 8% and 6%, respectively, while in Tel Aviv, the rate is just 3%-4%. Most of the neighborhoods that bring in the highest returns are near universities or colleges, where demand is higher and tenants are relatively reliable.

What are the reasons for the different rates of return, and is a property with a high return actually a good investment? It is easy to be blinded by the high figures and to forget that the rule "the higher the returns, the greater the risks," applies to real estate, too. Another point worth remembering is that the value of an apartment changes over the years. Even though the return from rental payments on a place in Tel Aviv is half that of an apartment in Hadera and a third of the rate in Tiberias - apartment prices in north Tel Aviv have risen 40% and more in the past four years, whereas in Hadera they have gone up by only 20%. When the resale price is taken into account, investing in Tel Aviv looks a lot more attractive.

Apartments in peripheral areas may provide higher returns from rent, but such returns also reflect the risk of price declines and of low demand, while in the major cities demand is higher and prices are more likely to remain stable.

Another risk element to consider is the type of tenants. The return on apartments in some locales may look great on paper, but if the tenants are problematic when it comes to paying rent - the promising returns disappear.

Even so, the gross returns from rent alone are an important factor when deciding to buy an apartment for investment. The following survey provides essential information for potential investors.

Average annual returns: 3%-4.5%

In contrast to Tel Aviv's image as the country's real-estate, in recent years real estate investors have been fleeing this city - and justifiably. Apartment prices reached unprecedented levels, drastically reducing the returns on rented ones. If prices drop significantly, however, investors who are quick off the mark will be back, as no decline is expected in demand for residential rental housing here.

Investors who are putting money into Tel Aviv apartments are doing so almost exclusively in the southern neighborhoods, such as Florentin and Shapira, and sometimes in Jaffa. These are the only quarters in which 1- or 2-room apartments can be found for less than NIS 800,000 and rented for up to NIS 3,000 a month - thus providing a return of 4.5%. Such deals however, are becoming rare.

In the city's northern neighborhoods, returns of 3.5% on rental apartments are already considered high. Four- or 5-room apartments carry a price tag of NIS 2 million, and can be rented for an average of NIS 6,000 a month, generating a return of about 3.6%.

Average annual returns: 3.5%-4.5%

Like Tel Aviv, apartment prices here have risen sharply in the past few years, making an investment in residential real estate less worthwhile. Local realtors say that two or three years ago, returns of 8% were realistic; today, an apartment that provides a 5% return sells quickly.

Here, and throughout the Dan region, 1- and 2-room apartments have the highest potential for good returns. In the past two years prices for such apartments on Haroeh St., for instance, have risen; the latest hot spot is Jabotinsky St., where 2-room apartments are selling for NIS 700,000, and can be rented for up to NIS 3,000 a month. Owners have begun to realize the potential in their properties, however, and bargains are hard to find. Another neighborhood where investors can obtain returns of up to 5% is Ramat Amidar.

Average annual returns: 6%-7%

Purchases of investment apartments in Haifa doubled in 2007-2008, and there are a few neighborhoods in this city and the surrounding towns that are in high demand these days. The prominent advantages of this region are the proximity to the University of Haifa and the Technion - Israel Institute of Technology, whose thousands of students need rental housing, as do staff at the Rambam Hospital and students at the Technion medical school, both located near Bat Galim.

One of the most popular investment-property neighborhoods is Givat Amos in Nesher, located southeast of Haifa and near the Technion. Most of the apartment blocks were built 20-30 years ago here, and asking prices range from NIS 250,000 for 2-room apartments to NIS 450,000 for four rooms. Rents range from NIS 1,500-NIS 1,700 for the small apartments to NIS 2.500-NIS 2,700 for larger ones.

Ramot Remez, situated between the Technion and the University of Haifa, is considered the best location for investors in Haifa. The apartments there were built in the 1950s and '60s, and demand is highest for 2- to 4-room places. Three-room apartments cost NIS 400,000-NIS 450,000 and fetch average rents of NIS 2,000-NIS 2,400 a month.

Bat Galim has become a new target for investors, mainly from the center of the country, in recent years. Three-room apartments there cost NIS 300,000-NIS 350,000; monthly rents range from NIS 1,500 to NIS 2,000.

Average annual return: 4%-5%

Demand for rental housing is pretty tough throughout Jerusalem. Naturally, some neighborhoods are more popular than others, mainly the ones near the university campuses. But even far-flung areas aren't scorned. One of the biggest hits lately among investors is Armon Hanatziv, where returns can total 5% on small apartments. Recently a 50-square meter apartment that could be leased for NIS 2,800 a month went for NIS 560,000, but a deal that good is rare.

French Hill has always been popular for investment purposes because of its proximity to the Mount Scopus campus of the Hebrew University, but returns there are around 4%. Katamonim and Kiryat Yovel are also popular: There, 2-3 room apartments can be had for NIS 800,000 on average, and leased at a return of 4% to 4.5% a year.

Average annual return: 10%

The best neighborhood for investment in Kiryat Shmona is Sprinzak. Granted, it's dotted with dowdy old buildings, but there are intriguing opportunities for investors there. While prices are low, demand runs high due to proximity to the Tel-Hai Academic College. A 3-room apartment can be purchased for NIS 180,000 or even less. Rent on a 3-room apartment is around NIS 1,500 a month, while a 4-room apartment will be NIS 1,800.

Average annual return: 10%

Tiberias' real-estate market is all but dead. Prices in the lakeside city have plunged for years now and there's hardly any construction, the outcome of which is that there are almost no deals being sealed. Renters are generally poor local people, often subsisting on government handouts, who can't afford to buy their own place. But there are 3-room apartments going for NIS 120,000 to NIS 130,000 in Tiberias (some owners will hold out for more), and rent can total NIS 1,000 to NIS 1,200 a month.

Average annual return: 4%-8%

Investors have been targeting the capital of the desert for years, because Ben-Gurion University of the Negev assures tenancy and because housing prices are dirt cheap.

The neighborhood nearest to the university is Daled, but Bet and Gimmel are close enough. A 3-room apartment in any of these neighborhoods will cost NIS 250,000 to NIS 300,000, but that's in non-renovated, old-style developments. You can get NIS 1,600 to NIS 2,000 a month in rent.

In the older neighborhood of Ramot, east of the university, returns for investors are lower, around 4%. The properties there are usually two-family houses originally 60 square meters in size. As building rights were added, however, many were expanded to 130 square meters. They're popular among faculty and students with "wheels."

The apartments investors target cost NIS 750,000 to NIS 800,000, and rent is about NIS 2,500 a month. Some landlords have split apartments into tiny units to maximize their returns, but that is generally an illegal practice.

Average annual returns: 4%-6%

The areas investors most like here are Amalia and Kiryat Sharon in the east, near the Academic College of Netanya, and the city center. Apartment prices are low and these areas are popular among young couples.

A 3-room apartment in Kiryat Sharon will cost NIS 850,000 and can be rented out for NIS 3,000 to NIS 3,200 a month. In Amalia, housing is cheaper: NIS 700,00 to NIS 750,000 for 3-room apartments that can be rented out for NIS 2,500 a month, representing returns of 4.1%. In the city center, apartment prices are about NIS 500,000 to NIS 600,000, fetching a rent of NIS 2,500 a month.

Average annual returns: 6%-7%

A three-room apartment in the city center or in Beit Eliezer will cost anywhere from NIS 300,000 to NIS 500,000. Tenants will usually be young couples, who pay around NIS 2,000 a month.

Average annual returns: 4%-5%

Though it's a seaside city, Ashdod is not a classic focus of real-estate investment, because it has no clear "magnet" - no university, for example. But its status has been improving and housing prices have risen nicely.

Ashdod had been a favorite among foreign investors seeking vacation homes. As the global financial crisis struck, however, many people who purchased apartments (notably, near the marina) abandoned the city, which led to sharp decreases in housing prices. Prices in the marina are still about 20% higher than elsewhere in the city, so it's still not a great bargain for real-estate investment.

Instead, the most popular areas for this are, naturally, where housing is cheapest - in Ashdod's Aleph, Daled, Heh, Vav and Het neighborhoods, where you can find a 2- to 3-room apartment of the type sought by young. A 2-room place will set you back NIS 450,000 to NIS 700,000; a 3-room apartment will cost 15% more, on average. Rent in these areas runs from NIS 1,700 to NIS 2,000 for 2-room apartments, and NIS 2,300 to NIS 2,700 for a 3-room apartment.

Average annual returns: 4%-4.5%

Housing and rental prices have risen sharply in Rishon Letzion, mainly because of the College of Administration there, which is helping to attract a younger population.

Although its rental market has been improving, the city still isn't popular among the investment community, because of the sharp increase in housing prices. That said, favored areas among investors are the cheap areas in the west - Sharett, Katznelson and Abramovitch, where you can find a 2-room apartment for NIS 600,000 to NIS 650,000; a 3-room place will cost NIS 700,000 to NIS 800,000. Apartments like these can be rented for NIS 2,300 a month (2 rooms) to NIS 3,200 a month (3 rooms), on average.

In Rishon's eastern section, investors prefer Neve Hadarim and Bilu, where 3-room apartments go for NIS 900,000 and rent is NIS 3,500 a month.

Average annual returns: 4%-4.5%

The Herzliya rental market can promise investors steady returns, but no more. Demand for housing in the seaside city, home to high-tech and the Interdisciplinary Center, is intense, while supply is low, mainly because there's hardly any housing construction going on. The trouble is that because housing prices are so high, the returns can't be high, too.

Still, the favorite area for property investors here is Weizmann, by the Seven Stars mall. There are small, relatively cheap 2- to 3-room apartments for NIS 600,000 to NIS 900,000, which can be rented for NIS 3,000 to NIS 3,500 a month.

Also, Herzliya residents are pushing for urban renewal plans these days, although the municipality may not be as eager as they to implement them.

In the rest of the city, housing prices are so high that buying for investment purposes doesn't pay.

Average annual returns: 7%-10%

Ashkelon is quite unlike its northern neighbor Ashdod, in that housing prices haven't risen much in recent years, so there are plenty of apartments for investment purposes still available. But there are two obstacles here - and they're big ones: low supply and the distance from central Israel.

The two neighborhoods on which property investors focus are in Ashkelon's south: Shimshon and Atikot. Yields there can run anywhere from a conservative 6% to a high 10%. The favorite apartments for investment are 3 to 4 rooms, which cost anywhere from NIS 250,000 to NIS 350,000 on average, and can be rented out for NIS 1,700 to NIS 2,000. Smaller 2-room apartments can be found for NIS 230,000 on average; rent is NIS 1,500.

In Ashkelon's north, in Afridar and Barnea, apartments are costlier and returns are lower, around 4% to 4.5%.

Average annual returns: 6.5%-7.5%

These cities are where the cheapest apartments - i.e., those with the highest potential returns - can be purchased in central Israel.

Ganei Aviv in Lod has 5,000 residents, most from the former Soviet states. The neighborhood has more than 400 "special" apartments of "3 rooms + 1," which can be legally divided to include a stand-alone living unit. The price of a 3+1 apartment is about NIS 450,000 and the two units can be rented out for NIS 2,400 a month, which means returns are about 6.5%, gross.

A 3-room apartment in Lod might cost NIS 350,000 and command a rent of NIS 2,000 a month, or a return of 7.5%.

Look closely at Ramle and Lod, and you may well find investment opportunities generating more than 7.5%. Prices in Ramle tend to be a tad higher than in Lod, but rent is higher, too, so the bottom line is about the same. And for what it's worth, almost everybody who buys an apartment for investment purposes in either of the cities lives somewhere else.

The following people assisted in the preparation of this article: Chen Ohayon, franchisee for Reshef Properties in Ashdod; Meir Shasha of Five Real Estate Advisors in Rishon Letzion; David Levi, franchisee for Anglo-Saxon Real Estate in Herzliya; Oren Cohen, a realtor at Century 21 in Jerusalem; Remax Hazon, Jerusalem; Ronen Shiraz, Ashkelon; Ronen Sheetrit, franchisee for Anglo-Saxon Real Estate in Lod; Avi Levkovitz franchisee for Anglo-Saxon Real Estate in Nesher; Carmel Aveda of Carmel Properties in Haifa; Yehuda Amir of Barak, Be'er Sheva; Hanan Dadon of Merav Properties, Kiryat Shmona; Yigal Mizrahi of Tivuch Tzafon, Tiberias; Bar Avdiav, of Remax Blue & White, Netanya; Avi Koresh, of Remax Hadera; Gadi Strenzis of Gadish Properties, Ramat Gan; and David Chervonitz, franchisee for Remax VIP, Ramat Gan.