Since October 7th the world has become a different, often less secure, place for many Jews. At Labinsky Financial we have seen a significant spike in the number of olim inquiring about Aliyah and the financial implications on their future.
Whereas there was always a unique pull for Jews to come to Israel, choosing to leave their country of origin to live their life in the Jewish Homeland, we are now seeing Jews around the world who are also being pushed to Israel due to the rising antisemitism in their home country. Over the last 50 years Western Jews have generally been fortunate enough to choose how and when to make Aliyah, based on their specific social and financial situation. However, the current reality means that suddenly more people are considering the idea of Aliyah, even though they may not have planned significantly for such a major move. How will they know if they are adequately prepared?
If you have family or friends abroad who are discussing their possible Aliyah, the short and incomplete answer is that if their retirement plan shows that they have saved enough to live comfortably in their home country, then there is a high likelihood they will have enough to also live comfortably in Israel, with one exception … the high cost of real estate in Israel means that buying a home is not necessarily a straightforward decision, and can have a major impact on their Aliyah financial plan.
Buying real estate in Israel with limited funds
The price of local real estate, which has begun to rise sharply again, after a few months of price lags, makes it increasingly more difficult for first time buyers to enter the market. This is true whether they are new or veteran olim. While historically real estate has risen 3-4% a year on average, this number has increased over the last decade.
For new buyers with little resources, the higher prices make it very difficult to enter the market. This leaves families with more limited options, which include the option of long-term renting, or buying in the periphery where real estate prices are cheaper. There are more creative options like investing in speculative agricultural land, and praying that it will be rezoned, in the hope that it will be possible to buy or build a home at a reasonable price, but that must be recognized for the gamble that it is. If you are considering any type of speculative or innovative option, you need to check very carefully that there is nothing fraudulent going on. (See my recent article ‘Can you guarantee your secure financial future?’ for points about investment fraud).
Whereas new communities are being established with a cheaper entry price for entering the market, you will need to be willing to move outside the major cities and relocate to smaller yishuvim (villages). If that is an option that you would consider, you need to research and ensure that the services that you need, e.g. education and health, are available within a proximity that you find reasonable.
For those entering the market with savings, an inheritance, or proceeds of selling real estate abroad, the big question is whether to enter the market or invest your assets. Investing your money might allow a better entry point (after a pullback in the real estate market), or give your assets an opportunity to grow at rates higher than the growth of local real estate. If you are bringing money from abroad, more favorable currency rates might also work in your favor. If you are unable to enter the market without seeing one of these phenomena occur, you will have no choice but to try and grow your savings so that eventually you can enter the market.
Increasingly, there are many borderline cases where you might be able to afford to enter the market, but you need to put an increasingly higher amount of your savings into the downpayment and/or monthly mortgage payment. Or maybe you feel that you can’t afford not to be in the housing market as you age. Renting long term without the stability of knowing where you will live can be stressful. Moving rentals at the whim of a landlord, is increasingly difficult as you get older.
Investing vs. buying as a financial strategy
Buying a home has a huge psychological/emotional component, in addition to the obvious financial commitment. Often people want to feel settled in a property they own, which they can call their home. However, there are those who choose to invest in the financial markets rather than a home as part of their long-term investment strategy. Rather than tie up substantial funds in a property in Israel, where rental rates are relatively cheap as a percentage of the price of real estate, investors choose the financial markets to try and achieve their medium- and long-term goals. The Bank of Israel periodically issues statistics showing that investing in the financial markets often gives higher returns than investing your money in the residential real estate market. But of course, it’s not risk free or guaranteed. If that suits your personality and financial situation, the investment option is one that you should consider.
How to prepare yourself financially with limited funds
If the investment track is not relevant, here are some points to consider if either you have just made Aliyah and are considering how to buy a home, or you have family or friends abroad who would benefit from some guidance.
- Carefully put together a retirement plan, looking at all your assets, sources of income in the future, and expected expenses to see what exactly you can afford. If you are close to retirement, this process should be easier to accomplish. If not, then you’ll need to make some predictions to make your decision easier. If you can’t do this on your own, consult a professional.
- Look for long-term rental options to reduce your risk if you do decide to rent. There are some projects in different locations that specifically offer long-term rentals. In addition, there are many absentee landlords in Israel who are open to this type of arrangement. It gives the tenant stability at a minimal cost and is often a win-win arrangement.
- Is there a place to move to where you could afford to buy or at least rent long term, like a smaller community in the periphery or a smaller but livable apartment in the community you are comfortable in?
- Consider your relationship and the circumstances of your extended family. Are there backup options available to move closer to them? If you are close to retirement or in that age bracket, do you have a support network of children or other family members that you could fall back on? Might there be an option to live in a ‘granny flat’, or receive support from your kids or move in with them? Families have been supporting patriarchs and matriarchs for generations and you might need to revert to that option, at least as a backup plan.
- Understand what your exposure is to long-term care. Are you insured? Do you have backup resources for unexpected expenses? Do you need access to your financial resources on a monthly and yearly basis, and are unable to lock up a large amount of your savings in your home? If yes, then renting may be the only option for you.
- Would you consider moving into an assisted living facility? Even if you don’t know where and when you would make the move, evaluate the big picture of how you would need to fund the move and consider its implications on your renting decision.
Living in Israel is a wonderful and meaningful experience, but it often requires psychological and financial adjustments. With proper planning you can set yourself up for success and live a fulfilling life, whether or not your home is a purchase or a rental.