I often get the call “hey, I saw your sign on ____ and wanted some information.” After giving this prospective buyer all the reasons why this property is a perfect vacation getaway in the heart of Jerusalem, I get a response that forces me to change my strategy instantly.

The response: “I’m looking more for a good investment opportunity”.

Investing in real estate is certainly not a new phenomenon. There have been landlords since the time people actually owned property. It’s very simple: people will always need a place to live and there will always be people who prefer to rent. This is especially true in the very dynamic central Jerusalem real estate market. The central Jerusalem neighborhoods have an especially large rental population that includes students, foreign officials, clergymen, and more. The economics is simple: high demand and low supply equals an opportunity to make money. The only catch is that for such neighborhoods (i.e. Rehavia, Talbieh, Old Katamon, German Colony, etc.) the prices are so high that the actual return on the property does not yield the most attractive results. For example, we recently sold a three bedroom apartment for a million dollars that gets a monthly rental income of $2,700 per month. That is only a little over 3% per year, and that does not take into account all the closing costs.

So what kind of investment are this sign caller and so many others looking for, in these neighborhoods?

There are a few options.

The first thing to consider is the actual market. The real estate market in Israel, particularly in Jerusalem, has steadily increased for quite some time. In fact, from 2008 until the middle of 2011 prices skyrocketed to almost 49%.

2011 and 2012 seemed to be a continuation of this trend. Prices continued to climb, local and foreign investors continued to invest, and foreign buyers continued to purchase vacation homes. This is all despite the national demonstrations in the summer of 2011 against high real estate prices in Israel.

A great example of this is a property we sold last March to an investor. He then sold the property in the same exact condition in November of the same year for over $90,000 above what he paid! Now this is not something that happens every day but the right property in the right location is usually going to increase in value. Thus giving the buyer a good resale value.

Many skeptics point to the US real estate market crash that is still affecting the market as a reason not to buy in Jerusalem. I do not think that will happen here. One of the reasons is that there is only one Jerusalem in the world and the demand for properties is always higher than the supply as there are very few vacant lots available in the central neighborhoods on which to build. Another important point is that a domestic buyer cannot really get more than 70% financing on a property here in Israel, and a foreign buyer won’t get more than 50%. In other words the banks are working hard to prevent the economic collapse seen in so many other countries.

Now that the property has a good resale value because of its location and a property owner can make money selling their apartment, how does the seller maximize their asset?

Jerusalem has a real sentimental value to many foreign buyers that cannot be expressed in numbers. Owning an apartment in Jerusalem is a dream that many Jews around the world actively pursue every day. Most of these buyers are not interested in an apartment that is not in “move in condition.” Fear of working with Israeli contractors remotely dissuades most buyers from purchasing a “fixer upper” even if it means saving tens possibly hundreds of thousands of dollars. Here lies the opportunity. Today there are many reputable contractors and English speaking project managers that do professional work for a reasonable price. We recently sold a property for $1,150,000 that was purchased a little over two years ago for approximately $600,000. The renovation cost the seller approximately $150,000. In other words the seller earned about $350,000! This seller is not a contractor or engineer; he just had the foresight and seized a great opportunity.

There is another long time trend in Jerusalem that often yields a great return, and that is vacation rentals.

Hotels in Jerusalem are often overbooked and always expensive. A cheaper alternative is renting a vacation apartment. The tourist gets to truly experience Jerusalem, and the owner gets to enjoy an unbelievable return. We recently sold a four room apartment that received an average of $1,600 a week and that’s not including the holiday seasons. While the rental period is usually not for 100% of the year depending on the location, number of bedrooms, condition of the apartment, etc. a seller can get up to 85% vacancy at premium rates. For some that means a return of over 7% including the management company fee. The only possibly negative aspect to this is the toll it takes on your apartment, possibly even reducing its long-term resale value.

So if you’re truly looking for a good investment opportunity, you’ve come to the right place.