In Favor of Small Apartments

Years ago in Israel, most of the apartments built were small ones with just one or two bedrooms.  Indeed, I know many people who raised several children in a one-room flat. Today such apartments are a rare commodity. In the past ten years most of the new apartments built have four or five bedrooms as families choose to live in larger apartments.

Many of these one or two room apartments later became small offices for lawyers or accountants. Offices like these were very prevalent, for example, in the area around Ibn Gvirol and Weitzman Streets in Tel Aviv, an area close to the Tel Aviv courthouse and very convenient location for law offices. Such offices were granted special permission by the municipality to operate their businesses in a residential building, receiving a special permit for five years with the possibility of an extension for another five years.

However, as more and more office buildings began to crop up all over Tel Aviv these small offices began to disappear.

Recently, we have been seeing a reemergence of small apartments on the market. Smaller apartments in the center of cities are very attractive to single people and elderly couples.  These are people who want to be in the center of the city and enjoy all that the city has to offer but don’t want to pay a lot of money for the purchase or the rental of a large flat.

Many of these smaller apartments take the form of a former storage unit on the ground floor that was later turned into an apartment. Many apartment owners took larger apartments and divided them into smaller ones, and others are the same small apartments built years ago as mentioned above.

The fact that these small apartments are a rare commodity in today’s Israeli real estate market makes their prices per meter more expensive than larger apartments. However, the rent that can be gotten for them is also higher per meter than larger apartments. This fact makes the return on an investment in a small apartment in a good location around 4.5% to 5% a year.

This is considerably better than the return on investments in larger apartments which can be 3.5% a year. Renting these small apartments to tourist can bring in even higher returns.