Israeli Real Estate Scam Targeting Frum People


real-estateBy Tzvi Kaufman,

I am a real estate principle in the United States. I have been investing in low income properties for about 30 years. I have recently received calls from individuals in Israel who were considering investing in low income single family homes in the US. It is clear that the investment has no possibility of returning any profit at all; hence, this article.

Negative Factors Concerning Investing in Single family Homes in minority neighborhoods in the US


Why will most banks in the US not give a mortgage on ANY single family home that is not owner occupied? Why do all banks require borrowers to sign a document that the buyer of the house himself lives in the house? The answer is because in general, single family homes are risky as an investment property. Often, the house income will not be able to pay the expenses (taxes, water, repair, and heating system maintenance) even without any mortgage on the property. And that is if there is a reliable, good tenant. The vacancy factor is the key risk factor in a single family home investment. Israel does not have a vacancy factor. As a result many people in Israel have been fooled into buying single family homes in the U.S. as an investment.


In the U.S. the value of a single family home traditionally goes up very slowly, as there is so much land and it is not expensive to build. However, home prices can drop dramatically if banks get concerned about lending; if there is no available financing, housing prices drop very quickly. In areas where there has been a price drop, houses can sell for as little as $10,000, with neighborhood values changing sharply within a few small streets. An overseas buyer stands little chance of assessing true value without being on location.


There is relatively little lending to owner occupied housing in minority neighborhoods. The government has tried to force banks to lend in such neighborhoods. A very high percentage of minorities have poor credit. If buyers cannot get a mortgage, the other option is to buy for all cash. Buyers with poor credit tend to not have too much cash on hand. This is why the prices in minority neighborhoods are usually less than half price of houses in middle income neighborhoods.  The hidden vacancy factor is far greater for a minority home than a home in a better neighborhood.


Often, the only way to rent a house in a minority neighborhood is by renting it to a minority tenant. These tenants will rarely pay more than $700 – $800 per month rent. It is not at all uncommon that tenants stop paying the rent altogether and need to be evicted. This is especially common in areas with many vacancies such as Ohio, Michigan, Buffalo NY, Chicago, Tennessee, etc. These are the primary areas that are being sold to unwitting Israeli investors.


Generally landlords don’t begin the eviction proceedings until a month to six weeks have passed without payment. If the lawyer moves quickly, the eviction itself takes about another 4-6 weeks and costs $800-$1200 for the lawyer and another $500 to the marshal to execute the eviction. Given the above amounts, at a $700 monthly rental, landlord will have a loss close to $3000 at the end of the eviction process, and this only when the landlord has someone that is making sure that the eviction goes quickly. Generally the loss is $4000 or more. Even in a case when a tenant vacates without being evicted, minority tenants always stop paying rent months before they actually vacate. Always.


Once the tenant leaves, more money is required to prepare the house for the next tenant. It is never possible to rent without first putting in money for repairs. Single people or couples generally don’t rent houses as they cost more to maintain. Usually houses are rented by families with children, and damage does occur. Statistically, minorities move once every 14 months!  An overseas investor is at the mercy of the manager to get the repairs done.  Every month lost is more loss of income.


In general the minimum cost for repairs of a vacated house is $2500-$4500, upon finding an inexpensive contractor. The repairs can take two or three weeks to commence and complete if someone is overlooking the job, and the contractor is found on short notice and ready to begin immediately. After all this, it takes another 2-3 weeks to find another tenant, who needs to be interviewed. Generally they don’t move in right away, and rent won’t be paid for at least another 2-3 weeks.  A landlord can expect a rent loss of a minimum of $2800.  Add to that $3000 for repairs and a possible $1,200 in legal fees brings the total to roughly $7,000. These figures are only if the landlord is really on top of the whole procedure. Many minority tenants are not very concerned with eviction, or leaving while owing rent, or leaving the house in terrible disrepair. Most important, how is it possible to have someone responsibly spend your money to do all this? How do you know that he cares about your money? Often, a manager will have his own repair team which he will hire, and neglect to tell the investor that he has hired himself for repairs.


At an average, unless the house is new, at least one major repair, costing between $1000 and $3000, is required per year. These repairs many times involve the heating and cooling system in the house. No tenant will pay rent if the heating system does not work. Heating systems are complicated and expensive. Painting a rented house is needed every 3 years at a rough cost of $2,500. Real estate taxes and water costs average $5500 for the year. The tenants have no incentive to save water costs. If the tenants have access to the thermostat, then when they leave, they leave an open fuel and electric bill for the landlord to pay. This can be thousands of dollars. Even without an eviction, a simple change of tenant will also result in loss of rent, turn over cost, and down time until someone new moves in. Many minorities take the landlord’s appliances with them when they move. At least this has been my experience, and the experiences of my colleagues.The above figures do not include a management fee. The average yearly costs for a single family home in a minority area considering the vacancy factor, is at the very least $10,000 per year, and usually much more.

Taxes/water                $5500

Repairs                        $1500

Bad Debt                     $1400

Turn over repair cost  $2500

Turnover down time   $1400

Downtime while looking

for new tenant   XXnbsp; 700

Management fee        XXnbsp; 600

Insurance                    $2500



These figures do not include a cost for appliances, painting every 3 years, and the costs of an eviction if needed. A monthly rental income of $700 yields $9600 total. Do the math.


Homes in the US are constructed of wood, and they are highly flammable. Homes in minority areas are prone to fires, especially if they become vacant. Additionally, minorities are known for “getting hurt ” and suing the landlord. The tenant’s lawyer is free, as the lawyer takes a percentage of the settlement. Without insurance they take the house. This adds another yearly expense to the investment. Most important, if the person presenting the investment does not mention the cost of insurance, worry a lot about what else he is not telling you.


An easy way to know if a real estate investment is being presented honestly is whether or not the seller tells the investor about the vacancy factor, which is the single biggest expense, and the expense that is easiest to hide. (This information is especially important for an investor from a country which has no vacancy factor.)


Houses in middle income neighborhoods have substantially less expenses and down time but it’s not politically correct to state this. Houses in good areas can often be good investments, not from an income point of view, but if they are bought wisely, right before a sharp rise in property value. These middle income neighborhood statistics are the statistics shown to Israeli investors.


Since a single family home in a minority area is a poor investment from an income standpoint, there are practically no investors to buy these homes. As a result, they can only be sold vacant and unoccupied to people who intend to live in them. This means that the seller needs to fix the house and maintain the house vacant until sold. Vacant homes in minority areas are very often vandalized within weeks of being vacant. Vandals break the walls floors and ceilings to steal the copper piping inside the walls, completely trashing the kitchens and bathrooms. They steal fixtures, and often damage for the fun. Sometimes homeless people move in. Besides the costs of a lawyer and broker, a contract of sale is usually for the duration of 60 days. (A house for sale in a minority area takes an average of 5 months on the market to sell. During this entire period the house must remain vacant. The contracts have a mortgage clause that the seller must maintain the house during this period, and that in the event the buyer cannot get a mortgage the sale is void and the buyer gets back his deposit forcing the owner to pay his lawyer, and put the vacant house back on the market.)


Section 8 The government has a program in which they pay for a portion of the tenants’ rent called section 8. The rents are always more than the going rental rate. These tenants are low income tenants and are very low quality people, almost always unemployed and on welfare. They often damage property, and often there is violence. The government requires that the section 8 housing be in perfect condition; if there is even a crack in the paint, or a drip in the faucet, the government stops paying their rent. You can see these rules and requirements online. Before the rent will be resumed, the inspectors need to return and inspect the house again. If they find anything else wrong they will not resume paying the rent. In some places, there are restrictions on evicting section 8 tenants whose homes are not first fixed to the government standard thereby allowing tenants to live there rent free!! Someone has to meet the inspectors and many a time the tenant will not let contractors in the house to even do the repairs.


I have written this article after having been contacted by 4 separate individuals, all of whom have been swindled.

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  1. Taxes are usually small esp in Buffalo etc. under a 1000.00 and water in most places the tenant pays such as in Phila. Insurance is also about 1000.00 a year esp if you take a bigger deductible which is if ever used.

    Most places in better areas rent within weeks and most places like Phila and NY tenent pays weater and their own utilities in full. Manegmenet fee was 4% very small so you have NO interaction with the renters or collecting rent.

    As long as your mortgage is low rate esp now with HARP 2 from Obama the rates are very low even on rental property it is stable and in most cases if you do a little research worth buying here.

    Israel has other problems such as being and entering a war long term heaven forbid which will kill the entire market for a long period like the intifada.

    Hatzlocha Rabah

    Done correctly duplexes and even single family homes can make some money esp duplexes and 3 family units.

    I have a 3 family in Philly with rent role of 900 each apartment. Taxes is 2200 for the 3 units because it is in a better area. Water sewer and utilities the renters pay. Insurance is 1200.00 a year for all 3 with loss of rent insurance included.

    SO you see that money can be made if you add up the numbers.

  2. An article like this MUST be printed in Hebrew, and we can get it into mainstream frum Israeli sites (there are plenty). Many people are notoriously naive and these scams are going on all over the frum community in EY. It would be a great chessed if you got this translated!

  3. I absolutely agree that this is a terrible scam going around Israeli communities. These ‘investors’ are going around Israel to the naive kollel families who don’t know the first thing about investments let alone the real estate market in these small towns and really taking them for a cruel ride. My brother invested his whole life savings into a couple of these homes and he dragged my mother into it too. Needless to say, they lost everything and still don’t sleep well at night. Please stay away from these ‘once in a lifetime deals’.

  4. Yasher koach to the writer for alerting people about this problem, and to Matzav for publishing it.

    I just want to note that it is a general problem, not specifically Israeli. People in the USA and elsewhere can also stumble similarly with such real estate ‘investments’. So it should be made clear that it is a general alert, to people anywhere!

  5. thank for your insights. One question though, if investing in low-income neighborhoods is such a bad idea, how have you been doing it for 30 years?

  6. I wrote the article. I paid to have it translated to Hebrew. I have been investing in multi family complexes and not in single family hiomes as its not possible to make any money with a single family home. For the Hebrew version send me an email at everybody should send this around as many frum familys have lost everything

  7. About two years ago I was told this scam was going on with Israeli investors and properties in places
    like Trenton N.J.I felt terrible but didn’t know what to do.I should of (at least) written letters in English publications hoping the information will reach EY

  8. tizku lmitzvos very nice article and 1000 percent true,I live here and lost money in buffalo you have to be very careful, dont get excited because it sounds cheap

  9. Comment from Anonymous
    Time June 10, 2013 at 4:01 PM

    About two years ago I was told this scam was going on with Israeli investors and properties in places
    like Trenton N.J.I felt terrible but didn’t know what to do.I should of (at least) written letters in English publications hoping the information will reach EY
    Comment from Rabeini Hakudosh V’hatuhor
    Time June 10, 2013 at 11:09 AM

    Such a scam has just collapsed in Trenton, NJ where Frum Israeli investors lost a lot of money.

    I heard the scam was a lot better they promised tenant for an amount of years. EG they bought a boarded up house for 5K
    sold it for 40K promised a tenant for $600.00 a month & 100.00 management fee, if they don’t bring a tenant for the first 3 years they will satisfy 500.00 a month rent, they never bothered finding a tenant because the house was inhabitable , they paid of their 5K borrowed the 35K interest free & paid back 500 a month for 3 years totaling 18K, and said goodbye after that. The buyer would either come or send someone to inspect the property which was either still boarded up or the boards off and a crime scene going on in abandoned property.
    I have warned all Israeli & any foreign family, that investments in the unknown are scams some have a hard time listening but do, others won’t listen.
    The sad part is, these are so called Chareidim could be Roshei Yeshivos & Rebbe’s children, or even magidei shiurim themselves.

  10. Answer to #2 – Noach.

    You wrote one comment that says it all: “in better areas”.
    The calls that came to me from Israel inquiring about this deal, were about single family homes in areas that you will not walk by yourself in broad daylight. Why are these brokers approaching people in Israel who dont know english or the American system and not you or me? (hint.. will you fall for it?)

  11. You are wrong. A single family house is a poor investment period. It costs at least 9k per year to operate, and even if you buy a better neighborhood, and you get a bit more rent than the expenses, the vacancy factor is the killer. One change of tenant, and you are losing money as you need to fix, deal with down time, find a tenant etc.

  12. Its George from Trenton. Anyone who sells a house to an Israeli investor that himself wouldn’t invest his own hard earned money (to keep not to flip) is “asid leetain es hadin”

  13. Thank you for taking the time to write this article. I personally receive calls all the time from people in Israel who see these great opportunity in MI and would like my advice.
    You are 100% correct that most of these deals are scams. Even if your expense numbers are a little high as one person commented. Lets say best case scenario the investor makes a return on his $40,000 single family house. Is that investor aware that the same house he just bought for $40,000 was sold 3 months ago for $15,000. Is he being told or does he realize that if he wanted to sell his “GREAT INVESTMENT” he would loose most of his CAPITAL. That is the biggest SCAM in my opinion for these naive investors who are being told OWN A PIECE OF AMERICA.

  14. While there is some truth to this, it is important to know that it is NOT all correct. Any investment is not an investment if the investor is not a real investor. Meaning, he understands the investment and market of the deal, and is in control of the risk. If you don’t “know what you’re doing”, you are not investing but gambling. This applies to ANY investment, (even multi family). There are plenty ways that single family investments CAN work.
    Additionally, I think it is wrong for the writer to assert that you do not need positive cash flow for the deal to be good. Almost any good deal, must have a positive cash flow. There is no way to know what tomorrows market will bring, so if there is a negative cash flow, you can lose a lot of money each year – even with a tenant.
    Real estate investing is something that needs to be LEARNED and understood well.
    For anyone that wants to learn the correct ideas about acquiring assets, I HIGHLY recommend reading Robert Kiosakis books.

  15. Please note, the article is speaking to Israeli investors that are not hands on and hire a manager. The houses are bought for 10k and are marketed in Israel for about 50k per house. If you live in the states and buy for say 15k and manage it closely yourself, and really keep on top of it, you can make a minimal amount of money. This article is not directed to a hands on US resident at all.

  16. I own 3 single family homes for more than 18 months now, have not had a missed payment (yes there were repairs needed for section 8 annual inspection) but I am still netting better than the initial projection – how can you say single families don’t work, it depends who is managing it!! In the area where I bought, there are comparable sales for more than double my all-in cost of acquisition and stabilization, I got a mortgage this year on one of the houses and it was appraised for 60% more than my cost.

    Bottom line, it depends what you are buying and who you are dealing with, why generalize???

  17. how can one say that single family properties are not good investments? there was a recent wall street article (did you ever hear of that) that said section8 tenants stay on average 7 years. besides there are multi billion funds that are investing in single family homes but you know better?

  18. there are scams & sammers everywhere the j&j Cream cheeze Cholov Isroel is 300% more expensive then philadelphia cream cheeze that taste much better
    IF YOU INVEST in Real estate to see results The next day then forget it no matter where in the world

  19. You are simpley out of your mind! Stop scaring people off from building something for the future. Your 30 year experiance and my 5 years experiance in low income rental market is like night and day. I can evict with a total out of pocket expense of less then $1000, it would take 27 days to evict. My rents are much much higher on averagge 1500 a month for a 75-100K invesment. I have insurance if they burn down the house, and I am very happily getting a return of 12-16% on my investment after all expenses. So quite frankly please stop making it so bad, furthermore I agree investing from a foreign country probably a bad idea not because of the expenses, but its hard to manage from afar, Period the end.

    There is money to be made, but its not going to be easy if you live so far away.

    Your article should have instead of scaring people from investing enlightened them on how to find out if the house they are investing in is actually of value. Not the $1000 house being sold for $50k.

  20. It is unbelievable that it lasted this long in Trenton.I just got a call from someone that has a relative in Israel that bought one of these houses,and just learned that the taxes were not paid for the past few years,and the property is in foreclosure with thousands of dollars owed in back taxes 18% interest,leagal fees etc.The Israeli thought all expenses were being paid by the management company that put him in the property.
    I have warned many people over the years to stay away from this obvious disaster,but some thought they were smarter.
    There is a problem that when the bubble bursts, and hundreds run for the exits at the same time,the properties will have much less value than they have now.The ideal situation woukd be to unwind the operation slowly,over 12 months,so that they can get out without losing more than 50%.
    For this article to have any effect,the names of that principals of the operation need to be publicized.Askanim in America and Israel need to work together stop the flow of new investors,and to target the middlemen in Israel that are getting the investors.
    Tzvi Kaufman should be g’bentshed for atempting to put a stop to this,but to be truly effective,you need to do what I’m advising.
    We should all hide our faces in shame for looking aside till now,and I am including myself on the top of the list.Lo S’amid all Dam R’eacha,includes another yids money,and in this case it’s his blood,since we are dealing with people who have very little.

  21. @tzvi kaufman: why do you think a low income tenant will treat your multi family property any better and pay their rent any faster???? are you trying to get Israeli investors????

  22. Investing in anything involves risk. I am one of the promoters of US real estate partner with over 60 Israeli investors. I know many of my competitors put investors in property that is overpriced, poorly located, poorly rehabbed and will only generate a loss. Many are out right scams and fraud.

    Often Israelis look at only the promised high returns forgetting the investment principle the higher the return the greater the risk. Buying cheep priced property in high risk locations promises high return but the also carry the high risk of not getting those returns.

    Well located, well purchased, well renovated and well managed property will generate attractive returns. It costs money to make money and too often investors believe there is a cheap easy way to get easy guaranteed high profit. There isn’t.

    In our investment model, we take 30% of the net profit after the sale. If the investor does not profit, we do not profit. Essentially our interests in the investment are mutual and aligned. We are motivated to buy the best property at the best price and rehab and mange to maximize long term value creation. There are those who believe 30% of profit is too much, they invest with our competitors who take 50% profit up front and they think they made a smart investment.

    It is foolish to think you cannot make money buying US real estate at 50% of replacement costs. In a city like Atlanta with a diverse and vibrant world class economy. Location, Location, Location and quality operators is the key to real estate success. To learn more visit my web site and