Is It Worth Buying a Key Money Apartment?

You see an ad for an apartment in central Tel Aviv priced at $110,000 and rub your eyes: can this be real? It can. The listing simply forgot to mention that the apartment is sold for key money.

So what is key money, Israel’s form of rent-controlled tenancy, and is buying a key money apartment a good idea?

We put the question to five lawyers chosen at random, all of them practicing real estate law, and asked each one whether buying a key money apartment is worthwhile, and why.

In this article, we asked nine lawyers who practice real estate law for their opinion on one question: is it worth buying an apartment for key money? The answers were anything but uniform.

Is it worth buying a key money apartment? Worth it.

As a lawyer working in Tel Aviv real estate, my answer is an unqualified yes. Apartment prices in Tel Aviv are among the highest in the world. Young couples and young families who love the city and do not want to leave it live in rentals, forced to move every few years and often to switch neighborhoods too. Buying an apartment for key money does not make you the owner and comes with real restrictions, but it lets you live in the apartment for the rest of your life without ever having to move again.

Is it worth buying a key money apartment? In principle, yes.

In the center of Jerusalem, in the old, prestigious neighborhoods, a fairly large number of apartments are still home to protected tenants. Buying an apartment for key money is a legally sound transaction, since in most cases the Tenant Protection Law protects the protected tenant’s rights.

So is it worth it? That depends on your circumstances and your needs. If you prefer the older city centers, where key money deals still happen, you lack the means to buy an apartment outright and register it in your name in the Land Registry, and you want a permanent home you can enjoy until the end of your days, then a key money apartment is worth it for you.

Is it worth buying a key money apartment? Not recommended.

On paper, buying an apartment for key money guarantees you a home for life, but in certain cases the property owner can still remove you from the protected property on legal grounds listed in the Tenant Protection Law. Before you commit, review the law, consult an experienced lawyer, and check the grounds for eviction of a protected tenant. If you doubt you can meet all the conditions the law sets for a protected tenant, a key money purchase can be a risky deal for you.

Is it worth buying a key money apartment? Not recommended for older buyers.

Remember that when you pay key money you are not buying the apartment, only the right to live in it. If you are older, keep in mind that in many cases you cannot pass that right on to your children unless they lived with you in the apartment for at least six months before the protected tenant’s death.

Is it worth buying a key money apartment? Not recommended for young families.

One of the restrictions on a protected tenant living in a key money apartment is the ban on renovating without the owner’s permission. Want to close in a balcony to give a teenager some privacy, split a large room into two smaller ones, or expand the kitchen? You will need the owner’s consent first. Owners of key money apartments want the units vacated so they can rent them at full market rates, so do not expect them to make your life easier. Many will simply refuse to cooperate on renovations.

Five more lawyers joined the panel; two of them recommended buying an apartment for key money and three did not.

So is a key money apartment worth buying? Here is what the numbers say:

The bottom line: is a key money apartment worth buying? Most of the lawyers say no.

Key money transactions have nearly disappeared, yet several hundred still close every year, mostly in the older sections of large cities. Opinion among lawyers is split; most of those we asked felt that buying an apartment for key money is not the right move for everyone.