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Real Estate Investment in Israel - 5 Golden Rules that Will Save You Money

Author: Shlomi Ben Ishai
If you are looking to buy a property in Israel this article is for you. There are number of rules you should follow to ensure a successful investment.

Rule #1 – Define Your Investment Goals

A clear definition (preferably in writing) of your investment goals would help you focus your efforts in the right direction and optimize your thinking process.
When it comes to real estate investment in Israel, there are usually three main categories you should consider:
  • Residential Property: when you purchase the property for yourself or your family to live in.
  • Vacation Property: when you purchase the property for vacation purposes. That means that the property might be used only a few weeks or months per year, and remains vacant the rest of the time. In such case, maintenance aspects should be considered as well.
  • Investment Property: when you regard the property as a money-generating asset, usually used as a rental property or fixer-upper projects.

Rule #2 – What Is Your Budget?

This may sound like a trivial thing to do but you will be surprised how many people skip this fundamental step. It is important to clearly define your budget and be well aware of your financial limits before you get emotionally tied to a certain property. That alone can save you loads of money! There are two aspects to consider:
  • Property purchase price (including purchase tax, attorney’s fees, currency conversion fees, real estate agent’s fees, and miscellaneous costs.).
  • Annual maintenance costs (taxes, bills, etc.).

Rule #3 – Do Your Own Research

Before buying the property it is recommended that you talk to the local people and learn as much as you can about the area. The more you ask the more you know and the less surprises you will have along the way. Here are some questions you should bear in mind:
  • What is the condition of the property? How much work and effort is required to meet your goals?
  • What are the social-economic characteristics of the population in the area?
  • Who are your neighbors?
  • Recommended schools in the neighborhood?
  • Access to major highways and means of transportation?
  • What is the potential for a value increase in the neighborhood?
  • Check the proximity to the sea, major cities, tourist attractions and other places of interest. This will have an impact on your property value for the long term.
  • How far is the nearest shopping center, family attractions, sports club? What activities and organizations are available in the area?
  • What are the annual taxes you should expect to pay?
  • Are there any hidden costs associated with the property or the neighborhood that you did not take into account?
  • Examine the rentals in the area; learn about the tenants profile and the average monthly rental payment for a similar property.
  • If Hebrew is not your mother tongue, see if there are English speakers in the neighborhood.
  • If you are a religious person, see if there are houses of god nearby (synagogues, churches, mosques).
Think outside the box, address your questions to people who are not trying to sell you anything, so you can get the most honest answers. Listen to your gut feelings – if it doesn’t feel right, there must be a good reason for that – don’t rush.

Rule #4 – Understand Your Financing

The next step is to decide how we are going to finance the purchase of the property. You can either pay the full amount in cash or, as most people do, take a mortgage. Nowadays there are mortgage counselors, and it is worth consulting with them prior to making a decision.
All mortgages in Israel are linked to a particular index or to a foreign currency. The three principle types of mortgages are:
  • A mortgage linked to the consumer price index.
  • A mortgage linked to the prime rate.
  • A mortgage linked to a foreign currency (Dollar, Pound, Euro, etc.).
At this time the average interest for the various types of mortgages is around 5%-6%.
If you wish to receive a mortgage above 60%-70% of the property value, it is necessary to purchase insurance for payments above 60%, generally known as EMI. The cost of EMI is very high, about 4% of the value of the loan. Due to its high cost, it is not recommended.
There are a few other financing costs, which should be taken into account:
  • The bank charge for processing the mortgage is approximately 0.25%.
  • Life insurance and building insurance are required.
  • The cost of registration of the mortgage/lien in the Land Registry/Lien

Rule #5 – The Devil Is In The Details

Real Estate Lawyer - You should hire your own lawyer who is knowledgeable about the city in which you are buying your home. It is not recommended to use a friend or family member. Make sure you never sign a contract with a builder without a lawyer.
Property Inspection - You should have the property checked by a licensed and reputable engineer or surveyor before you sign the contract and receive a written statement. The cost is approximately $400-$500 plus VAT, depending on the size of the property.
Sold As Is? There is a clear distinction between a new and a used property. Generally speaking, used properties are sold as is, meaning that the seller is not obliged to fix flaws unless otherwise mentioned in the purchase agreement, whether these are known or hidden flaws. However, when purchasing a new property, the contractor is obliged to provide a three years warranty by law, and in addition, the civil tort law gives another 4 years.
Purchase Agreement - Before the purchase agreement is signed it is desirable that everything has already been agreed upon so that it is all included in the contract. It is important to have an English translation of the agreement as well as all of the principle documents attached to it. It is important that the buyer’s money be protected as required either by means of registering a caveat or registration of mortgage or by means of a bank guarantee.

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About the Author:
Shlomi Ben Ishai is the owner and general manager of Nadlan-Plus, a top Jerusalem real estate Israel firm, offering luxury apartments in Jerusalem and properties across Israel.