Category: Blog Posts

Making the Most Out Of Your Holiday Home In Israel

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If you own a holiday home in Israel and rent it out on a short-term basis, you may be losing money and missing out on better Israel vacation options.

Israel’s short-term rental market is volatile – owners may only be able to rent their properties during the holiday seasons, and a disruptive event like last summer’s war can wipe out half of their annual income. Property owners are responsible for paying the annual city taxes, building fees (va’ad bayit) and utility bills (water, gas, electricity) for the entire year. They must rely on their property managers to recoup these variable costs by calculating the correct bills for each tenant.

It is often difficult for owners who live abroad to verify when their property is occupied, and whether the management company is collecting and reporting all the income due to them from each short-term tenancy. Long-term rentals, by contrast, cover all the owners’ expenses – taxes, fees and utilities. The income is steady and can be more easily monitored because you know what to expect.

We usually advise the owners of properties in Israel to rent their property on a long-term basis (for at least a year) because these tenants are more reliable than holiday-makers. Once the owner has a long-term tenant occupying the apartment, they can use the money they earn to spend their vacations in Israel.

An average apartment in Central Israel rents for 4,000+ New Israeli Shekels (NIS) per month, totaling at least 48,000 NIS per year. You can actually earn up to 61,200 NIS income per year (approximately $15,000) before you become liable for Israeli taxes. Since all the other costs of the apartment are covered by the tenants, your costs are minimal. With the income that you can earn from your rental property, you should be able to afford luxury all-included vacations in the top hotels in your favorite Israeli cities – Jerusalem, Tel Aviv, Herzliya, Eilat – wherever you choose!

At Creative Estates, we provide monthly and annual financial reports for every rental apartment, so you always know how much money is in the bank for you to spend during your next Israel vacation!

To speak to Creative Estates in complete confidence about the advantages of switching from short-term to long-term rental of your property in Israel, contact Shaun@CEIsrael.com

The Secret of Good Property Management

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“Why should I pay a property management company when I can manage my property myself?” We know that some people resent spending part of their tenants’ rent money on management fees, but we truly believe that we add value and increase the profitability of their property.

A Canadian man who owned property in Israel received a call from his tenants about a leaking pipe, so he called his Israeli insurance company. Two weeks later his tenants sent him photographs of the insurers’ plumbers’ incomplete work – including tiles removed from the floor and gaping holes in the floor and walls. They threatened to withhold their rent and sue him for negligence because the apartment had been left in such a dangerous state. Suddenly managing a property in Israel from overseas became a huge headache. Instead of saving money, he was costing himself more.

Creative Estates Israel was called in to help. We chased the insurers until they got their plumbers to come back and finish the job, making good the walls and floors. We sat with the tenants to hear their grievances and persuaded them not to sue the landlord. We took over the management of the property, negotiated a settlement that was accepted by all parties, and even managed to recover a large sum of money from the insurance company!

plumbingWe manage another apartment where the insurance company insists that only their plumbers be called. The pipes are a constant problem and the owner is reluctant to rely on second-rate plumbers. That is why we have advised the owner to renovate the property at the end of the current tenant’s lease, to renew the pipes and upgrade the kitchen and bathrooms. Our company will do the work, under full supervision, and even though he will lose 2 months’ income, he will be able to increase the monthly rent for the renovated apartment by 20%. Within a year he should have recovered his costs.

A similar ‘stitch in time’ approach is working well in a building that we manage. All 11 apartments are tenanted, but we have instituted a plan to upgrade 4 apartments at a time until the entire building has been upgraded. There are clear economies of scale involved, and the building owners will be able to increase the rents significantly when the work has been completed.

We recommend a proactive approach as the key to successful property management and profitable real estate investment.

To speak to Creative Estates about managing your property in Israel, contact Shaun@CEIsrael.com

Why 0% VAT Means Nothing for Israeli Real Estate

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The controversial new tax break for young couples in Israel will shortly be signed into law by the Knesset. Known as the 0% VAT benefit, it exempts the purchasers of newly built properties from paying 18% VAT on their new home if they are aged 35 or over and married with children. If they have performed their national service they can buy a property worth up to 1.6 million NIS and if they have not, the exemption only covers properties up to 1 million NIS.

The purpose of the tax benefit is clearly political rather than economic. It was first mooted as part of a political package designed to ‘spread the burden’ in Israeli society and reward those who have served in the army or national service. Although it was said that it would make it easier for young couples to buy their first property, it is already clear that it will help very few people and have no impact on the inflated Israeli real estate market.

Israeli property prices are continuing to rise, with more demand than supply. Attempts to increase the supply of land for building, and to encourage construction of more affordable apartments in the areas where young couples want to live because of employment opportunities, have clearly failed. A family with children would not find a new property in the center of Israel for 1.6 million NIS to purchase with their 0% sales tax benefit. They would probably not find a second-hand property at that price either.

lapidThe tax benefit may be part of a wider political campaign to encourage families to move to Israel’s peripheral areas, but even here prices are rising steadily, and anecdotal evidence suggests that building companies are setting the prices of their new homes just above the 1.6 million NIS threshold. After all, this tax break is of no benefit to them – they have paid VAT on the construction materials and will lose out if their purchasers are exempt from the sales tax.

As a property investment adviser, I can tell you that this highly publicized tax break will not slow the rise in Israeli property prices. The main factors driving prices are strong natural growth and increasing Aliyah. I believe that there are 16 million Jewish people in the world who may consider buying real estate in Israel, in addition to Israel’s growing population of 7 million people, and there is simply not enough housing in this small country. Instead of the 0% sticking plaster, we need real incentives for developers to build more homes at affordable prices.

Until then, your properties in Israel will continue to appreciate, and young families will continue to rent them!

Shaun Isaacson is a qualified lawyer and realtor and CEO of Creative Estates Israel, which provides investment and property management services for property owners in Israel.

Weather-Checking Your Property in Israel

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When it rains in Israel, it pours! The first rainfall of the season can catch you out and flood your home. Your tenants will phone you in the middle of the night or the next morning, complaining about leaks and damaged furniture. That’s why you need a good property management company that anticipates the weather and prevents the catastrophes.

Nine months without rain in Israel means that both tenants and landlords forget how much damage can be done and how fast. This year’s first rainfall dropped 17mm of water on Tel Aviv in one hour!

Creative Estates Israel manages properties all over central Israel and we were ready for the deluge. We sent out our maintenance teams at the end of the summer to check and clear gutters and drains, paying special attention to gardens and areas with overhanging trees. We made sure that water would not collect in places where it could cause flooding inside the property. We checked cracks, window seals and air conditioner gaps to make sure that everything was well sealed.

Water can seep through the smallest cracks and will always find the weakest points through which to escape, often causing leaks or dampness in the walls. Persistent dampness during the winter months can cause people allergies and breathing difficulties, as well as damaging furniture, furnishings and the building structure. Landlords are expected to protect their properties against leaks and dampness, and they are generally held liable for damages caused if they fail to do so.

Preparing your property in Israel for winter also means checking that the back-up water, electricity and heating systems are fully functioning. Since most properties rely on solar heating the rest of the year, tenants only turn on their electric water heater when the weather turns cloudy and cold. All types of heating systems need to be checked before they are powered up for the first time. We have removed bird’s nests from flues which could have caused carbon monoxide poisoning if the boiler was turned on without its ventilation system being checked first.

Winter in Israel is short and sweet, but water can do a great deal of harm. Well managed properties, whether tenanted or empty, should always be thoroughly checked at the start of the winter to ensure that they are weather-proof.

To speak to Creative Estates about managing your property in Israel, contact Shaun@CEIsrael.com

Property Insurance: Who Has You Covered?

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It’s all insured – right? Anyone who owns property knows that squeezing money out of your insurance company is not always as easy as it sounds. Three stories from the files of Creative Estates Israel show what can happen if you depend on an Israeli insurance company for your Israel property insurance.

It does sometimes rain in Israel – not often, but when it rains, it pours, often for days at a time. When you own a top floor apartment you might think that your insurance would cover you for damage to your ceilings caused by rain. One of our clients thought that his apartment was covered, but when the rain poured in on his tenants and their possessions, his insurers told him that nothing was covered!

The roof of a building is the responsibility of the building managers – in this case the management committee run by the various apartment owners – Va’ad HaBayit. We helped our client to sue them for not maintaining the roof adequately, and the building’s insurance company paid out to cover the cost of fixing all the damage to the apartment. The tenants should have had their own contents insured to pay for damages to their bed, clothes and computer, but they didn’t. We were able to calm the angry tenants down, show them the relevant clause in their contract, and prevent them from suing our client.

In another water-related incident, we were asked to come in and rescue a property where leaking pipes had not been fixed. Under their insurance policy, the owner was obligated to use their insurers’ chosen maintenance company. Their workers made a huge mess, breaking tiles and leaving walls and floors opened up for weeks on end, and not turning up to fix them when they had arranged to come. They caused major inconvenience to the tenant family and endangered the safety of their children. The tenants sued the property owner, and we are now suing the insurance company on behalf of the owner to recover the damages that the tenants are justifiably demanding from him.

We always recommend to our clients that they pay the extra 5% insurance premium that allows them to use their own maintenance team when something goes wrong – and our maintenance team is always available, 24/7, to do an excellent job of putting it right.

In our third water-related incident, a garden apartment that we manage became flooded. We sent our maintenance company to find the source of the problem, which was the irrigation system in the neighboring garden. We didn’t wait for them to call their insurers – we fixed it there and then and sent them the bill. They can either reimburse us themselves or claim from their insurers.

When you own property in Israel, you can’t assume that your insurance policy has you covered. You need Creative Estates to take proper care of your property, to deal with the tenants, the neighbors, the building committee and the insurance companies on your behalf.

Click here to read an article on BBC.com about Dos and Dont’s for Landlords in which Shaun Isaacson of Creative Estates Israel is quoted.

Israeli House Prices Still Rising

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What other investment would have given you a 97% return on your investment since 2007?

House prices in Israel have almost doubled since May 2007, according to the Price of Dwellings Index released in June 2014 by Israel’s Central Bureau of Statistics.

With interest rates kept low by Israel’s Central Bank, homebuyers are continuing to take out mortgages and drive demand. However, the conservative banking sector keeps the mortgage threshold high, typically requiring a 40% down-payment, which keeps many of Israel’s lower paid population off the housing ladder.

This banking policy is one of the reasons that Israel didn’t suffer a property crash along with much of the rest of the world in 2008. Instead, house prices have risen steadily over the past 7 years by an average of 1% per month, and this trend looks set to continue.

Some commentators are predicting that the ‘bubble’ will burst, but Israel’s real estate sector is not always driven by the same factors as other markets. For example, high birth rates and strong immigration (Aliyah) from western countries keep demand high, together with the popularity among diaspora Jews for owning a home in the Holy Land.

At Creative Estates Israel we are seeing continuing interest in real estate investment in both the domestic and commercial markets, as Israel’s cities expand apace. Those who are waiting for prices to drop may be disappointed, while those who bought real estate in 2007 have seen a 97% return on their investment!

If you are interested in finding out more about real estate investment opportunities in Israel, give us a call or send us an email today.