The rise in real estate prices and the surge in apartment prices have put the dream of an apartment for every child out of reach for the average Haredi family.
When the prices of three-room apartments in cities like Betar and Modi'in Illit are already approaching a million shekels or more, then even if the groom is from PONIBEZ and the bride is from the Wolf Seminar and there are grants from both parents, it is not enough to realize their dream of purchasing a roof over their heads that their older siblings have become accustomed to.
The skyrocketing construction costs and the cancellation of grants for apartments in the periphery (despite the bill to eliminate VAT) could push us even further away from the dream of our own apartment. And as if predicting the future, even in the cities of Harish and Har Yona we will not achieve what we achieved in Beit Shemesh and Beitar Illit, just five years ago.
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Many of the young couples have adopted the most logical solution: to purchase an apartment in the outskirts, the proceeds of which will finance the rent in the center. There are many obstacles in such a process and great caution is required. If you decide to act in this direction, watch your steps carefully and do so wisely.
Here are some facts you should know:
• How do you measure annual rental yield? Multiply the rental amount by 12 months and divide the result by the purchase price of the apartment. For example: If the rent is 2,000 NIS and the price is 500,000 NIS, then the calculation is: 500000\12*2000 = 0.048, which is 4.8% annual yield. Before calculating, you should check what the net income (after expenses) from the monthly rent is.
• Many buyers tend to link purchase prices to rental prices. But in fact, these are two parameters that are not at all related to each other.
On the contrary, in most cases the cheaper the apartment, the higher the yield.
For example: an apartment in Modi'in Illit that costs close to a million NIS is rented for about 2,500 NIS. In contrast, a similar apartment in Rehovot that costs about half a million NIS yields a rent of about 2,300 NIS 5.5% in Rehovot compared to 3% in Modi'in Illit.
Also, an apartment on the fourth floor without an elevator will yield a higher return than an apartment on a lower floor in the same building. So if you came to see the apartment you are considering and discovered a less desirable population or more neglected buildings, don't panic: this does lower the value of the apartment, but that is why the return on this apartment is higher.
•8% Annual return? Not always profitable!
For many years, we have become accustomed to one index that reflects the viability of the investment, the rental yield index.
But since 2006, a very important parameter in real estate has changed: apartment prices began to skyrocket drastically, and apartment owners earned a return of about 100% within a few years, as a result of the price increase alone. Even today, when price increases have calmed down a bit, this return can be much higher than the rental return, and in most cases does not require any hassle from you (in the next column, we will find the way to properties that are expected to rise).
• Have you received in-principle approval for a mortgage? It's not certain that you will be approved in the end.
I do not recommend that anyone sign a deal before getting mortgage approval. Even if you have received approval in principle from the bank, make sure you get specific approval for the apartment.
Many apartments are not approved by the banks, such as those located on the fourth floor in some peripheral cities, or with a warning from the municipality about a dangerous structure, dangerous streets, improper legal registration, and more.
Mortgage approval is also very effective for those who buy an apartment with full equity, because if the bank does not approve the mortgage, this indicates a problematic apartment and mainly reduces the target audience that will buy the apartment from you in the future, since those who want a mortgage will not buy from you, which will cause you to lower the price of the apartment in the future.
There are many surprises in real estate, one of the most common is the total profit we keep from buying to selling.
• Do you want to buy the apartment already?
Before you wish good luck and drink to life, stop for a moment, grab a pen and paper, and do the math. Check the price of the apartment listed in the contract. If it is not expected to be your only apartment, prepare for the purchase tax you may pay as a result.
Calculate the total expenses you expect to incur for maintaining the apartment independently or the costs of the maintenance company if you hire one. Check the condition of the plumbing, insulation, and waterproofing, in order to estimate the expenses for future renovations.
Also add the costs of a buying and selling lawyer, buying and selling brokerage, rental brokerage, mortgage advisor, and costs associated with taking out a mortgage. Keep in mind that you may pay capital gains tax when you sell the property, and not all expenses are deductible for capital gains tax.
And most importantly: find out from real estate agents and local residents what the 'real' prices of apartments and the rental cost for such an apartment are.
• Shmuel Rosenblatt is the co-CEO of Empiria Real Estate and Finance, which develops and manages real estate ventures 02-6222255
