Kvutzat Rechisha: is buying an apartment in Israel as a group purchase really worth it?
By Shia Getter
I recently visited a friend, the famed attorney (and Talmid chacham!) Dr. Avi Weinroth. In our discussion, we talked about buyer’s groups and how careful one has to be when buying a dira with others in a “kvutzat rechisha.” This article will guide Hamodia readers through some of the major challenges of purchasing an apartment through a buyers group.
Here’s what you have to know:
A project manager
A buyers group means that a group of people gets together and buys property, and builds apartments on it, without a developer overseeing the project. This can be the nightmare of fifty “know it all” opinions, unless planned right.
If your apartment is going to get built without stalling, the project needs to be the responsibility of a manager who has experience with projects like yours and understands the field. Not only that, but the project should have repercussions for his reputation; a reputation that he has worked to build up. A professional’s reputation is a sensitive commodity that he will want to protect at all costs, to your direct benefit. You can offer the project manager an incentive by percentage, or you can have a payment system wherein his profit decreases the longer the project drags.
At the get-go, the organizer must go to a lawyer and set up the group properly from a legal perspective. There has to be a purchase agreement and a co-ownership agreement, and there needs to be a decision maker, or decision makers.
Another critical issue is bank backing. Each and every member must get the banks’ approval to finance the full sum needed for construction. Don’t let anyone skip this step because he has personal capital. Anything can happen to that money in the two years the construction will take. Once that bank approval is in place, if any one can’t actually come through with his payment, he can never say, “I can’t pay.”
The contractor’s price
Insist on a flat rate proposal from your contractor. That means a lump sum, not a composite of the expenses. Never let him tell you, “I don’t know how much it will cost, but I’ll give you a basic idea. However much iron we need, we’ll use. Just let me go ahead and order.”
You don’t know how much iron a building takes, nor are you familiar with the iron market. It is in your best interest to insist that he make his calculations and present you with an all-inclusive total.
Invest in good professionals
Don’t try to save money when hiring a professional. In the long run, that is a very costly savings plan. Each project also needs the right architect who not only knows how to design the space, but to get the plans approved by the zoning authorities, because the project will get stuck without the permits.
The fine print at a tender
Tender regulations are meticulous. First, your bank guarantee must abide by every apostrophe of the regulations. You have to pay attention to whether the sum of the guarantee is supposed to be linked to the index or not, whether it can be redeemed by fax or by mail, whether it includes VAT or not. You need an expert who has submitted tender documents before. If it’s his first time, it’s like saying, “Sure, I know how to play the piano, I just haven’t tried yet.”
Guarantees and warranties
A critical element in this respect is to get a personal, written commitment from people to back up their promises. A personal letter of indemnity, a personal commitment from the contractor is nonnegotiable. Buying an apartment is one of the biggest purchases a person makes. For many, it is their single biggest purchase. He must get a warranty, just like if he bought a new watch.
With his warranty, a contractor can’t claim that he finished the project if things are not working properly. You can force him to do it right. Defects in quality are not discovered on the first day. Here again the professionalism of the contractor is crucial so that if, following occupancy, tiles start falling off and you’ve got leakage, you will have someone to talk to. Otherwise your apartment could end up being the source of continual frustration.
Buying an apartment with a Kvutzat Rechisha is right for some people. For others, however, it creates substantial headaches and this is the reasons I usually advise clients not to get involved in one. As always, it depends on your specific circumstances and the specific apartment you have in mind to make the right decision.
Shia Getter is the CEO of the Shia Getter Group, a full-range real estate services firm in Jerusalem catering to the Anglo-Charedi Community. He is a noted expert, columnist, and author of Everything You Need to Know about Buying Real Estate in Israel (Feldheim 2014). He and his professional team are Israel’s one and only true seller’s and buyer’s brokerage. They provide a unique service by managing and maintaining your apartment and being completely responsible for the entire buying or selling process.
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