Renting and buying in Israel: the ins and outs

It seems that the hot topic of conversation these days is real estate. Amongst Anglos who have immigrated to Israel, the deliberation between renting and buying a home is a common one. Beyond that debate is how to purchase property. While there is no definitive answer for any of these matters, certain factors can sway the decision one way or the other for some.

It is common to hear that renting is essentially throwing out money every month while buying leaves one with something to show for his money (albeit a mortgage to pay off). Of course, it’s easy to say that you ought to just buy if you’re already “wasting” thousands of shekels on rent. After all, if your mortgage will end up roughly equal to your monthly rent cost, why not just put that cash toward your dream house? In reality, the issue is more complex because everyone is in a different stage of life. A young couple just starting out most likely won’t have the funds to invest in a property. Even if finances are not of concern, many people prefer living in a place for a few years and testing the waters before buying.

When analyzing the situation from a purely financial perspective, there are other factors to consider. The question of whether or not to invest in a property in Israel is most directly related to one’s capital. It is most sensible to buy when you’ve already profited from investments and the capital used to purchase the property is funded from proceeds of those investments. If the available funds are one’s sole capital, it’s better to invest that money in a venture with little or no risk.

Additionally, it is important to recognize there may be risks involved in “locking up” capital in a real estate investment. There are two main considerations: firstly, you are investing money in an asset with lower liquidity. Granted, one could sell the asset at a given moment, but buying a property is not like buying a stock or bond, where one can sell them to raise capital instantly.

The second consideration is the opportunity cost of foregoing the possibility of a better return from a different investment opportunity. Regarding this second point, in Israel, finding a more appropriate place to invest is a challenge. There aren’t many safe opportunities, even within real estate, aside from buying an apartment and renting it out. This contributes to the trend of Israelis purchasing real estate and taking out large mortgages.

Aside from the logical aspects of the decision to buy or rent in Israel, there are emotional elements to consider as well. Many of us grow up with an expectation of becoming a homeowner. Just like we strive to get an education, find a good job, perhaps start a family – somewhere along this spectrum of life accomplishments is buying a home. And, of course, those with a commitment to life in Eretz Yisrael will place even more emphasis on owning a property in the Holy Land.

Choosing to buy a home is also a quality of life issue. It is important to settle somewhere and establish oneself within a community. Even with these emotional factors at play, financial considerations usually play a role. When someone buys a house or an apartment, he is still choosing to invest that capital into the property, with hope that his money’s value will increase rather than if it were sitting in the bank.

Once a person has made the decision to buy, the issue of timing arises. Often, you’ll hear your colleague say that now is the time to buy. Or, your brother-in-law tells you that property costs are going to fall in two years, so it’s better to hold off. People like to talk and make predictions but even when it comes from a reliable source, there’s no way to know the future of real estate. Anything can happen. So, it is usually safe to assume that once you are ready to buy, there’s no use waiting based on predictions for the future.

There are also different methods to purchase real estate in Israel. Generally, the cheapest option is buying “on paper.” The buyer usually receives better value for money, while gaining the freedom to make custom choices in the layout of the apartment. The risks involved are low if you purchase from a reputable contractor. A less certain approach is buying with a “buyers’ group” – or kvutzat rechisha. Because the group of buyers acquire rights to the land and “develop” it on their own, they often save significantly on many costs associated with buying from a developer, but there are many risks and potential complications involved. This is an important and complex issue to be discussed in a future article.

There is no one answer for everyone when it comes to real estate decisions. One must consider his financial situation along with the risks and emotional aspects to the decision. The most important point is to be sure to examine all the options carefully and thoroughly and, with the help of G-d, to make the right choice for you at the right time.This article is intended to provide general information about the subject matter covered. It is not meant to provide legal opinions, offer advice, or serve as a substitute for advice by licensed, legal professionals. This article is published with the understanding that the author or publisher is not engaged in rendering legal or other professional services.

 The author does not warrant that the information is complete or accurate, and does not assume and hereby disclaims any liability to any person for any loss or damage caused by errors, inaccuracies or omissions, or usage of this article.

 Laws and interpretations of those laws change frequently and the subject matter of this article has important legal consequences. If not understood, legal, tax, or other counsel should be consulted.