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Thinking of an investment property? First dive into the numbers

Lowering interest rates has generated a lot of interest among potential investors, but not everyone understands what the real meaning of an investment apartment is. You should read, there are many numbers hidden inside

• Apartments for investment

Ofer Levin

There is hardly an Israeli who does not think about investing in real estate. Many of us own a real estate property, whether we live in it physically or rent and rent at the same time. Some of us have additional properties that are an alternative to other financial investments, especially when despite all the political statements real estate prices have not fallen. Recently, following the reduction of the purchase tax on a second property or more, the issue returned to the headlines

in a country with low land reserves and high population growth. Living in the center or near major cities, history teaches us that investing in real estate is an almost safe investment in the short and long term. In the short term, it refers to the annual return received from renting the property. In the long run, it is about improving the property and increasing its monetary value and all its implications.

We often accompany clients who are interested in investing in real estate. These clients are blinded by the promises given to them, but since it is an investment property, it is highly advisable in the initial stage to treat the property as a business and not as a residential apartment, examine the property with the investor.

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What to think about in an investment property?

• Are we interested in additional monthly regular income? Instead of the money "lying" in the bank, the money will work for us in the form of the rent we receive from the property.
• Do we want to make an "exit" - leverage the money, raise more money (by mortgage), the monthly rent will cover the mortgage and when the time comes, when we sell the property, we will benefit from the improvement of the property (price increase) and reduced mortgage debt to the bank. That the mortgage is paid, the balance of the loan principal owed to the bank usually decreases).
• Of course a combination of the two options is the most ideal. Some of the rental income will pay off the mortgage and some will come in as a net monthly income, and when the time comes a nice exit will come.

When considering such a transaction, it is advisable to take into account and include in the transaction cost all financial factors directly related to the transaction, from purchase tax, brokerage costs, lawyer, renovation, white goods and furniture, one / two month rental cost (during the rental period until the first rental of the property ) And more. I even recommend in old properties to add about 5% of a future renovation fund and also the inclusion of mortgage interest rates, if any.

The annual return should be calculated from the actual cost price of the transaction (as I mentioned) and the correct distribution should be according to 11 months of rent per year (month of rent in favor of BALT fund, month without rent, etc.) and from this you will get the most stringent annual return for the intended property. After this result you can examine the same future "exit" and understand whether this transaction is right for you - in many cases even a zero return is good if the "exit" is clear and guaranteed.It is important to note that sometimes in the sale of property there is appreciation tax. Take this part into account of the same "exit" - the profit can be charged directly to the property improvement expenses such as renovations but proof of the same expense is required (saving the same invoice).

For the recently changed purchase tax, do not be fooled under the assumption that the tax has dropped to 5 It is important to note that the tax has indeed decreased, but the tax payment is 5% for starting from the first shekel up to NIS 1.292 million. From this amount up to the amount of NIS 3.876 million you will pay 6% tax on this level, and above this level you will pay 7% tax up to Of 5.338 million, etc. That is, if you purchased an investment property in the amount of NIS 1.6 million, the tax of 5% will not apply to all The amount will be NIS 83,077, consisting of 5% tax in the amount of NIS 64,614 to NIS 1,292,280 and NIS 18,463, which constitute 8% on the balance of the money.

Ofer Levin is a partner CEO at Reals, Real Estate Financing Solutions.