Did you buy an apartment for investment?

So invest in it

The prevailing opinion is that if the apartment was purchased for investment, you should not worry too much about it, then the tenants will enter one way or another, but this is a misconception - that may cost you the day you want to sell.

And also, it turns out that the return is double compared to the alternative

Nir Shmol, guest column

26/01/2022

Wednesday, 26 January 2022, 10:03 Updated: 10:07

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For an investor's investment in a property valued at NIS 500,000 in an apartment, the Delta in the monthly rent can reach an additional NIS 4,000 per month, compared to a property that is not invested at all.

The question that every property owner asks himself is whether it is economically worthwhile for him to invest in his property and whether and the investment will give him surplus economic fruits.

The property was purchased for investment.

If you do not want to renovate and maintain, then why invest?

Tests conducted by Snir's research department, led by Dean Weinstein and Itai Farber, show that on average, every NIS 100,000 investment in an apartment, such as replacing plumbing, flooring, electricity, design, furniture, etc., increases the amount of rent by NIS 500. every month.

This is a return of 6 percent for each year in which the property is rented, much higher than the average investment in an apartment in Israel, which does not exceed 3-2 percent on average.

In luxury areas, such as Tel Aviv, Ramat Hasharon, Givatayim, etc., the yield can reach 8-7 percent.

There, the greater the property owner's investment in issues such as design, kitchen elements, luxury furniture, parquet, quality sanitary fittings, gardening in garden apartments, swimming pools, Jacuzzi in penthouses, etc., the price the tenant is willing to pay can also reach a return of up to 10 percent per year.

That is, for an investor's investment in a property valued at NIS 500,000 in an apartment, the delta in the monthly rent can reach an additional NIS 4,000 per month, compared to a property that is not invested at all.

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If you bought for investment - invest (Photo: Reuven Castro)

Value theory

According to the study, it can be clearly seen that the return is double compared to the alternative of not investing in the property and leaving it in the existing situation.

In today's market, when demand exceeds supply, it is understandable that it is a very difficult decision for a property landlord, who can even without one investment or another rent the apartment.

Tversky and Kahneman, the famous Israeli researchers, proved in their study of "value theory", for which they received their Nobel Prize, that people hate to lose more than they like to gain.

Therefore, they have a very great difficulty in investing sums that result that issues concerning them are uncertain.

This is why a property owner who asks himself whether to invest in renovating the apartment, similar to a farmer who asks himself whether to sow seeds in the field, when he has no idea if he will buy the agricultural produce when they harvest and at what price the goods will be sold.

However, according to the tests, there are ten leading cities in Israel from north to south, which according to the study can clearly be seen that the return is double compared to the alternative of not investing in the property and leaving it in its existing state.

The alternative for a property owner who wants not to invest money in the visibility of the apartment, but only in its purchase, is to find a tenant who is willing to make the investments himself.

In such a situation, the tenant will seek to reduce the monthly rent according to the relevant cost of the renovation.

That is, he takes on the investment in the property and this amount of money will be deducted from the cost of the rent respectively.

In such a situation, the property owner will receive a reduced rent during the said rental period, but can demand that all the investments made in the apartment remain at his disposal in the period after the end of the lease and thus he can enjoy the increase in value of the rented apartment.

Therefore when the current tenant leaves, he will ask for a higher rent from the next tenant.

In the demand areas you can get a lot more.

Givatayim (Photo: Reuven Castro)

Nir Shmol (Photo: Tomer Feder)

Usually, in such cases the tenant who invests the above investment requires a minimum contract period of five years so that he can enjoy the investment he has made both financially and practically and not fear that the investment he has made will go down the drain in a short period of time.

The scope of the renovation, what it will include, which of the things will remain in the apartment at the end of the rental period, whether the investment will include permanent or non-permanent furniture, whether the air conditioner for example will remain in the apartment at the end of the period, etc. must be clearly defined in the contract in such cases.

The trend in contracts of this type is that all the things that have been invested in the apartment and fixed in the walls remain the property of the property owner and all the things that are "removable" and not fixed to the wall pass with the tenant.

But to avoid future disputes things must be clear in the lease signed between the two parties.

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