Guide for buying a property as an investment
Thinking about purchasing a property as an investment? Great! Everything you need to know about investing and yield, here.
Investing in Real Estate is an efficient way to promise yourself a good economic future and create a stable monthly income. The country gives tax incentives on rent income, much more significant than the incentives in the capital market. In addition to that, banks aspire to encourage investments, and give low interest mortgages.
In addition to the monthly yield from rent, by selling the property you will earn from the increase in the property's worth. The demand for properties is forever relevant, thus the odds for decrease in worth are very low. Those facts make a Real Estate investments a safe and profitable move.
Shall we begin?
How to search for a property?
Check which properties for sale are waiting for you in the Real Estate listings:
Type in the OnMap home page search bar the city or neighborhood that you fancy. Choose the relevant property type (apartment, duplex..) and the number of rooms. Than, fill in the price range. All properties will be presented on the map, and you can change the borders of your search zone by simply drawing on the map.
After finding optional properties on OnMap, We can dig in to mortgages, taxes, yield etc. Don’t worry though, we will make it very simple and clear.
Purchase tax is a tax payed for purchasing Real Estate, according to the Israeli Real Estate taxation law (1963).
The tax brackets that are detailed below are valid until 15.1.18 (The brackets are updated every year).
When you are buying your first Real Estate:
If this is your first property, those are the tax brackets that are relevant for you:
First bracket: when the property costs no more than 1,623,320 nis. 0% tax!
Second bracket: 1,623,320 nis to 1,925,460 nis. 3.5% tax.
Third bracket: 1,925,460 nis to 4,967,445 nis. 5% tax.
Fourth bracket: 4,967,445 nis ti 16,558,150 nis. 8% tax.
Fifth bracket: when the property costs at least 16,558,150 nis. 10% tax.
How exactly does it work?
If the price of the property that you are buying is below 1,623,320 nis, you don’t pay tax. When the price is higher than that, you calculate the difference between the property's price and the threshold of its bracket - from the amount you get, you take the relevant percent (according to the brackets that are displayed above).
In every bracket, you are obliged to the tax percent of the lower brackets as well (thus, in every bracket the tax is calculated from the difference between the highest bound to the threshold of the bracket). At last, you sum it all up.
If the property that you are purchasing costs 2 million nis, it means that you are in the third tax bracket. Meaning: you are obliged to pay tax for the 3rd and 2nd brackets (5% for the 3rd + 3.5% for the 2nd).
To calculate the amount you have to pay:
Subtract the threshold of the 3rd bracket (1,925,460 nis) from the price (2 million nis). Than calculate 5% of the amount that you got (to do that, multiply the amount by 5, than divide by 100).
Subtract for the 2nd bracket’s highest bound (1,925,460 nis) the threshold (1,623,320 nis). Than take 3.5% of the amount that you got (multiply the amount by 3.5 and than divide by 100).
Sum up the two results that you've got. This is the tax that you need to pay: 14,302 nis.
When you are buying agricultural Real Estate:
If you are purchasing agricultural Real Estate, those are the tax brackets:
First bracket: when the property costs up to 477,215 nis. The tax is 0.5% of the property’s price!
When the property costs more than 477,215 nis, you pay 0.5% of the 1st bracket (477,215 nis), and 5% of the difference between the property’s price and the 2nd bracket’s threshold (477,215 nis).
When you already own Real Estate:
These are the tax brackets:
First bracket: when the property costs no more than 4,967,445 nis. 8% tax.
Second bracket: when the property costs more than 4,967,445 nis. 10% tax. you pay 8% of the 1st bracket (4,967,445 nis) and 10% of the difference between the property's price and the 2nd bracket’s threshold (4,967,445 nis).
If the property’s price is 5 million nis, you are in the second tax bracket, which means that you need to pay tax for the 1st and 2nd brackets: 8% of the 1st bracket (4,967,445) and 10% of the difference between the property’s price and the threshold of the 2nd bracket (4,967,445).
8% from 4,967,445 nis are 397,336 nis.
10% of the difference between the price and the threshold of the 2nd bracket are 3,256 nis.
397,336 + 3,256 = 400,652 nis.
In addition to the purchase tax, you will be expecting a few more expanses that you should keep in mind while calculating your budget:
Real Estate lawyer (standard fee is around 0.5% of the property’s price + tax)
Realtor (about 1.5% of the property’s price + tax)
Mortgage - opening a mortgage file (around 2000 nis) and hiring the services of a Real Estate appraiser (around 400 nis).
Tolls - Real estate registry office fee and Caveat Registration fee, to prevent the seller from selling the property to a third person (around 400 nis).
Renovation - if you choose to renovate the property, in order to rent it out for a more expensive price and to raise it’s value.
Land betterment tax - in case you are planning on an upgrade, meaning, selling the property and buying another one in it’s place, you will need to pay a betterment tax.
Update your budget and narrow the search results on OnMap.
To calculate the monthly return payments, use the calculator found on each property’s ad. Do notice though, that the mortgage interest varies and depends on your mortgage plan. The amount predicted by the mortgage calculator is calculated using a 3% interest and will only give you a general estimation.
Check the monthly payments rate: type the amount of years that you are planning for repaying the loan.
The math is simple: more years → lower monthly payments → sums up eventually to a bigger interest.
How would you know the property’s value?
It is recommended to combine at least two of the following methods:
Free! Using OnMap: see the prices rate of other properties in the area. Type the location and property type in the homepage search bar, and you will get all the properties for sale and their prices.
Free! Use the information found on governmental websites: you will find in each area the history of Real Estate purchases and their prices.
Real Estate appraiser - Hire a Real Estate appraiser on your behalf, or on the behalf of the mortgage bank.
Eventually, the mortgage bank defines the property’s value by choosing the lowest evaluation between the property’s price and the appraiser’s evaluation.
The reason we have gathered here today.
The yield is the profit you make by renting the property. Yield is measured in percents: negative percent is loss, and a positive percent is gain.
Calculating your yearly yield is simple: Take the monthly rent and multiply by 12. Divide the result by the property’s price (including expenses: renovations, taxes, lawyer and realtor fees, etc.).
Now you can find out how much will the property yield after all your expenses, and how profitable is it in comparison to other properties. This information will assist you with taking the decision whether or not to buy the property in the first place, and whether you should sell it and earn more buy buying a different one in its place.
Let’s say that you are interested in buying a property that costs 1.5 million nis, and after adding all the expenses (purchase tax, lawyer fee, Realtor, renovation, etc.), you reach 1.8 millions nis. You made a little research and found out that the standard rent for this kind of property in this area is 5000 nis. To find out what is the yearly yield, multiply 5000 by 12, and divide by 1.8 million. Now, in order to get a percent, multiply the result by a 100. The Yearly yield that you will receive from the property is 3.3%.
A few tips to increase the yield:
The lower percent that the mortgage loan takes from the price of the property, the higher the yield will be.
Demand and supply - pick an area that has a high demand for properties for rent.
In order to easily find tenants, avoid an area with a lot of Real Estate investors like yourselves.
Try to see where the wind blows - which area is still developing and will become more attractive (and thus more profitable). Check if the area has good transportation options and is in the need for employees. Search for projects in the area: new schools, new roads, new shopping centres, etc. In a few years you will be able to sell the property and make a significant profit.
Pick a place where the construction areas are limited. This way the supply for properties will remain low and the property’s value will automatically rise.
The property’s size - a property very small can bring tenants with low incomes, that might have a difficulty paying the rent. On the other hand, a property too big will cause a high municipal rate tax, expensive maintenance, a lower yield and on top of that, you might find it difficult to find tenants.
Good luck! :)