
With increasing property prices in Israel, more and more people are renting a property instead of buying. Though it is not a new trend, the global inflation wave we have seen after the COVID period has not spared the real estate market in Israel.
If you own a property in Israel, you have the opportunity to rent it out and earn a consistent stream of income.
But, it is important to understand all the costs involved and be clear about your income expectations. Knowing the obvious costs and the hidden costs of renting out your property in Israel will allow you to decide whether this is the right decision.
1. Property Maintenance and Repairs
As a landlord, you are responsible for the ongoing maintenance and repairs of your rental property. These responsibilities are defined in the rental agreement between you and your tenant. From experience, the issues which often arise include water leaks, air-conditioning breakdowns, weather related damages – especially in winter – and pest control.
The maintenance and repair costs vary depending on the age, size, and condition of the property. Regular maintenance, such as landscaping, disinsection, and cleaning, ensure that your property remains attractive and well-maintained, enabling quality tenants to pay higher rents.
It is also crucial to set aside funds for unexpected repairs, such as plumbing issues, electrical problems, or appliance malfunctions.
2. Property Management Fees
Managing by yourself your property in Israel is a challenging task, especially if you live abroad and only come from time to time. Tenants' expectations are high and need experienced professionals who can step in at short notice and fix the issues right the first time. So, it is advisable to hire a property management company that will take care of the property operations.
Property management fees typically range from 8% to 12% of the monthly rent and cover services like tenant screening, rent collection, property inspections, handling maintenance requests and reporting regularly to the landlord. While these fees can eat into your rental income, they certainly save you time, effort and headaches by taking care of day-to-day operations, especially as the language and the culture in Israel can complicate matters even further.
4. Property Insurance
Protecting your investment with adequate insurance coverage is essential and mandatory. Landlord insurance covers property damage, liability protection, and loss of rental income due to unforeseen circumstances, such as natural disasters, vandalism, or theft. The cost of insurance premiums can vary depending on factors such as property location, type, and coverage limits. Israel has many insurance companies who try hard to offer competitive prices and a good service, so insurance costs can be reasonable. While your insurance will cover your property, the tenant needs to take his own insurance policy, to cover all its personal contents.
If you are renting short-term, then your insurance needs to be more comprehensive and cover also the furniture and personal content, besides property damage and third-party liability.
If you wonder whether renting out your property short or long-term, check out our article on the subject; Long-Term vs Short-Term Rentals in Israel: Which Option is Right to Rent Out Your Property?
5. Property Taxes
Property taxes are an ongoing expense for property owners. There are multiple taxes, as follows:
- Municipal Tax (or “Arnona” in Hebrew). This tax depends on the city and the size of your property. It is only relevant to you if you rent your property on short-term, or if it is not rented out at all. If you have a long-term tenant, he will be responsible for paying the Arnona.
- Income Tax. Whether you live in Israel or abroad, every income earned in Israel gives rise to tax. There are certain exemptions based on the level of income or your age. The tax regime will also vary based on the type of rental. For a long-term rental, the tax is a flat 10% rate, while a short-term rental is considered as income and the tax rate will depend on your income level.
You will also need an accountant to prepare your tax declaration in Israel and ensure you are compliant with local laws. This cost amounts to a few thousand Shekels per year.
6. Building charges
The building charges (or “Vaad Bayt”) are a monthly expense collected by the building management company to cover maintenance, upgrades and repairs of the common spaces. As with the Arnona, a long-term tenant will cover these expenses, while a short-term rental will not include them.
7. Utilities and Other Miscellaneous Expenses
Long-term tenants usually pay all the utility expenses, including internet/TV, water, electricity and gas. In some cases, such as embassies and corporate relocations, the landlord pays all the utility expenses which are reimbursed by the tenant. It avoids the change of billing accounts with the utility companies, which is very complex and can give rise to payment delays.
Additionally, you may incur other miscellaneous expenses such as legal fees for lease agreements.
In conclusion, although costs associated with renting out your property in Israel can be intimidating, this remains an attractive opportunity, driven by sustained rental prices in the Israeli market. The level of rent will heavily depend on the location of your property and its condition. If you want to know more, contact us for a free consultation.
Comments