Jerusalem Real Estate FAQs

Where do I start?
Where should I buy?
After picking a neighborhood…
After you find the property you want…..
To fix-up or not to fix….
Inspections…..
Going to contract…..
Paying the price…..
Legal representation…..
Property registration…..

Where do I start?

With today’s volatile equity markets & fluctuating currency exchange rates, combined with all-time low mortgage interest rates, real estate investment provides a very stable & attractive alternative right now. A wide variety of housing options face the prospective buyer in Israel. Locations, sizes & characteristics of homes are as diverse as the country itself. The most important factors to take into consideration (city/neighborhood preference, size of apartment and available budget) are common to buying a home in most countries.

Where should I buy?

Obviously, someone looking to buy should begin with the city or town they wish to live in. If you have some idea of your desired neighborhood or schools/synagogues, that will also help narrow the focus of your search, and save time & energy for you and your agent. Most of Israel`s residential communities have a distinct character; therefore, it is critical to research the desired neighborhood in advance. Our agents are knowledgeable in the areas they serve, and are happy & willing to assist you in your search. Many times, it can be a small fact or observation that will be the determining factor in a client`s decision on where to relocate, and that small fact or observation may not be easily ascertainable without the input of someone who is locally based.

After picking a neighborhood…

After deciding on a neighborhood, you should zero in on the appropriate size property (# of bedrooms) that matches your budget and taste. Your agent`s knowledge of his service area is critical in choosing only those properties that are compatible to the search. Depending on your requirements, the number of compatible choices may vary.

After you find the property you want…..

After a suitable property is found, negotiations begin over the terms of the purchase. Just about everything imaginable is subject to negotiation, including price, occupancy date & payout terms. Appliances & even furnishings may also be negotiated for inclusion with the purchase.

To fix-up or not to fix….

While it certainly isn’t universally true, our experience has shown that local buyers are more amenable to buying a home in need of renovation and redoing it to their unique taste. Foreign buyers, on the other hand, appear to prefer properties that have already been redone. The advantages of buying a ”fixer-upper” is that you get a break on the purchase price and you also get exactly the home you want after the renovations are finished. It may seem risky to take on the renovation of a new home from long-distance, but there are many reputable building contractors who do excellent work and can be relied on to carry out the renovation according to the buyer’s wishes and within the agreed upon budget.

Inspections…..

While inspections are not an everyday occurrance in Israeli real estate transactions, they are becoming more common, and are preferred by foreign buyers. An inspection generally takes place after negotiations have been finalized, but before a contract is signed. A written inspection report will be provided to the prospective buyer at a cost of approximately $350-500. Any issues raised by the inspection may be raised with the sellers as part of negotiation process.

Going to contract…..

Once a suitable property has been found, the price and all relevant terms have been agreed to through negotiation, and the inspection results are in, a contract of sale/purchase is drawn up by the seller’s attorney. The draft contract is then sent to the buyer’s attorney for comments. After agreement is reached on all provisions of the contract, both side execute the contract.

Paying the price…..

At the execution of the sale/purchase contract, money usually changes hands, although differently than in the United States. Since there is generally a gap of 1-11 months between contract signing & occupancy, the payment of the purchase price is customarily divided up into evenly spaced intervals until the final payment at occupancy. It is accepted practice to make a 20-25% downpayment at signing, 10-15% at occupancy and the balance of the price spaced in between. The number of payments & size of each is negotiable and will to some extent depend on the amount of time that lapses from signing to occupancy.

Legal representation…..

While it is quite common for one attorney to represent both sides in Israel, many of our foreign buyers prefer to have their own separate legal representative. Having one attorney avoids confrontations between opposing counsel and streamlines payment transfers & title registration. On the other hand, there is an apparent conflict of interest in having one attorney represent both sides. Choosing a good attorney is crucial to the success of your transaction. Your legal representative should be a good advocate & negotiator, but should not let his/her ego interfere with progress to signing. An extensive background in real estate law and familiarity with the title registration process is a must. We have excellent working relationships with several wonderful real estate attorneys who will do everything to make sure all your rights are protected.

Property registration…..

The process of property registration is different than in other countries. Immediately after contract signing, a special ”warning” is filed on the property in the Land Registration Office. This warning indicates that the property is under contract for sale, and cannot be conveyed by the seller to anyone else until removed. When the last payment is made at occupancy, the buyer’s attorney must then transfer registration of the property from the seller to the buyer. This generally takes from 14-60 days. The special warning is removed only after the title transfer has taken place.

Where do I start?
Where should I rent?
After deciding on a neighborhood
When a suitable property is found
Does my monthly rent include utilities & other expenses?
Is it necessary to use an attorney`s services to protect myself?
What type of financial guarantees/security must I provide to my landlord?
What are the realtor`s fees for handling the transaction?

Where do I start?

A wide variety of housing options face the prospective tenant in Israel. Locations, sizes & characteristics of homes are as diverse as the country itself. The most important factors to take into consideration (city/neighborhood preference, size of apartment and available budget) are common to renting in most countries.

 

Where should I rent?

Obviously, someone looking to Long-term or Jerusalem Vacation Rentals should begin with the city or town they wish to live in. If you have some idea of your desired neighborhood or schools/synagogues, that will also help narrow the focus of your search, and save time & energy for you and your agent. Most of Israel`s residential communities have a distinct character; therefore, it is critical to research the desired neighborhood in advance. Our agents are knowledgeable in the areas they serve, and are happy & willing to assist you in your search. Many times, it can be a small fact or observation that will be the determining factor in a client`s decision on where to relocate, and that small fact or observation may not be easily ascertainable without the input of someone who is locally based.

After deciding on a neighborhood

After deciding on a neighborhood, you should zero in on the appropriate size property (# of bedrooms) that matches your budget and taste. Your agent`s knowledge of his service area is critical in choosing only those properties that are compatible to the search. Depending on your requirements, the number of compatible choices may vary.

When a suitable property is found

After a suitable property is found, negotiations begin over the terms of the rental. Just about everything imaginable is subject to negotiation. Rentals in Israel are cheap relative to the value of the property. There are two reasons for this: (1)property owners receive a tax break on income from residential rentals, and (2)tenants generally pay all utilities, taxes & building maintenance. Once all the details are worked out, a lease contract is signed by both parties, and the tenant takes possession of the property for the specified period of time.

Does my monthly rent include utilities & other expenses?

It depends. Items such as utilities, arnona (municipal taxes) and va`ad bayit (building maintenance) are usually the obligation of the tenant in addition to his/her monthly rent. On short-term rentals, it is more common for the rental to include these expenses (except telephone), but short-term rental prices are also higher than long-term, so in the end, the overall monthly cost to the tenant is very similar. As mentioned earlier, these practices vary from one property to another, and from one owner to another, and all options should be explored in the negotiations prior to signing a lease. A competant agent will provide you with enough information to know what these costs are, and whether or not there is any flexibility on the part of the owner.

Is it necessary to use an attorney`s services to protect myself?

Again, it depends. It is common for one attorney to serve both sides to a rental transaction in the absence of any major areas of conflict between the parties. It is also common for both parties to sign a lease without the services of an attorney. There are standard rental contracts available, which can be modified to suit the unique requirements of the specific transaction. Owners commonly ask the tenant to pay 1/2 the cost of his attorney to draft the rental agreement. We strongly recommend against agreeing to this demand, since the owner`s attorney does not represent the tenant, and if something occurs requiring legal services, the tenant is left unprotected. If there is any question or doubt, the tenant should seek independent representation by a competant attorney. The cost of such services should not exceed 1/2 month`s rent, but could vary depending on the complexity of the rental, and the issues involved.

What type of financial guarantees/security must I provide to my landlord?

This will also vary from owner to owner. There isn`t a single standard, and this subject is very much open to give & take in the negotiations. There are several options regarding security: (1)a check put into the possession of the owner/agent/attorney with the date left open, and in an amount to be agreed upon by both parties (typically anywhere from 1-3 months rent); (2)a bank guarantee, wherein an agreed upon sum is placed into a closed account in both parties` names for the duration of the rental (interest can be earned on this closed account, and will accrue to the benefit of the tenant); and (3)the personal guarantee of someone willing to vouch for the creditworthiness of the tenant (any guarantor must be a local resident-from a practical point of view, trying to chase down someone abroad to make good on a guarantee is impractical).

What are the realtor`s fees for handling the transaction?

The realtor only gets paid if he/she successfully makes the match between landlord and tenant, and a rental contract is indeed signed between the two parties. In Israel, both sides sign a form obligating them to pay a commission if such an event occurs. Each side pays a commission equal to one month`s rent plus Value Added Tax on long-term rentals (one year or more). On short-term rentals (less than one year), each side pays a commission equal to 10% of the total rent paid over the entire rental term plus Value Added Tax. The real estate commission is due & payable immediately upon the signing of the rental contract.

In which currencies are mortgage loans available?
In which currency should I take my mortgage?
What are Israeli shekel mortgage loans like?
Who is eligible for a Foreign Currency Mortgage?
For what types of real estate purchases are these loans available?
How much financing can I get toward my purchase?
Over what time period will I have to repay my loan?
What rate of interest can I expect to pay?
How frequently must I make my payments?
What collateral or security does the lender require?
Are early prepayments allowed?
Is any insurance required in connection with the loan?

In which currencies are mortgage loans available?

One of the major questions in the purchase of real estate in a foreign country is the availability of financing. For the purchase of real estate in Israel, mortgage financing is available both in Israeli shekels and most major world currencies.

In which currency should I take my mortgage?

The primary consideration as to which type of financing to take is simple; in what currency does the borrower have sufficient income to repay the loan. By borrowing in the same currency as his/her income, unnecessary bank charges and currency conversion fees are avoided.

What are Israeli shekel mortgage loans like?

Israeli shekel loans come in a diverse variety of ”flavors” today. They may carry a fixed or adjustable interest rate. Payback terms may vary from 15-25 years. One unusual addition to loan repayments is a `linkage` component in addition to principal & interest. This linkage component is based on increases in the Consumer Price Index. This component is a holdover from the 70`s and early 80`s, when Israel experienced triple-digit hyperinflation, and some form of linkage was necessary to protect lenders. Over the past 10 years, both the shekel and price index have remained relatively stable, so while the additional cost of repayment isn`t overly burdensome, borrowers should be aware that it does exist, and that it will increase the amount of the payback of the loan.

Who is eligible for a Foreign Currency Mortgage?

Every `non-Israeli resident` as defined by the foreign currency regulations issued by the Bank of Israel.

For what types of real estate purchases are these loans available?

Foreign currency mortgages are available only for the purchase of residential real estate.

How much financing can I get toward my purchase?

The answer to this question has changed over time. Historically, between 50-60% of the value of the property could be borrowed, requiring buyers to have a significant down payment out of their own pockets. It is now relatively common to obtain 70% financing. With the addition of private mortgage insurance, up to 90% financing is available.

Over what time period will I have to repay my loan?

Terms are somewhat flexible, but generally most loans are repaid over a period of 15-20 years.

What rate of interest can I expect to pay?

Foreign currency mortgages generally carry interest based on the 90 day London Interbank Overnight Rate (LIBOR), plus a premium of approximately 2.25%. Individual rates will depend on the borrower`s particular situation, and preferential rates are available for more credit-worthy borrowers.

How frequently must I make my payments?

Generally, payments on foreign currency loans are required quarterly instead of monthly. Payments also include level principal reduction, which results in lower interest cost to the borrower over the life of the loan. Shekel loans are generally repaid monthly.

What collateral or security does the lender require?

An unencumbered first lien on the property being purchased.

Are early prepayments allowed?

Yes, with appropriate prior notice.

Is any insurance required in connection with the loan?

Yes, generally insurance on the property itself is required as a condition of the loan, and sometimes, life insurance on the borrower as well. Most lenders offer competitive pricing on these products, but the borrower is free to obtain coverage independently if he so desires.