Buy vs. Rent - What is better?
Real estate prices in Israel have been steadily increasing, posing a dilemma for many individuals contemplating whether it is the right time to buy. Generally speaking, buying is a favorable option unless you possess expert investment knowledge to ensure that your long-term returns exceed the value of the property. However, since most of us lack extensive investment experience, the answer tends to lean towards buying.
However, the real question we need to address is what course of action to take when you are uncertain about where to live, whether you are already a resident or planning to make aliyah.
Buy vs. Rent: When Uncertainty Persists
This question is particularly relevant for those considering aliyah or individuals who are unsure about their desired location, especially if there is a significant gap between the available options. If you find yourself in this situation, the idea of renting an apartment for a year or two and then deciding on the area's suitability may seem appealing. Let's delve deeper into this matter, examine the numbers, and compare the two options.
Since your intention is to purchase a property in the future, we will solely compare the expenses of renting to the costs of acquiring and selling the initial apartment. Let's assume your budget is 1 million NIS. Here are the approximate significant expenses associated with buying and selling a 1-million-worth property:
Lawyer: 17,550 NIS (8,775 NIS x 2)
Broker: 44,800 NIS (22,400 NIS x 2)
Setting aside minor expenses and considering the broker's ability to negotiate the best price for you (thus potentially reducing the brokerage fee), the additional expenses amount to 62,350 NIS.
Now let's evaluate the renting expenses:
Broker: 3,500 NIS
Monthly rent: 36,000 NIS (3,000 NIS x 12)
Total: 39,500 NIS
Another factor to consider is the rise in housing prices. According to the CBS Housing Price Index, housing prices have increased by approximately 7% in the past year (2020-2021). Let's assume that this increase was a one-time occurrence, and subsequent years will witness a more modest 2% price increase. Adjusting for this, we deduct 20,000 NIS from the first option (as the property is sold for 20,000 NIS more) and add 20,000 NIS to the second option (since the property purchased after a year will cost 20,000 NIS more). Consequently, the revised figures are as follows:
Buying and selling expenses: 42,350 NIS (62,350 NIS - 20,000 NIS) Renting expenses: 59,500 NIS (39,500 NIS + 20,000 NIS) Difference: 17,150 NIS
Based on these calculations, renting for just one year would increase your expenses by 17,150 NIS, and renting for two years would inflate them by 57,150 NIS. The higher the property price, the greater the difference. Moreover, if we acknowledge the broker's role in saving you money during the purchase and sale of the initial property, the renting expenses could potentially double.
While it remains challenging to make an unequivocal decision on whether buying is always the superior choice when you are uncertain about your desired location, one thing is clear: renting, even for just a year, substantially increases your expenses by tens of thousands of shekels.
If you are still indecisive or seek ways to reduce your expenses, please don't hesitate to contact us. We promise to provide you with the finest