How Much Money Do I Need to Buy This Apartment?
Updated: Oct 1
By Gedaliah Borvick
My friend, let’s call him David, had a little over $1m in equity to spend on a property. He focused on Givat Hamatos because he loved the large outdoor spaces in the Aderet Yerushalayim project and because he was a big fan of Rabbi Kalman Topp, who will be creating a kehilla there.
When I mentioned closing costs, David realized that he would need significantly more cash than he initially thought to complete the purchase.
Correct, I told him. The purchase price is only the beginning of the equation.
“So how much money do I need to buy a three-bedroom apartment with a kosher sukkah balcony?” was his next question.
There are a number of pieces of the financial puzzle to consider. The first piece is the price of the property.
The second piece is financing. An overseas buyer can borrow up to 50% of the purchase price, while an Israeli citizen, or someone planning to make Aliyah over the next few years, can borrow up to 75% of the purchase price for their primary residence.
The third piece is closing costs, which can add up to 13% or so above the purchase price for overseas buyers and are paid soon after contract signing. Let’s break down these costs:
1 | Acquisition tax: For overseas buyers, the rate is 8% for the first 6m NIS. For olim, the rate is 0% for the first 2m NIS, then 0.5% up to 6m NIS.
2 | Attorney: Around 1% plus 18% value added tax (VAT), bringing the total cost to 1.18%.
3 | Real estate agent: 2% plus VAT.
4 | Mortgage broker: If you take out a mortgage, mortgage brokers generally charge 1% plus VAT, depending on the mortgage size.
5 | Currency conversion: Forex companies charge around 0.5%, including VAT, to convert foreign currency to shekels.
6 | Developer’s attorney: In a new project, there is often a registration fee of around 7,000 NIS, including VAT, paid to the developer’s attorney.
In addition, when buying on paper, a portion of the unpaid purchase price is sometimes subject to the Building Construction Input Index, an inflation-based index that tracks changes in construction costs. In this particular project, the index linkage is waived.
Finally, the developer does not provide light fixtures, appliances, furniture or bedroom closets. If you plan to rent out the apartment, you needn’t worry about these costs, as your tenant will bring their own appliances, closets and furniture.
Let’s translate all this information into real numbers by going back to David. David was purchasing as an overseas buyer, so the acquisition tax rate was 8%. His question was: Can I afford a three-bedroom unit with nice balcony space?
In this project, prices for three-bedroom apartments with a partial sukkah balcony start at around 3.9m NIS, or around $1.3m these days. A larger unit with over 30 square meters of outdoor space was available for around 4.4m NIS, or $1.47m. One last unit that caught his eye was a garden apartment with a huge 166 square-meter garden, priced at around 5.16m NIS, or approximately $1.7m. For this exercise, we will talk in dollars.
Although the buyer puts down only 10% at contract signing and pays the final 90% at the end of construction in 1.5 to 2 years, we’re going to be super conservative and calculate all the costs as if they had to be paid today, because sooner or later you’re going to have to pay the piper. Note that, unlike in most other countries, the closing costs in Israel get paid upon contract signing.
Let’s start with the basic three-bedroom unit priced at $1.3m. A 50% mortgage would be $650,000, leaving $650,000 of equity to be paid by the buyer. Closing costs for an overseas buyer, figuring 13%, would total around $170,000. That brings the buyer’s cash requirement to $820,000.
We then added another $100,000 to cover furniture, bedroom closets, appliances and a $20,000 upgrade to the kitchen. Although the developer provides a nice kitchen, our Anglo clients usually choose to upgrade. The total cash outlay would therefore be around $920,000, which fits within David’s budget.
We then focused on the larger three-bedroom apartment with more outdoor space for $1.47m. The mortgage would be $735,000, leaving $735,000 of equity. Closing costs would be around $190,000. Adding $100,000 for the upgraded kitchen, appliances, closets and furniture brought the total cash outlay to approximately $1.025m.
Bingo. We had a good fit. This larger apartment offered more indoor space and, more importantly, the substantial outdoor space that David wanted.
He loved the garden unit, but it would add close to $200,000 in cash to the equation. David played it smart and followed his brain, not his heart, and purchased the larger three-bedroom apartment with great balcony space.
The lesson is clear: Before determining what apartment you can afford, you need to understand how much cash the entire transaction will require, including financing, closing costs and everything you’ll need to buy after you get the keys. The purchase price is only the beginning of the equation.
Although we’ve focused here on the economics, the numbers are only part of the decision. Finding the right community and the right property are just as important. Our role is to educate you on all of these factors so that you can make the best decision for your family.
Gedaliah Borvick is the founder of My Israel Home (www.myisraelhome.com), a real estate agency focused on helping people from abroad buy and sell homes in Israel. To sign up for his monthly market updates, contact him at gborvick@gmail.com.
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