One of the first apartments I managed, was a holiday/short-term rental home in Ramat Bet Shemesh.
The owner had recently purchased the apartment with the intention of maximising his income. The area has a high percentage of anglos who have family living abroad. There are no hotels in the area, and so, he reckoned that his apartment would be in constant demand from families visiting their loved ones. Therefore, he asked me to rent the apartment as a holiday home, as the income per week would be far greater per week/month, than it would be with long term tenants.
The logic was sound, but as it turned out, his profits were no better than had he rented it out long-term. Here’s why:
A: Firstly, as a holiday home, the apartment needs to be luxurious and furnished luxuriously. The tiles, the decor, the bathrooms, the kitchen and the lounge all need to have a beautiful finish, for it to be attractive to holidaymakers. While this is a one-off expense, it is an expensive one-off which needs regular maintenance. Now if the apartment is brand new, being bought from a kablan, it would be possible to decorate the apartment with a higher grade finish at less of an expense, and for it to be ready on completion. However, if it is a second hand apartment, it would need at least a month, probably more, for renovation. So that would be a further loss of at least one month’s income.
B: Secondly, the apartment would need to be fully furnished with beds, sofas, washing machine, dryer, table, chairs, cupboards, bookcases, television, oven, microwave, kettle, shabbat kettle, toaster, and all other kitchen appliances. You would also need to supply bedding, crockery and silverware, and have a healthy supply of coffee, tea, sweeteners, kitchen role, toilet paper and cleaning materials. And many more.
You would also need to put paintings on walls, a rug on the floor and possibly even books on the bookshelves. All these appliances are the responsibility of the tenant when renting unfurnished, yet fall upon the landlord when rented as a holiday home. Once again, these are one off costs, but they will take time to offset and will need maintenance.
C: Thirdly, there are monthly costs. Arnona (local building taxes), electricity, gas, water, vaad bayit and internet are all payments that are usually paid by the tenant. However, for a holiday home, the landlord has to cover all those costs. The landlord will also have to cover the costs of advertising the apartment every month.
D: A fourth point to consider is that the extra profitability of short-term rentals is when it is constantly occupied. However, that is very difficult to achieve. For example, you may have the apartment occupied between from Friday to Sunday, but new tenants might not be available until the Thursday. Sometimes having a short gap is also difficult. If tenants leave at 10.30 on Sunday, and new tenants are due to arrive that day at 2.30. You essentially have 4 hours to clean the apartment and have beds ready with freshly cleaned bedding. Additionally, there will be quieter periods in the year where demand for a short-term rental will be low and the apartment may stay empty for a couple of weeks.
E: Furthermore, short-term rentals are prone to have last minute cancellations. The clients will lose their deposit, but the landlord won’t be able to claim the full amount he was expecting.
F: Short-term are rentals have greater levels of wear and tear. Suitcases regularly being moved in and out damaging the paintwork, the doors etc. The occupiers are there for just a few days and so, don’t treat the items carefully and so they get damaged far more frequently.
G: Tax rates - Long term rentals are taxed at the low rate of 10% for anything over 5,000 NIS per month. Short term rentals are considered to be a business, and their tax rates are higher and more complicated.
H: Did I mention Pesach? Yes, you can charge more for Pesach, but how about new utensils, and a major clean up?
One final point to consider is that short-term rentals are a big headache to manage:
Constantly advertising the apartment
Showing the apartment to potential client’s family
Negotiating with potential clientsLast minute cancellations
Being available for the new tenants when they arrive and when they leave - whatever hour it is. Checking the apartment for breakages. Things going missing - arguing about it and pricing the damages.
Replenishing supplies
In my case, after two years the landlord realised that his additional profit was marginal and not worth all the extra hassle - partly because I told him that I wasn’t prepared to manage it anymore – and I don’t do holiday rentals at all anymore. The apartment is now a regular rental property and produces a healthy income.
In my opinion, the only time it is worthwhile to rent your home as a holiday home, is if you intend to use it when you come to visit. Then, it is worthwhile renovating the apartment luxuriously and furbishing it fully, whilst earning some extra income to cover the cost of maintaining the apartment.
If your apartment is in a tourist area with many hotels, you may find that your income from renting it long term, will more than cover your stay in a nice hotel, offsetting the need to use it as a short-term rental.
Good luck with whatever you decide to do with your apartment. I’d be very happy to discuss it with you.
Moshe
moshe@israel-properties.com
+972-54-767-5106