Mad Hon · Housing cost

Price renting against buying, on your own numbers

Price renting against buying, on your own numbers. A step-by-step Mad Hon guide for your Housing cost score, written for olim.

1. Retire the line about rent being money thrown away.
Both routes buy you somewhere to live. They differ in what else they do with your money and in which risks they hand you: an owner takes on a large leveraged position in one specific asset in one specific street, plus the maintenance and the transaction costs at both ends. A renter keeps the capital liquid and takes on the risk that rents rise and that the landlord ends the lease. Neither is a waste. The question is which leaves you in a better position over the period you will actually be there.
2. Be honest about the horizon before running any numbers.
This is the step written for an oleh and it changes more outcomes than any figure below. Most people who make this decision here make it in the first two or three years, which is precisely the period in which they know least about where they want to live. Buying converts a reversible decision into an expensive one, with transaction costs paid on the way in and again on the way out. The commute, the school, the community and the noise of a street are all things a pilot trip does not tell you. That is not an argument against buying. It is an argument for putting a number on how long you expect to stay before you put a number on anything else, because the whole comparison turns on it.
3. Total up what renting really costs, including the Israeli lease shape.
Rent, plus arnona, plus va'ad bayit, plus contents insurance, plus what your unspent deposit earns or fails to earn where it currently sits. Then add the structural facts of an Israeli lease: contracts typically run a year with an option, security is often given as a bank guarantee or a signed promissory note rather than as cash you could otherwise be earning on, an increase at renewal is normal, and a move every two or three years carries real costs in agent fees, moving and time. Count all of it for the number of years you named in the previous step.
4. Total up what owning really costs, well beyond the mortgage.
The monthly payment is the part everyone budgets. The rest is arnona, va'ad bayit, building and contents insurance, the mortgage life insurance a lender will require, ordinary maintenance, the periodic building levies a va'ad can impose for a lift or a facade, and the return you are no longer earning on the money that went into the deposit. On the way in there is purchase tax, mas rechisha, which runs on progressive bands and is paid to the Tax Authority separately from the deposit and the loan. A relief specific to olim exists and its rules have been amended, so price it with the Tax Authority's own calculator or with an advisor who has handled one recently rather than from an article. Add legal fees, and agency fees where you buy through an agent.
5. Price the exit, because the exit sets the horizon.
Selling costs legal fees and usually agency fees, and mas shevach, the real-estate appreciation tax, can apply to the gain. There is an exemption for the sale of a single dwelling, and it comes with conditions including a holding period and a limit on how often it can be used: the exemption now runs on an 18-month cycle. The rule people still quote about one exempt sale every four years was abolished for sales from 2014, and sale tax, mas mechira, was abolished entirely in 2008, so neither belongs in your budget. If you are still a foreign resident rather than an Israeli citizen, the single-dwelling exemption is not automatic and has its own requirements. Get this priced before you buy, not when you sell.
6. Run both totals for several horizons, and find where they cross.
Total cost of renting for N years against total cost of owning for N years, both including everything above and both including what the money not tied up would have earned. Then vary N. The output you want is not a winner, it is the crossing point: the number of years at which owning stops being the more expensive option. Compare that against the horizon you named at the start, and the honest answer is usually visible without any further argument.
7. Treat continuing to rent as a decision with a date on it.
If the numbers and the horizon point at buying, the next work is the mortgage itself: what you can borrow, what you can carry, and how the file has to look to an Israeli lender. If they point at renting, that is a real answer rather than a deferral, and it comes with one action: put a date in the calendar 12 to 24 months out to run it again, and run it sooner if your rent, the market or the interest rate moves noticeably. What you should not do is leave it as an open question that gets re-argued every time somebody at a dinner table has an opinion.

Price renting against buying, on your own numbers. A step-by-step Mad Hon guide for your Housing cost score, written for olim.

1. Retire the line about rent being money thrown away.

Both routes buy you somewhere to live. They differ in what else they do with your money and in which risks they hand you: an owner takes on a large leveraged position in one specific asset in one specific street, plus the maintenance and the transaction costs at both ends. A renter keeps the capital liquid and takes on the risk that rents rise and that the landlord ends the lease. Neither is a waste. The question is which leaves you in a better position over the period you will actually be there.

2. Be honest about the horizon before running any numbers.

This is the step written for an oleh and it changes more outcomes than any figure below. Most people who make this decision here make it in the first two or three years, which is precisely the period in which they know least about where they want to live. Buying converts a reversible decision into an expensive one, with transaction costs paid on the way in and again on the way out. The commute, the school, the community and the noise of a street are all things a pilot trip does not tell you. That is not an argument against buying. It is an argument for putting a number on how long you expect to stay before you put a number on anything else, because the whole comparison turns on it.

3. Total up what renting really costs, including the Israeli lease shape.

Rent, plus arnona, plus va'ad bayit, plus contents insurance, plus what your unspent deposit earns or fails to earn where it currently sits. Then add the structural facts of an Israeli lease: contracts typically run a year with an option, security is often given as a bank guarantee or a signed promissory note rather than as cash you could otherwise be earning on, an increase at renewal is normal, and a move every two or three years carries real costs in agent fees, moving and time. Count all of it for the number of years you named in the previous step.

4. Total up what owning really costs, well beyond the mortgage.

The monthly payment is the part everyone budgets. The rest is arnona, va'ad bayit, building and contents insurance, the mortgage life insurance a lender will require, ordinary maintenance, the periodic building levies a va'ad can impose for a lift or a facade, and the return you are no longer earning on the money that went into the deposit. On the way in there is purchase tax, mas rechisha, which runs on progressive bands and is paid to the Tax Authority separately from the deposit and the loan. A relief specific to olim exists and its rules have been amended, so price it with the Tax Authority's own calculator or with an advisor who has handled one recently rather than from an article. Add legal fees, and agency fees where you buy through an agent.

5. Price the exit, because the exit sets the horizon.

Selling costs legal fees and usually agency fees, and mas shevach, the real-estate appreciation tax, can apply to the gain. There is an exemption for the sale of a single dwelling, and it comes with conditions including a holding period and a limit on how often it can be used: the exemption now runs on an 18-month cycle. The rule people still quote about one exempt sale every four years was abolished for sales from 2014, and sale tax, mas mechira, was abolished entirely in 2008, so neither belongs in your budget. If you are still a foreign resident rather than an Israeli citizen, the single-dwelling exemption is not automatic and has its own requirements. Get this priced before you buy, not when you sell.

6. Run both totals for several horizons, and find where they cross.

Total cost of renting for N years against total cost of owning for N years, both including everything above and both including what the money not tied up would have earned. Then vary N. The output you want is not a winner, it is the crossing point: the number of years at which owning stops being the more expensive option. Compare that against the horizon you named at the start, and the honest answer is usually visible without any further argument.

7. Treat continuing to rent as a decision with a date on it.

If the numbers and the horizon point at buying, the next work is the mortgage itself: what you can borrow, what you can carry, and how the file has to look to an Israeli lender. If they point at renting, that is a real answer rather than a deferral, and it comes with one action: put a date in the calendar 12 to 24 months out to run it again, and run it sooner if your rent, the market or the interest rate moves noticeably. What you should not do is leave it as an open question that gets re-argued every time somebody at a dinner table has an opinion.