Buying to invest: what changes in the financing

An investment property is assessed differently from a home you live in. The rules on how much can be financed, the tax questions, and what happens when the flat is empty all change the picture. It is worth understanding them before you start looking.

Your own funds and how much can be financed

For an investment property the share that can be financed usually differs from that for a single home, so more of your own funds are often needed. Check the current rules and what applies in your case before you commit to a deal.

Rental income

Expected rent sounds like a natural source for the mortgage repayment, but it is not always counted in full, and it does not always arrive every month. Build the plan so that the repayment is still met without strain in months with no tenant or with a large repair.

Taxes and costs

When buying an additional home, purchase tax may be different, and later there are questions of tax on the rent and capital gains tax on a sale. These are matters to check with a lawyer and an accountant, and to build into the numbers from the start.

For illustration

Say the expected rent on a flat is ₪5,000 a month and the planned repayment is ₪4,500. On paper there is a surplus, but one month without a tenant, or a repair costing a few thousand shekels, turns it into a deficit. That is why you build a cushion. The figures are for illustration only.

Cash flow and the mix

With an investment property, monthly cash flow is what matters: what comes in, what goes out and what happens when something changes. The mix plays a part too, because different tracks react differently to changes in rates and the index. More in the article on the mortgage mix.

Before you commit

• Check how much of your own funds your case requires.
• Work out the repayment without assuming the flat is always let.
• Find out the taxes on the purchase, the rent and a future sale.
• Keep a cushion for repairs and gaps between tenants.

Test cash flow without assuming full occupancy

• Compare expected rent with repayments and ongoing expenses, rather than judging the purchase price alone.
• Test a vacancy period and a substantial repair without assuming you can sell immediately.
• Check tax costs and legal questions separately with the relevant professionals before using them in the investment calculation.

Common questions

General information only, not personal advice. Every figure here is for illustration.