Market research and transaction profitability calculation

Market research and transaction profitability calculation

Market research and transaction profitability calculation

Lately I've been reading lots of posts and lots of comments about deal worthiness.
People ask me whether it is worthwhile to invest despite the heavy taxation and all the associated expenses.
So first of all, the answer is yes, not only should we continue to invest because that's just how our money works.
True, it is harder to make a good exit deal today, but the deals are there and those who are struggling will find them and succeed despite all the difficulties involved.
So let's make some order when calculating transaction viability (very long post caution) ?).
When we come to buy an apartment, there is a lot of related expenses to be priced.
With the exception of purchase tax and praise tax, there are many other "small" expenses that are not always known to us, so we do not take them into account, which ultimately leads to a significant reduction in the viability of the transaction and sometimes even a loss.
In order not to get to the point where we realize that we lost after we purchased the apartment, a profit and loss report must be prepared for each transaction separately.
On one hand the expenses.
On the other hand, revenue - sale and rent.
When we prepare a statement of profit and loss of a transaction, especially an exit transaction, every shekel should be considered (I also recommend increasing and increasing the expenses). Everything is significant.
Once everything is listed we know if the deal is good for us or needs further negotiation effort.
Remember - a good deal is a deal that promotes us to the goal.
Of course, the basis on which to lean is the price of the transaction, assuming you have done extensive market research and you know for sure that the price of the transaction is significantly lower than the market price of the same transaction that you want to sell after the improvement.
purchase tax
The "heavy" part of the purchase price of the apartment.
Unfortunately, the purchase tax is constantly updated.
His last update was on 16.01.2019.
From a website https://taxes.gov.il
The following are the tax steps for a single-family dwelling from 16.1.19 to 15.1.20:
Pursuant to the provisions of Sections 9 (C 1 C) (3) of the Purchaser of a Single Residential Apartment (in accordance with the definitions in the Law), from 16.1.19 to 15.1.20, a purchase tax will be charged according to the steps below:
1. On the par value up to 1,696,750 ₪ - no tax will be paid
2. On the value exceeding 1,696,750 ₪ to 2,012,560 ₪ - 3.5%
3. On the value exceeding 2,012,560 ₪ to 5,192,150 ₪ - 5%
4. On the value exceeding 5,192,150 ₪ to 17,307,170 ₪ - 8%
5. On the value exceeding 17,307,170 ₪ - 10%
The following are the purchase tax steps that apply to the purchase of an "additional apartment" (which is not a unit):
In accordance with the provisions of section 9 (c. 1) of the Purchaser Law of a Residential Apartment (other than a single dwelling) from 16.1.19 to 15.1.20, a purchase tax will be charged according to the steps below:
1. On the par value up to 5,194,225 ₪ - 8%
2. On the value exceeding 5,194,225 ₪ - 10%
The purchase tax must be paid up to 60 day from the signing of the sales contract.
Financial expenses
Financing your purchase with a mortgage or any other loan will result in interest payments.
Did you know that interest payments can accrue to hundreds of thousands of shekels ?! .
It is always advisable to take a mortgage consultant who will close the best mix for you according to the transaction goals of course.
In addition, the following should also be included in the expense calculation:
1. Portfolio opening fee of 0.25% of loan amount. You can bargain with the banks for this fee. There is usually no problem "cutting" it by 50% or more. You have to take into account that this amount will be deducted from the first mortgage payment and therefore it will be higher than you thought
2. In the case of a new apartment, I always take 12 months of payments into account and add it to my expenses (if I was less profitable ?).
Lawyer
In every real estate transaction whether it is for sale and if it is for sale, a lawyer should be taken. Always !
A lawyer takes fees ranging from 0.25% to 1% of the transaction price (the price depends on the experience of that lawyer, the location of the transaction and its complexity). Of course, this price has to add VAT of 17%.
When calculating a real estate transaction from the buying stage to the selling stage (the exiting transaction), the attorney's fees must be calculated for both buying and selling (many times people "forget" to calculate the hassle in selling the property and this is significant for calculating the profitability of the transaction)
In the case where a new apartment is purchased from a contractor, an additional payment of up to NIS 5,000 + VAT must be taken into account for the contractor's attorney (once it was more) depending on the price of the transaction.
Mediation
The real estate agent brings together apartment sellers and potential buyers of those apartments.
Real estate agencies hold a pool of properties for sale or rent, including real estate agents.
After the sale / rental operation, the broker is entitled to receive his salary called “brokerage commission”, from the seller and / or the buyer. In Israel, the brokerage fee is not fixed by law.
An average brokerage fee is 2% of the transaction value to which VAT of 17% must be added.
Keep in mind that even at the point of sale, if you decide to do so through a brokerage office (I only work with realtors), there is an additional commission that ranges around 1% of the transaction value to which VAT of 17% should be added.
Interior design and renovation
One of the highest expenses (perhaps excluding the purchase tax and commendation tax) is the renovation and interior design expenses.
The renovation expenses vary according to the state of the apartment and mainly according to the purpose for which the apartment was purchased (exits, long term rent or residential).
There are apartments that can be easily refreshed and the price will be accordingly.
In contrast, there are apartments for total dismantling and rebuilding and it will be a very expensive renovation.
When you come to calculate the cost of the renovation, you always have to take a face designer who will do a neat script of before and after including everything and of course he wrote quantities. The cost of the interior designer that varies from designer to designer and from city to city must also be calculated.
Once we have a neat script, you should contact at least three refurbishers for a tidy quote.
In addition, it must be ascertained whether the quotation includes materials and if the cost of materials should not be checked.
Calculation of renovation cost = interior designer cost + materials cost + renovation cost.
Appraisers
Before going to a deal, I always recommend taking a private appraiser who works with the bank for which you intend to take out a mortgage.
The cost of a private appraiser varies and costs an average of NIS 2,500, with VAT of 17% added.
Price range available for private appraisals:
Appraiser estimate for the apartment - NIS 3,000 - NIS 1,500 on which VAT of 17% should be added.
Estimates of a home appraiser - NIS 4,500 - NIS 2,500 on which VAT of 17% should be added.
In addition, one of the requirements of the bank that gives you the mortgage is to take an appraiser on his behalf who will evaluate the property the bank is about to pledge.
Price range available for bank assessments:
Appraiser estimate for the apartment - NIS 800 - NIS 500 on which VAT of 17% should be added.
Estimates of a home appraiser - NIS 1,400 - NIS 800 on which VAT of 17% should be added.
If this is a new apartment from a contractor, no private appraisal is required as the bank's appraisal is not required.
Appreciation Tax
An appreciation tax is a government tax on capital gains charged to the seller of an asset (unless it is exempted by law) on the difference between the value of the consideration received from the sale of the asset and the value bought from the asset.
The value at which the property is bought includes not only the price of the property but also all the expenses incurred on it during the purchase and over the years (subject to the invention) - brokerage, lawyers, purchase tax, renovation, ongoing care and maintenance of the property and more…
Those who calculate the praise tax are the lawyers, but always check them.
An important tip - anyone who bought the apartment before 1.1.2014 - is eligible for a remission until 2014.
The tax assessment is complex and varies according to our personal situation (inheritance, single dwelling, dwelling…)
It stands at an average of 25%.
By law we are supposed to pay the said tax within 60 day of the sale.
Unless we do so, we are expected to pay arrears and accrue fines, linkage differentials and interest.
The above is not a substitute for legal advice.
insurance
Mortgage insurance is a derivative of life insurance and structure insurance designed for mortgage buyers to buy an apartment.
Mortgage insurance is first and foremost intended to serve the lender bank, but it also guarantees you in case you get into trouble.
Life insurance - By law, the mortgage must be insured with life insurance so that in the event of the death of the loan debtor or material damage to the property, the loan can be covered.
Structural insurance - the purpose is to cover the loan you took from the bank in the event of a major damage to the apartment structure, which would cause a significant decrease in the value of the apartment and in fact render it worthless for the bank.
These insurance prices vary depending on your personal situation and of course the location of the apartment you purchased and the price according to the contract or appraiser's estimate. The average of such insurance is around NIS 150 per month.
When buying such insurance, ask what the total amount I will pay for each mortgage period. Don't be tempted to purchase the “cheapest monthly” insurance that it will cost over the years.
Various fees
This is the "little money" that hardly goes into the calculations, but can still reach a few thousand shekels.
These are fees such as:
1. Book a bag at Taboo
2. notary
3. Warning note registration
There may be some more small ones.
This is an average of several hundred shekels.
I always write 1,000 ₪ different considering the feasibility of my transaction.
When buying a new apartment, the connection to electricity, water and gas must also be calculated. These are increases that can reach a few thousand shekels - I calculate them at 3,500 ₪ on average.
In summary, we learned how to build a proper profit and loss statement of a transaction so that we know how to price it correctly.
Apparently, the price of the apartment is significant, but there are many additional expenses that are not included, neither in the price of the apartment nor in financing (mortgage / commercial loan), which makes their calculation a significant writer and greatly affects the viability of the transaction.
Successfully ?

feeling happy.

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Responses

  1. I did a personal calculation (without equity, taxation of a second apartment) that even with an exit transaction (I took a year to make a purchase, improvement and sale) when the purchase is 30% below market price, I earn only NIS 50. And really not sure it's worth all the effort and fuss…

  2. Gil Rosenberg

    Could there be a situation where the state prints so much money, that the value of the money can reach a state of value of "paper" and therefore people can not pay rent ?? Is there such a situation? Or am I really exaggerating ???

  3. If you're planning a flip deal, the life insurance and structure issue is actually important in looking at the initial payments.
    There are companies that give two months for free and so on.
    If you plan to sell within a short time (up to two years) you can save a few hundred more shekels ..