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Short-term vs. Long-term Rentals

Published on 18/08/2016 by Avi Goldberg‏

There’s a popular debate amongst Jerusalem property owners whether it’s better to rent out their apartment for long-term occupancy, or for short-term rentals?

Word on the Jerusalem street has always raved about the higher profits to be gained from short-term vacation apartments. Yet nowadays- is this really true?Obviously there are pros and cons to both options. But even if you base your decision entirely on bottom-line profits and ROI, the answer isn’t crystal clear.

Let’s take a look at the big picture to gain a better understanding of all the advantages and disadvantages.

Short-term (weekly or monthly) rentals

Pros:

There is great potential for high (and quicker) income. You can generally charge more per week for a Jerusalem vacation rental .

You can book short-term reservations around your own calendar, leaving the apartment available for personal use.

Your apartment is supervised by a management company, with agents visiting regularly to move tenants in and out. With this arrangement, you can rest assured that someone is always keeping a watchful eye on your property.

 Cons:

All utilities must be paid by the owner, not by the tenant. In addition to electricity, water, gas, etc…, this also includes Arnona (city taxes) and Va’ad bayit (communal expenses for the building).

Real Estate Management fees are higher, as more services are supplied and more frequent attention is necessary.

Income is inconsistent, somewhat seasonal, and more dependent upon the rate of tourism.

With so many different occupants entering and exiting on a frequent basis, wear and tear on your apartment can be much greater. This results in more necessary repairs, as well as higher cleaning and maintenance expenses.

In addition to full furnishings, vacation rentals generally supply all linens, basic kitchen appliances and equipment, and bathroom toiletries. Many extra costs are wrapped up in these provisions.

Long-term Rentals (minimum 1 year) rentals:

Pros:

Monthly income is consistent and dependable. Vacancies, which can be financially draining, are naturally much less of a concern with long-term leases.

Marketing the apartment and handling issues with occupants is much less time-consuming.

The renter is fully responsible for paying all utilities and bills.

 Cons:

Once the lease is signed, your property becomes inaccessible to you. Let go of any notions of using it for a personal get-away or impromptu family vacation.

If the market value or demand for your apartment increases, you can’t raise the rent until the lease is up. You therefore have a decreased opportunity for increased profits.

COMPARE THE NUMBERS

Sample Apartment for Rent in Jerusalem:

100 sq/m, 3 bedrooms, 2 bathrooms, central location, fully furnished

LONG-TERM RENTAL SHORT-TERM RENTAL
ANNUAL RENTAL INCOME 78,000 NIS(6,500 NIS/month) 105,000 NIS ($30,000/year)
MANAGEMENT 7,200 NIS 18,673 NIS (15% + VAT)
REPAIRS unknown unknown
ARNONA paid by tenant 8,000 NIS
VA’AD BAYIT paid by tenant 2,400 NIS
ELECTRIC paid by tenant 6,000 NIS
WATER paid by tenant 1,000 NIS
GAS paid by tenant 1,000 NIS
TOTAL 70,800 NIS 68,427 NIS

(Note–  these numbers are approximations for the sample apartment, and will vary considerably according to the specific property)

 In the past four years, the vacation rental market in Jerusalem exploded. Hundreds of new apartments were welcomed onto the scene by tourists looking for new alternatives to pricey hotels. Yet this real estate boom was followed rapidly by a crash, as prices dropped. Competition for the best vacation rental is fierce. Today, the vast majority of homeowners will therefore reap a higher ROI by renting out for long-term tenancy.

However, when dollars and cents (and shekelim) aren’t your only consideration, then marketing your property as a vacation rental may be preferable. Namely- owners who also want to use their apartments for their own holidays or brief retreats, may be better off with short-term leases that will cover costs. Of course, this is a highly personal decision – dependent upon individual wants and needs. Each situation is unique; it’s essential to consult with a qualified real estate expert to help you make this important decision. For expert personalized attention and advice, contact Avi Goldberg, City of Gold Apartments.

Long or short, it is imperative that you hire a reliable Jerusalem Property Management and Rental Company to help determine and manage the terms of your rental unit. There is no substitute for an efficient,  professional agent who knows your apartment, checks out prospective tenants, handles rental contracts, collects deposits and payments, and acts competently as the go-to person for any and all issues that arise. Your property is valuable, and you need an on-site manager who makes it his or her business to uphold that value.

Category: Articles