Villa Vacation Rentals in Israel Becoming a Big, but Problematic Business

For $8,600, 17 friends can enjoy a spacious home with a pool and other amenities for a week. The only problem could be the neighbors

The city view of Eilat, Israel, August 8, 2019.
Olivier Fitoussi

When they had finished the 11th grade, Gaya and her friends decided they would celebrate their last summer vacation in school together the way young Israelis do – with a trip to Eilat. But instead of taking rooms at a youth hostel, they opted for a private home – one of scores advertised online for short-term rental in the southern resort town.

They chose one on Mishol Mango Street in Eliat’s Shahmon neighborhood. It’s an expensive area, but local sources estimate that about half the villas are not occupied on a permanent basis. They were bought as investment properties and are rented out – either to tenants who live there, or to vacationers for as short a period as a weekend.

“We were 17 friends,” says Gaya. “We went to Google and searched for ‘villas in Eilat’ and called the first one we saw. Only after we sealed the deal did we check what others had to say about it and the reviews were terrible. But it was a little too late to cancel, We rented the house for the week for 30,000 shekels [$8,600].”

That worked out to 1,768 shekels per person, which is a lot less than a hotel. The villa had seven rooms on three floors, two swimming pools and speakers in every room. “The only disadvantage was that the area is a little far from the sea, so you have to take a taxi,” she said.

Home owners are, needless to say, wary about renting their properties to large groups of young people, but they try to minimize the risk by installing cameras, at least in outdoors areas.

“One evening we were sitting and talking into the wee hours by the pool and the landlords called and said they watching us by camera. They told us it was time to go in,” said Gaya. “It was a little annoying, but I assume they don’t have cameras inside and don’t watch what we’re doing all the time.”

Renting out private homes to vacationers is nothing new in Israel, but the phenomenon seems to be growing quickly. Demand is growing because vacationers are less enamored of guesthouses and supply is on the upswing as property investors look for ways to get the best return.

Goodbye guesthouses

Rafael Rose, whose Nino Vacation Management firm started out marketing Airbnb properties and more recently expanded into villas explains why.

“People are no longer prepared to pay 1,000 shekels a night. A group of 18 people can get a villa for 4,000-4,500 shekels and the price person comes to just 200,” he said.

As the rent Gaya and her friends paid shows, the owner of an Eilat villa can earn in two months what he or she can make renting aTel Aviv apartment to ordinary tenants over the course of a year.

For their part, holiday-makers get a private home, even a luxury property, and duplicate the experience of a Tuscany or Provence villa.

For big families typical of ultra-Orthodox Jews or large groups of friends it can be a much better deal than a hotel.

The best properties that come with a pool, Jacuzzi and fully equipped kitchen, can cost about half what a guesthouse or quality hotel will run and offers far more privacy.

A short internet search shows a enormous number of properties available in Israel in every place from the Galilee to Eilat. It’s easy to fund one that exactly meets your needs and at the location you want. There are sites offering villas in the Galilee, Herzilya Pituach on the coast, in Jerusalem or near the Kinneret at a wide range of prices.

At the same time, it’s an industry shrouded in secrecy. The exact addresses of the properties never appear online and most owners won’t reveal anything more than general information. When the time comes to pick up the keys, renters say they often meet the owner at some other location rather than the house itself.

Most of the homeowners we tried to speak to for this story, hung up on us. Those who were willing to speak did so only if their names were not mentioned nor the villa or villas they own.

“It’s a gray market,” said one owner. “While it’s a legal business and we pay taxes as the law requires, we run a hotel business in areas they are zoned for residential use, not for hotels. From that prospective, we can run into problems.”

The problems surface especially in the summer months when young people rent out home for graduation parties and other kinds of events whose noise reverberates through quiet neighborhoods.

Although almost all these villas are posted on Airbnb, it seems that most of them are intended for Israelis, not overseas tourists. Nor, if you’re a couple looking for a quiet getaway weekend, are they great deals. You can get a double room at a hotel or a guesthouse for a lot less.

Even guest house owners, facing declining demand for their properties, have gotten into the game.

“Israelis are looking for the cheapest option, They’re not interested in the level of service, they don’t care how much I put into hosting, good food or what wine I put on the table, so I can give them a villa for 20 people if they want it,” said a guest house owners in the Galilee town of Rosh Pina.

The problem for homeowners is not only the gray legal status of the business, but marketing the property and dealing with constantly changing tenants.

Middlemen

For that reason, almost all the properties are marketed and managed by small to medium-sized business in the same of the real owners. Many of these middlemen use Airbnb to market the properties. Bigger firms don’t want to touch the business because of the regulatory problems.

Rose of Nino Vacation Management said profits from vacation rentals vary enormously. On a villa worth 2 million to 2.5 million shekels, revenues can reach 500,000 shekels annually.

“But that’s a gross amount – there are a lot of expenses. The house has to be fully equipped to a high standard because people don’t want to stay at an ordinary home. They’re coming for a vacation and want to have a different experience,” he explained.

Not any house will do: It has to be in an area that draws tourists and should have good views. Furniture and appliances can reach 200,000-400,000 shekels, although homes catering to younger groups can compromise on the quality and quality of both. Then there are taxes, maintenance and marketing costs. Most of the income comes during the peak vacation months of July and August, Rose said.

“It’s an income but it’s not an especially big income,” said one middleman who deals in Eilat properties. “Even though Eilat is a year-round tourist town, most of the villas are used during summer vacation time – and from that you have to get your annual income.”

Eilat has tried to rein in the phenomenon, but has failed entirely. People in the business estimate the city hosts 40-50 properties. Not only do neighbors resent short-term renters, the hotel industry doesn’t like the competition.

To at least keep the neighbors happy, owners and middlemen try to vet prospective renters. One group they like a lot are women planning all-female parties, which usually involve less alcohol, noise and damage.

“We carefully check whose going to be coming to the house. Young people are good money, but we don’t need complaints from the neighbors and problems with the city,” said one middleman.