Airbnb Revolutionizes the Tel Aviv Apartment Market

But by catering to tourists, it could reduce the supply of regular rental units in the city.

Eyal Toueg

It’s a spacious, bright vacation apartment on Tel Aviv’s posh Kikar Hamedina. The kitchen is well-equipped and it looks out onto the upscale street that is a symbol of the good life enjoyed by wealthy Israelis. But the truth is that those who spend their holiday in this apartment, which is equipped with a shower with a chandelier, don’t have to be terrible rich. For about 750 shekels ($200) a night, eight guests can spend the night there. And for another 326 shekels, they will get cleaning services. No hotel in the area can compete with that.

The landlords of the apartment are presented on the website of Airbnb — which features places all over the world that are available for short-term rentals by their owners — as two women who were born and raised in Tel Aviv and are now raising their children there. Limor and Sharon are at their guests’ disposal, they state in their listing. It’s doubtful whether the tourists who stay in the apartment would have any major interest in the two women’s real connection to the unit. They’re more interested in the fruit and wine basket that is left for them, the nice bed linens and the shiny clean floors.

But Sharon Tamir, 49 and Limor de Bruce, 44, who own the “Hametavhot” real estate agency and are responsible for these touches and a lot more, have found that Airbnb does not necessarily represent competition, but is in fact a platform they can work with. And they’re not alone. Anyone looking on the Airbnb website will see that there are a number of regulars who have four or five different locations for rent in Tel Aviv. And it’s obvious that these are not people simply looking to rent out their own place on a one-time basis while they take a vacation abroad.

In the case of the Kikar Hamedina apartment, it all began in March, when the real owners of the unit decided to put it up for sale. “Sometimes apartments can be on the market for several months until they are sold. The apartment owners began to get stressed and considered lowering their price,” De Bruce says. “Instead, we thought about how the apartment can be made income-producing while it’s up for sale. We started to research short-term rental. There are many websites specializing in this, the best known of which is Airbnb.” And since rentals are short-term, the apartment can be shown to potential purchasers between guest stays, and the income from short-term guest rentals is generally much higher than the rent that regular tenants would pay, she adds.

The cost of renovation

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Before the apartment begins generating revenue, however, an investment is required to make it attractive to its new clientele. “It’s important to turn the apartment into something as close as possible to a hotel room,” De Bruce explains. “It needs to be furnished to the level of glasses and plates. We also require that it be equipped with wireless Internet, an LCD television and essential appliances.” The first two apartments outfitted for short-term rental required an investment of 20,000 to 30,000 shekels.

Tamir and De Bruce acknowledge that renting through Airbnb is not for everyone or for every apartment. “A few months ago, one of our clients put a three-room apartment on Kikar Hamedina with parking and an elevator up for rent for 7,500 shekels a month. It stood vacant for several months, but nonetheless we decided not to rent it through Airbnb, even though it could have generated tens of thousands of shekels over that period. It’s an apartment that’s not appropriate for us because the investment involved would be too great — around 40,000 to 50,000 shekels, and we don’t want to get people involved in such an expense.”

When it comes to promoting an apartment on the Airbnb website, Tamir and De Bruce discovered a number of variables that affect demand for an apartment. Large units, for example, have an advantage over hotel rooms because they can accommodate more people. They are also featured higher up on the website in a search, which make them more likely to be seen among pages and pages of options. And an owner with a number of apartments that are favorably reviewed by users will also be given priority in listing all of their properties.

When people select an apartment they are afraid that they won’t be getting what they see on the website. After they leave the apartment, they write a review and after three good reviews, Airbnb moves all of the apartments offered by the same owner up in the search results, Tamir and De Bruce explain. And what can an owner earn? The two apartments that they rent to foreign tourists, which can accommodate seven or eight guests earned their owners $35,000 in three months this spring, the pair say, but they acknowledge that smaller properties are not as profitable. “We have a gorgeous apartment in Jaffa that is right for [just] two people, so it almost never comes up on [Airbnb] searches,” De Bruce says.

Airbnb charges homeowners a commission of 6% to 12% and gets an additional 3% to guests. Tamir and De Bruce declined to specify what additional fees they charge their clients, but they note that their turnaround in responding to inquiries on their listed properties is fast and they are available around the clock, which in turn boosts the placement of their properties on the Airbnb website. De Bruce, who is a mother of four, is in charge of responding to nighttime inquiries. “I’m not sleeping at night anyway,” she remarks.

Attractive to investors

Investors are sometimes interested in buying apartments that can be rented to foreign tourists on a short-term basis. “About a year ago, there was an upsurge in tourist rentals,” says Shahar Klugman, from Anglo-Saxon realty’s Rothschild branch in Tel Aviv. “We are encountering this a lot,” he says. “They are looking for an apartment that will be easy to rent, preferably near the beach or in the heart of the city in the Rothschild and Shenkin areas.”

Although it may appear that everyone is earning a lot of money from these short-term rentals, they have one major drawback and that is that demand from tourists from abroad is not steady. This summer’s fighting between Israel and Hamas and its allies in Gaza, for example, left its mark, prompting foreign visitors to cancel or defer their trips to Israel.

“A family that was staying [in one of our properties] this summer asked to leave after a few days,” Tamir recounts. “The [Airbnb] website policy entitles them to receive a full refund [for unused days]. Of course we also had cancellations from people who had not yet arrived in the country.” And one group of eight people who did not want to cancel didn’t make it to Israel after their flight was cancelled, she added.

A seasonal business

Foreign tourist business is also marked by seasonal ups and downs, and during low-demand periods, those offering holiday rentals have to lower their prices if they don’t want them to remain vacant. Eli Cohen, 49, has three apartments in Tel Aviv that she rents out directly through Airbnb, without using a realtor, and she too has experienced the volatility of the business. “Occupancy is never 100%,“ she says, “but you need to look at monthly and annual revenues from an apartment. Ultimately it generates more than regular rentals. Even after accounting for renovation and maintenance expenses and bills for things like municipal taxes and electricity, which in a regular rental are paid by the tenant, it’s still a profitable business.”

Airbnb has totally changed the short-term rental sector, says Cohen, who is employed in her regular job in the communications sector. She began working with the website about a year ago. “In the past, the apartments were not rented out as intensively as they are now. Guests would stay for two to three weeks, whereas now people also come for two or three days. When people hear about my side business, they raise their eyebrows,” she acknowledges. “They don’t understand why I need such a headache, but I love it. It’s fun for me that the apartment is beautiful, fun to have guests and that people enjoy themselves at my properties. For all intents and purposes, it’s a bed and breakfast.”

It’s not just for the pleasure of it, however. It’s a business in every respect. “An apartment that is rented for 4,500 shekels a month [on a regular lease] can generate $100 a day [380 shekels]. Even if the apartment is only rented out for half the time, and even if it entails expenses, it is worth it,” Cohen says. Even at today’s high real estate prices, one can make money from such a business, she adds. “You can buy a two-room apartment in Jaffa for 1.5 million shekels, and make a great income from it, with a 10% return.”

At a 10% return, it would appear that as an investment, renting to tourists beats regular rentals, which in Tel Aviv, for example, are producing returns of only 3%. And that prompts the question as to whether vacation rentals in the city will ruin the market for regular tenants by reducing the supply of apartments for long-term rental, and by boosting rental rates. “It does hurt tenants,” Cohen acknowledges, “but everyone has his own considerations when it comes to maximizing profits. I make a cold economic calculation, but I also have an ideology. I want foreign tourists to have a stay with added value, beyond the bed that I provide them with.”