The differences between investing abroad and investing in Israel
You’ve come to the welcome conclusion that you’re interested in investing in the real estate market, great. You’re starting to get interested, talking to acquaintances, friends and family. You’re reading blogs on the subject and maybe even inspiring books, and you’re perhaps starting to get a little confused by the wealth of information and the different opinions about where it’s better to make real estate investments, in Israel or perhaps abroad? In the following article, we’ll review the advantages and disadvantages of each type of investment and do our best to sort out the issue.
A preliminary step before any type of investment – defining our character as investors
As a preliminary step and as part of the decision on where and how we should invest, we must first define our character as investors. What is more important to us? High profit or appreciation? Security and ease of management or profits? Are we available for multiple flights abroad or even long trips across the country? Or is our life so stressful that if we purchase an investment property, it is better to have it in our city or at most in a city that is up to half an hour away from us. Do we feel comfortable negotiating and reading contracts in another language? Are we interested in a property that we would like to improve or is this headache too much for us and we generally want as little hassle as possible. Answering questions like this will greatly help us know which investments to make and where.
Defining the type and amount of capital available to us for investment
The second and very important step is defining the capital available to us and its suitability for investment. We are required to summarize the equity available together with the savings available to us, loans that we can take against pension and education funds. A possible mortgage on the property we would like to purchase and a mortgage on our existing property. One of the advantages of investing in Israel compared to investing abroad is, for example, the issue of leverage. If you choose to make real estate investments abroad, you must take into account that the transaction will be carried out as a cash transaction without the ability to leverage. You must weigh this in the overall profitability of your investor profile. Investing in Israel has a great advantage in that you can receive a mortgage on the properties you purchase and thus increase your portfolio of assets using the equity available to you.
Do investments abroad yield greater returns than in Israel?
You may hear from many that assets abroad yield significantly higher returns than those in Israel. This is largely true, but not entirely accurate and equally important, you must decide if this is what is most important to you based on the previous sections. The average income you can achieve on real estate investments in Israel is about 2-4% on average depending on the region and nature of the property, compared to returns that reach even 10% in various countries in Europe and the US. On the other hand, these numbers should be considered gross and not net, since managing properties abroad adds additional costs of managing the property, possible flights abroad to handle the property, and of course a greater risk that the property will stand empty. You also need to weigh the profit against the leverage. When we are required to put the entire amount in cash versus only half of the amount and the other half financed from the bank, we can actually calculate the profit on an investment in Israel differently – we can calculate the profit only on the part that we financed from our equity and in effect double it. What’s more, the increase in value on assets in Israel is often more guaranteed than on assets abroad, and this should also be factored into the profitability consideration.
The real estate market in Israel is relatively expensive
One of the advantages of the real estate market abroad is its very low entry threshold. You can purchase apartments in Greece or other European countries for ridiculous amounts of even 50 thousand euros. Of course, the market in Israel is more expensive and requires more capital, but we have already talked about financing options in Israel compared to purchasing in cash abroad.
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