You have decided you want to get on the bandwagon of the real estate market and become investors. The decision to invest is excellent in itself and is always preferable to doing nothing with your money, and if you have checked out the subject and come to the conclusion that in terms of character and capital, the real estate market suits your investment needs, that is superb! Investment in this market in Israel is considered excellent, at least according to data of the past decade, and considering the unique nature of the Israeli real estate market, it will probably continue to be so in the coming decades. But before we take our first steps, we need to make sure that we have acquired basic knowledge and understanding of how this market works and what its ‘do and not do’ rules are.
We have compiled for you in five stages everything an investor new to the field needs to know when seeking to purchase his first or even second property as an investment.
Stage 1 - Testing financial capabilities
Long before we look for a property for investment, and even before we sit down to formulate our investment strategy, we need to know what our financial options are; that is, what we are coming to the market with. Our financial capabilities consist of our existing capital and our ability to raise additional capital. Existing capital can be in the form of cash in our current account, advanced study funds, deposits, securities, etc. We need to sit down and make as accurate a table as possible of all the resources available to us that constitute initial equity on which we will build our value balance. The second step in this process is to assess our ability to raise additional capital. A first obvious option is to take out a mortgage loan on our property if existent. At this stage, it is important to know that even after the recent update on the mortgage ban on existing property in favor of investments comes into effect, this is still possible, both through banks and non-banking entities. In order to obtain an accurate and professional picture, it is recommended to use a professional mortgage adviser who can optimize both the terms of the loan and give you an accurate picture of the capital that will be available to you from this option. Other possibilities for raising capital are through loans obtainable from our pension funds and advanced study funds provided with excellent terms. So after we have conducted this check and we know how much money is available to us for purchasing a property, we can move on to the next stage which is planning how the investment should be made.
Stage 2 - Formulating an investment strategy
The realm of real estate investment comprises a variety and a world of possibilities, each suitable in a different way for different people. We must formulate a modus operandi that suits us according to our knowledge of our specific capabilities, and, needless to say – our needs and expectations of the investment. For example, we have to decide whether we want to purchase a derelict apartment and renovate it prior to renting it out, or perhaps, even sell it relatively quickly; or we are apprehensive of the ‘headache’ this might cause and prefer a property that is ready as it is to rent out. We must also decide on the investment period – short–, medium– or long–term. This decision impacts considerably on what we do next and the type of property we should purchase. For example, long-term investment can direct us to purchase a property in an area earmarked for urban renewal.
Stage 3 stage - Deciding on suitable area for investment
The sweeping recommendation you will receive from every real estate investment guru will concern focusing on a specific area. Any decision regarding an appropriate area for investment must be made on the basis of at least two considerations. The first is that the area must correspond to the amount of capital available to us. The second has to do with our ability to manage the property. If we don’t mind travelling a lot, and distance is not an issue for us, then we can spread our investment over several areas. However, if our lifestyle is stressful and ease of management of the property is a must for us, we will necessarily have to select an area relatively close to us.
Stage 4 - Locating a suitable property and conducting all necessary checks
Good, high-quality real estate investments require in-depth market research in order to locate the appropriate property. It would be a mistake to see an apartment or two and, on this basis, clinch a deal. We must carefully scrutinize the selected area, study it, understand what goes on there, learn the going prices there of both the sale and rental markets; learn the target market to which we will rent or sell in the future; understand what the plans are for this area – if it has future development plans; is there to be a light railway in the future in this area; and more. We need to conduct research that will provide us an overall picture of the future of the area where we are to purchase our property. Additionally, after we have located a promising property after in-depth research, it is important to visit the property on several occasions at different times of day, in order to see what is happening around it in depth.
Stage 5 – Conducting negotiations, acquisition, improvement and rental
A last, but by no means least, important step prior to the purchase is negotiation. We must come there equipped with all the supporting facts. It is important to be very calm and also to be willing to withdraw from the transaction, not to be too enthusiastic, and of course to use the services of a good and competent local lawyer to conduct for us all the appropriate legal checks regarding the property, to ensure that we do not get into a problematic transaction.
Were you able to finalize all the details regarding the price, conduct all the necessary checks and sign a contract? Excellent! Now is the is time to implement your chosen strategy regarding possible improvement, and sale or rental of the property.
