You have reached the prudent conclusion that you want to invest in the real estate market? Excellent! You now start to make enquiries, to talk about it with friends, acquaintances and family; you read blogs on the subject and perhaps inspiring books. But then you start to get confused with so much information and varying opinions on where it is most worthwhile to invest in real estate – in Israel, or perhaps overseas? In this article we review the pluses and minuses of every kind of investment, and endeavor to clarify the subject the best we can.
The preliminary stage prior to any type of investment – defining our character as investors
As a preliminary stage and as part and parcel of the decision on where and how to invest, we must first define for ourselves our character as investors. What is more important to us? High returns or increased value? Security and easy management or profitability? Are we prepared to conduct numerous flights overseas or distant travelling in Israel itself, or our personal lifestyle is so pressured, that if we acquire a property for investment, we would rather it be in our home town or within easy reach, of say half an hour’s drive? Would we feel comfortable to conduct negotiations in a strange language? Are we interested in a property to improve it, or this would be to much of a hassle for us and we are interested in as little bother as possible? Answering questions of this sort will help us to understand what kind of investments, and where, most suit us.
Defining type and quantity of capital available to us for investing
The second and very important stage is defining the capital available to us and tailoring it to the investment. We must sum up the available equity along with our savings, loans that we can take out against pension funds and advanced learning funds, the possibility of obtaining a mortgage loan on the property we would like to purchase and on our existing property. One of the advantages of investing in Israel versus overseas, for example, concerns the subject of leverage. Should you choose to conduct real estate investments abroad, you must take into account that the entire transaction will take place in cash without any leverage. This should be weighted in the profitability of your overall investor profile. The big advantage of investments in Israel is that you can obtain a mortgage on properties you purchase, thereby increasing your basket of assets through the equity at your disposal.
Do investments abroad yield greater returns than in Israel?
You might hear from many that assets overseas yield substantially greater returns than those in Israel. Overall, this is true, but in the final analysis, not necessarily so, and it is important to decide what is most important to you based on the above remarks. The average return obtainable on real estate investments in Israel ranges from approx. 2 to 4 percent on average, depending on the area and nature of property, versus returns of up to approx. 10% in various countries in Europe and in the United States, for example. These figures, however, must be viewed as gross not net figures, since investing in assets abroad incurs additional asset management expenses, flights abroad to deal with the property, and of course, a greater risk that the property could remain empty for lengthy periods. Additionally, we would have to weigh up the return versus the leverage. When we are required to pay the entire amount in cash as against only half the amount, the other half financed by a bank, we can in fact estimate the return on investment in Israel differently: we can take into account the return on the part we put in from our equity, thus doubling it. Moreover, value increase on property in Israel is usually more certain than on property overseas, another factor that could have a bearing on profitability.
The real estate market in Israel is relative expensive
One advantage of the real estate market overseas is its very low point of entry. You can purchase apartments in Greece and other countries in Europe for prices as low as 50,000 Euro. Needless to say, the market in Israel is set much higher and requires more capital, but we have already discussed the financing options available in Israel versus purchasing with ready cash overseas.
