“I have a modest sum and I want to invest it in real estate in order to grow my capital,” he wrote in a message he sent me, asking for my help.
I explained to him in a reply email that the sum he has is really too small to let him buy a property that would be his own, but that if he was willing to consider it, I know developers who could help him grow his capital even when the sum at his disposal is low. I went on to say that there are several options in which he could invest his money, even when it is a sum of just a few tens of thousands of dollars. We set up a consultation meeting.
When the young man arrived at my office, he said that he had saved money during his military service and afterwards worked in several jobs, and what was left after the big post-army trip is not a large sum, and he wants to start investing in real estate. He is afraid of a situation in which he lends his money to a developer, especially since none of the offers he had received so far included collateral that looked sufficient to him. He is looking for an investment option that would give him peace of mind together with a chance to grow his initial capital.
I suggested that he invest in a fund. Among our office's clients there are quite a few developers who raise money through a fund, in which a property or several properties are bought by a company set up in the target country, whose shareholders are the investors. When the property is sold, the profits are divided among the investors in the fund. This is a kind of group purchase, I explained to him, in which you can take part in an investment with a relatively small sum. The other option with the equity he has is to buy a small property, usually a studio apartment of about 30 sq.m., in an Eastern European country (and in that case too additional financing from an Israeli or local bank may be needed).
“Don't put all your eggs in one basket. Spread your investments across a number of properties in different countries.” - Andrew Carnegie
When you buy the property independently, there is
- full control over the choice of the property and the way it is managed, and
- you can tailor it to your own specific needs and wishes.
On the other hand,
- the risk is higher when everything depends only on you, on your experience and knowledge
- and on your ability to choose the right property, the right management and the local team that accompanies you.
By contrast, when it comes to buying through a real estate fund or a group of buyers
- you have no control over the choice of the property and its management, and less personalization.
- There is less liquidity - because selling your share in the property or fund sometimes takes longer, because of the fund's bureaucracy or the investors' agreement.
- Management fees may reduce the yield.
On the other hand
- there is the option of buying a wider variety of properties that would not be available to you independently.
- Risk is spread by investing in several properties and sharing risk among all the investors.
- Professional management of the properties through the fund.
- Less dealing with bureaucracy and legal matters, because someone does it for you.
There is no clear-cut answer on the best way to buy a property abroad. The decision depends on you, your needs and your abilities. The choice between buying a property abroad independently, through an international real estate fund or through a group purchase depends on your goals, your capabilities and the level of risk you are willing to take, I concluded.
How do you carry out your investments overseas?
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית