Investing in real estate abroad is often the fulfillment of a dream. Financial freedom, a fresh start, or simply a way to escape the routine a little. But like any journey, there are challenges along the way. Ups and downs are an inseparable part of the road to becoming an experienced real estate investor.
Recently I met a couple who came to me on a friend's recommendation. They have an apartment used for short-term rental in an Eastern European country, and they are worried about rumors of regulatory changes that could harm their investment. An unclear letter they received from the management company only heightened their fears.
The apartment, bought a few years ago, also serves them for an annual vacation. They are satisfied with the management company and with the yield, but the rumors about changes in the law trouble them.
I explained to them the expected changes, which are meant to reduce the supply of apartments for short-term rental and bring down long-term rents. Among the changes: a requirement to obtain the neighbors' consent for short-term rental, an increase in taxation of such rentals, and even defining a rental as illegal if it is not reported to the tax authorities.
Imagine having to get your neighbors' consent in order to rent out your apartment for a night! In addition, taxation on such rentals is rising, and failure to comply with the new regulations could be considered an illegal rental.
“They are changing the rules of the game,” the wife said in frustration. “How do they expect us to manage? You buy an investment apartment and they don't let you earn,” her husband added angrily.
I calmed them and explained that in Israel too the laws change all the time. I mentioned the report on the change in tax on rent that the Ministry of Finance is planning to impose, so that tax would in effect be paid from the first shekel of rent. I stressed that every investment, and real estate in particular, involves risks, and it is important to carry out thorough checks and to implement risk-management strategies.
“Investing in real estate abroad is like a gamble,” I said. “Even with all the checks and the best legal advice, there is always risk. Political changes, economic crises, and even pandemics can affect the yield and the value of the property.”
“Rule number one is don't lose money. Rule number two is remember rule number one.” Warren Buffett
The couple were stunned. Their dream of passive income and an annual vacation in their apartment abroad was turning into a nightmare.
This story is an important reminder that real estate investments, in Israel or abroad, require careful thought and planning. Don't let dreams overshadow reality - always be prepared for changes and consult professionals.
And what about the couple? Well, we are examining their options. Sell? Rent long term? There is still a lot to think about...
I am a lawyer, but beyond that, I am also a human being. I understand the concerns, the frustration and the helplessness that investors experience in situations like these.
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית