As the economic situation in Israel worsens, more and more Israeli investors are discovering the potential in real estate investments overseas. Whether buying an investment apartment independently or as part of an investment group, each option carries its own advantages and disadvantages.
The woman who sat across from me insisted on opening the conversation by saying that they had checked and read a great deal about me on the internet before setting up the meeting. She said that the couple wanted to invest the husband's pension money abroad, had met with several companies dealing in the matter and in the end decided to move forward with a company with a positive reputation. They were offered 2 investment options: buying an apartment or house in the US, or alternatively investing as part of a group or fund that would buy several properties, in which every member of the group or fund would be a shareholder in a dedicated company to be set up in the US and would hold shares in proportion to his investment relative to the total investment of all group members.
The couple sitting across from me were lost in a sea of options. They dreamed of an investment that would yield them sweet fruit overseas, but the decision between buying an apartment independently and joining an investment group tore them in two. “It's like choosing between being captain of a small boat in a stormy sea and sailing on a grand luxury liner,” said the husband, a lover of control and entrepreneurship. His wife, by contrast, preferred security and peace of mind: “I don't want to be responsible for every bolt on the ship. I want to enjoy the view.”
“Control is the key to success in real estate” - Grant Cardone.
Studies show that 70% of investments in real estate groups yield a higher return than private investments. So which is preferable?
Buying an apartment independently abroad
Buying an apartment independently abroad is like the journey of a lone entrepreneur. You are master of your fate, you set the rules and you take all the glory (and the risk). You choose the perfect location, the dream property and the winning rental strategy. But “with great power comes great responsibility” (Spider-Man, or perhaps Voltaire).
When you buy on your own, you set all the parameters - the location of the property, the type of property, the timing of the purchase and sale, the management and rental strategy (some will see this as an advantage, and others will see this responsibility as a disadvantage). The profits from renting out and enhancing the property belong to you in full. You can sell it any time you wish. At the same time, you are exposed to all the risks involved in owning the property, such as real estate market fluctuations, regulatory changes, difficulty finding tenants and more.
Buying through an investment group
Joining an investment group is like joining a prestigious club. You enjoy perks such as access to exclusive properties, professional management and risk diversification. But, as in any club, there are also rules and regulations. You give up part of the control, and decisions are made by majority vote or, mostly, by the investment managers.
When you are part of a group, investing in several properties reduces the risk involved in investing in a single property, the investment is shared among several investors so that each investor needs lower equity, and management is usually carried out by a professional company that handles all the property's management aspects. On the other hand, you have limited influence on management and strategic decisions related to the property, and selling your share may be more complex and dependent on the consent of the other investors.
Choosing the strategy most suitable for you depends on your investment goals, the level of risk you are willing to take, your equity and your personal preferences. Whether you choose to go alone or together, do not forget Warren Buffett's mantra: “Risk comes from not knowing what you're doing.”
Carry out thorough research, consult experts and do not be tempted by empty promises.
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית