In honor of International Women's Day today, I want to tell you about Hadar, a Tel Aviv high-tech woman and a good friend of my eldest son. It turns out Hadar had always dreamed of an apartment on a Greek island. Since Hadar knows that I work in international real estate, she asked my son to set up a meeting with me to consult about an offer she had received from a friend, who described it as a once-in-a-lifetime opportunity: to join as a partner in a company that is buying an old building in Crete, renovating it while converting it into an apart-hotel, and selling the apartments at a profit. As part of the agreement and the investment, Hadar was told, she would be entitled to a renovated apartment in the building.
“Do you know who the partners in the company will be? How many partners will there be?” I asked.
“I didn't ask, because I didn't know what I needed to ask and check. That's why I asked to meet you,” she replied.
I smiled to myself with satisfaction. Not every day do people come to a meeting who understand the importance of proper advice and support.
Hadar was enthusiastic. A relatively low investment, high profit potential, and above all - an apartment of her own on the sun-drenched shores of Greece. I entered the picture like the devil sitting on your shoulder and whispering in your ear all the bad things, everything that can go wrong along the way, everything you need to be careful of when entering this kind of investment.
“You have no previous experience in real estate?” I asked.
“No.”
“So let's start from the beginning - I think you need to understand more details about the offer to understand whether it suits you. There are many issues here that need to be examined. What type of company is being set up? Who will the shareholders be and what will your share be? What will your ability be to influence decision-making in the company?”
“I understand that I need to know who I'm getting into bed with, but who said I want to have any ability to influence decisions?” she asked innocently.
“Because in the end you are putting in money, which if not managed properly can also go down the drain,” I replied. “You need to understand that there is no gain without risk. From disagreements between shareholders, to incorrect planning that may lead to large or unexpected expenses, which may require you, as a partner in the company, to bring in more money for the venture.”
I watched her shrink in the chair across from me. “I understand,” she said with a half smile. “And I had already seen myself as an international real estate developer.”
“And we haven't yet talked about checking who their team is, who the manager is, who the architect is, who the engineer is, who the contractor is and what experience he has in this kind of work, the local lawyer accompanying them in Greece. For all these parties, the identity of the professional hive accompanying the project has a decisive influence on its success,” I added.
“I knew it wasn't simple and that I can't just give them the money like that, but I didn't think it was so complex,” she replied.
“And I haven't yet gone into questions of taxation with you, in Greece and in Israel, not to mention the question of the business model and the business plan, because from what you're telling me I can't understand how you will be left with an apartment in the project and also make money from it.”
“I understand completely. It sounds a bit unclear to me too, this whole story. That's why I asked to try to understand a bit more from you. I'd be glad if you could accompany and guide me along the way,” she concluded.
The questions I raised with Hadar are very important to understand when entering a real estate investment, certainly of the partnership-in-a-company-in-a-foreign-country type. You need to understand the meaning and consequences of the partnership, and whether it even suits your needs and character. After all, in the end you become part of those responsible for the results of the venture/project, and then what happens if there is a loss?
After we understood from the developer/organizer the structure of the deal offered to Hadar, I met with her again to explain that this was joining a partnership that would be established here in Israel and in the future she would receive shares in a Greek company that would be established for the project. The developer/organizer would take on the management powers, without the other partners having a right to take an active part in decision-making and in day-to-day management. In addition, the developer/organizer reserves the right to increase the investment amount by bringing in additional investors who could dilute Hadar by up to 50% of her initial holdings.
It also became clear to us during the initial checks that the developer/organizer does have experience in organizing purchase groups in Israel, but this is his first venture abroad. In addition, during my conversations with him I understood that in return for raising investors he is willing to give friends or fundraisers percentages in the venture in exchange for the money they raise.
There is no need to elaborate, because at this stage Hadar stopped me. “This is not an investment that suits me,” she said. “I want something more solid and safe. If I ever want to develop real estate or take risks, I'll do it with people I know and trust. But I want an apartment or a house in Greece or on one of the islands. Can you help me?”
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית