Tonight we will all recline at the Seder table and read the Haggadah, which includes, among other things, the passage on “The Torah speaks of four sons: one wise, one wicked, one simple, and one who does not know how to ask.” And in the spirit of the Haggadah I wish to speak about four types of investors comparable to the four sons.
The first character is the wise one. It seems no accident that he is the one who opens; he serves as a marker to aspire to. This is the wise one, the knowledgeable, the interested and the questioning. So too is the wise investor, the one who checks, researches and learns, and asks questions before making the investment. From his standpoint, “I know what I don't know,” and he is open to learning new knowledge all the time out of humility. This character is the healthiest and most correct starting point for an overseas investor. An investor who recognizes the limits of his knowledge regarding a specific market, local regulation, legal, tax and cultural aspects, or even the physical condition of a remote property - is an investor who will act with the necessary caution and turn to professional help.
The second son is the wicked one. Some commentators argued that this son's use of the general, offhand (and perhaps also disdainful) term “service” to describe the tradition, as if it were a burden of servitude, is the reason he is considered wicked. The wicked investor, in my eyes, is the investor who is willing to do anything to earn another euro or dollar, even at the price of not telling the truth, concealing defects in the property, or failing to point out the counterparty's mistakes to him.
The third son is the simple one. He asks a much shorter question: “What is this?” A kind of question with no sophistication and perhaps no wisdom, a question typical of small children who are curious about what they discover, but without depth and understanding. They point at everything and ask: What is this? What is this? So is the hesitant investor, who asks many questions and has trouble reaching a decision until he finally, at times, loses the deal. From his standpoint “I don't know what I don't know,” and there is curiosity and openness to learning in him, exposure to more fields all the time, to meeting different people, opinions, places and ideas and being open to learning from every person and every opportunity, but there is a catch, since this is, as noted, an opening to wasting/missing potential.
The fourth son is the one who does not know how to ask, who does not know how or what to ask, perhaps from complete lack of understanding or from apathy and lack of interest. So is the naive investor, the one who does not know what to ask or is simply so eager to make the investment that he is indifferent or uninterested in the warning signs and races ahead into the investment. From his standpoint, “I know that I know / that I do not know how to ask” is the most dangerous for an investor, especially when he operates in a foreign arena.
Recognizing what you do not know is not a weakness, but rather a force that drives you to seek the missing knowledge or to turn to professionals who will fill it in for you. In the complex world of real estate abroad, this approach is the key to reducing risks and increasing the chance of success. I recommend that every investor considering entering the international real estate field adopt the approach of “I know what I don't know,” and not hesitate to seek advice and a preliminary, in-depth check before transferring any funds.
Beyond questions - actions: It is important to remember that it is not enough just to ask questions (like the “wise one”). You must also make sure you receive reliable answers and carry out the required checks (Due Diligence) - legal, financial and physical. The true “wise one” not only asks, but also acts in accordance with the answers and information he gathers.
And corresponding to four investors one can also speak about four types of developers:
The wise developer understands the complexity inherent in real estate investments and development overseas. He is not satisfied with general knowledge, but researches the target market in depth - the economic trends, the local laws (planning and building, taxation, tenant protection), and the cultural nuances. He knows how to ask the right questions and assemble for himself a “hive” of the right professionals (local lawyers, CPAs, appraisers, supervisors). He understands the critical importance of comprehensive due diligence (legal, financial, physical) before entering a deal, and takes care to build reliable relationships with local partners and suppliers. He understands that he “does not know everything” and therefore relies on professionals such as a lawyer who works in accompanying investors and developers in international real estate, to bridge knowledge gaps, to draft agreements that protect him (and his investors, if any) and to make sure the process is carried out properly while minimizing risks.
The wicked developer arrives on the international scene with excessive self-confidence, at times based on successes in the local market. He tends to think that “real estate is real estate everywhere” and belittles the fundamental differences between markets and countries. He may reject advice from local professionals (“I know better”), cut short due diligence processes (“a waste of time and money”), and ignore risks unique to the target market. Instead of asking in order to learn, he asks in order to prove that he “knows,” and thereby may lead himself and his investors to failed deals or to legal and financial entanglements stemming from ignoring local reality. The failure to understand “what he does not know” and the refusal to acknowledge it endanger the entire project.
The simple developer enters the international market with enthusiasm but with only a basic understanding. He is driven by good will and profit potential, but lacks the depth required to understand the complexities. He asks general and direct questions (“Is this area good for investment?”, “How much does an average apartment cost?”), but does not dive into critical questions concerning legal aspects (registration of rights, liens), tax aspects (tax treaties, reporting duties), or operational aspects (managing properties remotely, differences in labor laws for contractors). He identifies the need for help but may settle for simplistic answers or rely excessively on a single source, without cross-checking information and adequate independent verification. He needs guidance and close accompaniment to understand the full implications and risks involved in international real estate development, and at times is unaware of the depth of knowledge required.
The developer who does not know how to ask is drawn to the possibilities inherent in international real estate, perhaps following aggressive marketing or success stories, but lacks the most basic knowledge in the field. He does not understand fundamental concepts such as types of property ownership in different countries, legal structures for holding properties (such as an LLC in the USA), the implications of exchange rates, or the importance of background checks on local partners or contractors. He simply does not know what he is supposed to ask or check. This developer is especially vulnerable. Physical distance, language and cultural gaps, and unfamiliarity with the local system place him at high risk of falling victim to fraud or simply making disastrous wrong decisions. He critically needs an “opening” - proactive and comprehensive guidance from an experienced professional, such as a lawyer who can identify the knowledge gaps, explain the risks, and guide him step by step through the process, with emphasis on both legal and entrepreneurial protection.
Remember, success as an international real estate developer depends not only on the ability to identify opportunities, but also on awareness of complexity, willingness to learn and adapt the approach to the target market, and the ability to rely on the right professionals.
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית