For almost 20 years I have been accompanying investors who want to invest abroad, and more than once I have written here about distinctions between different types of investors, and today too I want to focus on the distinction between learning investors and social media investors.
There are investors like Dror, who before scheduling the consultation meeting did “homework” on the Athens real estate market, studied the city map, its neighborhoods and suburbs. He took part in several webinars on Greece by various companies, and even in a conference or two on real estate investments abroad. Dror was not lazy or stingy and got on a plane, even before coming to the meeting with me, in order to “feel the ground,” met with brokers, did a few property tours. When we met his questions were focused and relevant: he wanted to understand in depth the checks that would be carried out as part of the due diligence, the procedure conducted during the negotiation of the agreement, how registration in the Greek land registry is carried out and what its implications are, what the management company's obligations toward him are, and more.
Eliav, by contrast, called to arrange a meeting after seeing ads on Facebook and attending a webinar by one of the companies operating in Bucharest, and asked whether a certain project is a good project. When I tried to explain to him that I could not give my opinion because the question of whether it is a good project or a less good one is tied to the purpose of buying the property, from there he moved on to haggling over our office's fee, and even informed me that we had a week because he had already bought a plane ticket and intended in a week to fly to Bucharest and sign the contract to buy the apartment. When I asked what he needed me for, since a week is not enough both to carry out due diligence and to negotiate the wording of the agreement, and it may also be that our recommendation after the due diligence would be not to buy the apartment, his answer was: “Just go over the contract and tell me everything's fine.”
The gap between these two investors illustrates a broader phenomenon that I have identified over the past decade, and especially since the spread of social media and the immediate accessibility of information of every kind. On the one hand, accessible information allows potential investors to be exposed to many opportunities all over the world. On the other hand, this information is at times shallow, tendentious and biased in favor of the interests of the publisher.
The learning investor: investing in knowledge that leads to a long-term return
Investors like Dror understand that before investing in a property, one must invest in knowledge. They know there are no real shortcuts, and that every investor who does not want to feel like the naive tourist who pays three times as much for a taxi from the airport to the city center must do preparatory work.
Dror, as he went on to tell me at our meeting, downloaded financial reports by several international financial bodies on the Greek market, examined the real estate crises that struck Greece in the past, and analyzed the market trends since. Beyond his examination of the different neighborhoods in Athens, he cross-checked information from different sources regarding rental yields, did not settle for the promises of local marketers, but examined official statistical data. When he was impressed by a certain neighborhood, he checked what the municipality's plans for it were, whether there were development plans or perhaps infrastructure problems that could make living there difficult.
Dror focused on substantive questions: What is the tax on rental income? Do rental laws in Greece protect the tenant or the landlord more? Are there special bureaucratic requirements for foreign investors? And of course, the most important question - whether his strategy suits the Greek market.
The social media investor: when the decision comes before the research
Eliav's case represents a growing phenomenon - investors who rely mainly on information they consume from social networks, marketing webinars and WhatsApp groups. Eliav, as I discovered later in our conversation, had already paid a deposit of 5,000 euros to the marketing company, even before the meeting with me. When I asked him why he chose Bucharest in particular, his answer was: “Because that's what everyone is doing now. I saw on Facebook that a lot of Israelis are buying there and that the yields are crazy.”
Eliav could not explain which areas of Bucharest he was more impressed by, did not examine the price differences between different neighborhoods, was not interested in the municipality's plans for developing infrastructure, and did not examine the legal implications of foreign ownership of a property in Romania. When I shared with him the alerts I had received from our local office in Romania regarding expected changes in taxation on the purchase of investment apartments by foreigners, he seemed completely surprised.
The lessons for the real estate investor abroad
The cases of Dror and Eliav teach us several important lessons:
1. Don't be tempted by the “missing the train” narrative - One of the common marketing tactics on social media is creating a sense of urgency and fear of missing out. “Real estate prices in Romania are rising fast,” “Your chance to buy in Athens before it's too late,” and the like. A sophisticated investor knows that investing in real estate is not a decision made in haste, and that the real estate market is usually a relatively slow market. A rash decision may cost several times the price of proper due diligence.
2. Beware of herd syndrome - The fact that “everyone is doing it” is not sufficient justification to invest in a particular market. Markets that have become “hot” among Israeli investors may already be at a stage of overpricing, or may be exposed to high volatility when the wave of investors weakens.
3. Understand the motives of the information providers - Behind the ads on social media and the marketing webinars there are usually clear economic interests. Take into account that a brokerage company marketing apartments in Budapest will present you with the most optimistic data, and not necessarily the full picture.
4. Carry out comprehensive due diligence - Unfortunately, I have seen too many investors regret a hasty purchase. Comprehensive due diligence includes not only the property itself, but also the local market, the legal situation, taxation, rental laws, and the economic forecasts for the area.
5. Think about the exit strategy - Investors like Dror ask: “How will I sell the property if I want to exit the investment?” This is a critical question that many investors ignore. The property's liquidity and the ability to realize it are an integral part of the investment considerations.
6. Don't skimp on professional advice - Trying to haggle over the fees of professionals may turn out to be a very expensive saving. A lawyer with experience in the local market can identify risks that an investor, however experienced, might miss.
The successful investor is a perpetual learner
In the end, Dror bought an apartment in Athens, but not in the first project he was exposed to. After thorough examination, he identified an opportunity in a developing neighborhood that was not “on the map” of most Israeli investors. He rented out the apartment at a yield of 6.5% - perhaps less than the “promises” of 8%-10% that he saw in ads, but in a stable property, in an area with approved development plans, and with a clear exit strategy.
Eliav? Unfortunately, his story represents a too-common situation. He did buy an apartment in the project recommended to him at the webinar, but after a year discovered that the company building the project is in financial difficulty and construction is delayed, and that apartment prices in the area did not rise as expected, and that if he tries to sell the apartment before construction is completed he will lose part of the investment.
In the international real estate world, the difference between a successful investor and a disappointed investor lies not only in luck or timing, but in the ability to learn, research, consult properly, and make informed decisions. Investing in real estate abroad can be an excellent component of an investment portfolio, but only when it is backed by knowledge, research, and proper professional support.
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית