Overseas Real Estate Investment Company: 12 Questions Before You Transfer Money

Many Israelis who buy property abroad reach the deal through a company that sources projects, organises a seminar or a tour, presents a yield forecast and accompanies the purchase up to signing. Sometimes it is a single apartment, and sometimes a group deal in which many investors buy units in the same building together or come in as partners in a company that holds the property.

This structure can be legitimate, but it adds a third party to the deal and sometimes changes what you are buying. This guide sets out 12 legal questions worth getting a written answer to before the first transfer. It complements the list of red flags when buying property abroad and focuses on a deal that goes through a company or a group.

1What should you check before investing in property abroad through an investment company?

Check who the seller is, what will be registered in your name, where the money sits, who guarantees the yield and how you exit. The table sets out the 12 questions and the document to ask to see for each of them.

2Who is the actual seller, and what is the role of the company in front of you?

The seller is whoever is registered as the owner of the property in the land registry of the property's country, not the company that presented the deal to you. So the first check is an up-to-date extract for the property and an extract from the companies register for the seller: who the owners are, who the directors are, and whether there are charges or proceedings.

The second question is the company's role. It may be a broker receiving a commission from the developer, the developer's representative, its partner, or itself the seller. A company that receives a commission from the seller is not a neutral party, even if it accompanies you all the way. Ask for written disclosure of every payment it receives, from you and from others, and check the developer itself as well. In Romania, for example, this can be done in official databases, as explained in the guide how to check a developer yourself before signing.

3What are you actually buying: registered ownership, shares in a company or a loan?

The answer is in the contract, not in the presentation. Three common structures are sometimes marketed in the same words, but your right in each of them is fundamentally different.

Even when you buy a unit, it must be identified: number, floor, area and floor plan. When all the units in a project are sold at the same price, regardless of location or size, it is a sign that what is being sold is in fact a share in the project's income, not an apartment. It is also one of the signs the Israel Securities Authority pointed to.

4How do you make sure the property is registered in your name?

Ask for a new extract after signing and check that your right appears in it, in your name and with the agreed description. Land registries in the European Union keep information on location and ownership and make it available to the public and to professionals, so there is no reason to settle for a confirmation from the company.

In a group deal it is also worth checking what is actually registered: an identified unit, or an undivided share in the whole property. An undivided share in a building is not an apartment, and it is hard to sell on its own. In an off-plan purchase, a notice or preliminary registration is sometimes recorded first, and the contract must state who is responsible for the final registration and what happens if it is delayed.

5Where does your money sit until registration?

The money should go to an account named in the contract that belongs to the seller, to the notary, to an escrow account or to a dedicated project account, according to the law of the property's country. A transfer to the marketing company's account, or to an account not mentioned in the contract, takes the money outside any protection mechanism.

• Who holds the money? Find out in whose name the account is held, and in which country.
• When is it released? Preferably release should be conditional on registration, or at least on a building permit and construction stages confirmed by an independent party.
• What protects advance payments? A bank guarantee, insurance or a dedicated account, depending on what exists in the country. In the USA, for example, there is a recognised mechanism of title insurance and an escrow account; in other countries protection depends on local law and on what is written in the contract.
• Change of account details. An email announcing a new account requires you to stop and verify by phone using a known number.

6When is a group purchase or group deal abroad subject to the Securities Law?

When in substance it is a passive financial investment offered to the public in Israel. Under section 15 of the Securities Law, 5728-1968, no offer may be made to the public except by a prospectus whose publication the Israel Securities Authority has permitted, and this is true even when the property itself is abroad.

In staff position 103-45 of 20 February 2022 (a report summarising findings on public offerings of securities), the Authority described two ventures in which units in properties abroad were offered to the public in Israel. In both cases the unit was registered in the investor's name in the local land registry, and the staff position was nonetheless that the agreements are securities. Among the features the Authority listed:

• A fixed annual payment derived from the amount invested that does not depend on income from letting the unit.
• Lease-back to the developer for a long period, with all material decisions about the unit in the developer's hands.
• A buy-back option at prices set in advance by reference to the amount invested, unrelated to market value.
• A uniform price for the units, not derived from location, floor or size, and without negotiation.
• Restrictions on transferring the rights.
• Marketing as a "passive" and "safe" investment.

The Authority made clear that registration in the land registry is not decisive on its own, and that a direct and independent purchase of an identified apartment, for living in or for investment, is usually a consumer transaction. It added that intermediaries marketing such an investment are not exempt from the law, and that publishing average yield data for the project's area may be treated as part of the offer. What this means for those raising money, and the exemptions for a private offering, is explained in the guide raising money from Israelis for a project abroad and the Securities Law. From your point of view, such a deal offered to the public without a prospectus calls for further checking.

7Is a guaranteed yield on property abroad a warning sign?

Yes, it is a reason for a thorough check. A guaranteed yield is not a feature of the property but an undertaking by a particular entity, and it is worth exactly as much as that entity's ability to honour it. The US regulatory body FINRA warns that a seller cannot guarantee a particular return, that even a fixed interest rate may not be paid, and that you should be especially wary of double-digit returns when market yields are much lower.

1. Who guarantees? The developer, the marketing company, the management company, or a special-purpose company with no assets.
2. What will they pay from? From the property's income, from equity, or from new buyers' money. A payment unconnected to the property's income requires an explanation.
3. For how long? What happens at the end of the period, and whether the guarantee is built into the purchase price.
4. What is the security? A guarantee, a registered charge or assets of the party giving the undertaking, not just a company's signature.
5. What happens if payments stop? Whether you can terminate the management agreement, let the property yourself and sell.

On low prices and generous promises in more detail, see the guide a bargain property deal abroad: opportunity or trap.

8What does a buy-back clause mean?

A buy-back clause is an undertaking that the seller or another entity will buy the property from you in the future at a price or formula set in advance. It is worth only as much as whoever signed it on the day of exercise. Check who gives the undertaking, whether it is an obligation or only an option for them, what the price and conditions are, and whether there is security. A buy-back at a fixed price detached from market value is also one of the signs the Israel Securities Authority saw as characteristic of a financial investment.

9What should the management agreement contain?

The management agreement determines who decides about your property, how much it costs and how you get out.

• Scope of authority: letting, prices, repairs and expenses, and what requires your approval.
• Management fees and expenses: an amount or a percentage, and what is deducted before the money reaches you.
• Reporting: periodic reports, access to the accounts and the possibility of an audit.
• Term and termination: whether the agreement can be terminated, on how much notice, and what the penalty is.
• Sale: whether the agreement passes to the buyer and binds them, and what this does to liquidity.

10How do you exit the investment, and what happens if the company disappears?

You exit according to what is written in the contract, so check the way out before you go in. A unit registered in your name can usually be sold on the open market, subject to the management agreement. Shares in a private company or a contractual right are harder to sell, and sometimes there is a right of first refusal for the partners or a need for the company's approval.

If the marketing company stops operating, the question is what you are left with without it: a registered right good against the whole world, or only a contract with a company that may be registered in another country. This is also where the governing law and jurisdiction clause and the question of representation come in: a lawyer who represents only you, and not the company or the seller, is part of the check and not an add-on to it.

11What to do before the first transfer, and how we accompany you

Before transferring money, ask for a written answer to the 12 questions and for the documents in the table. We go through the contract, the management agreement and the company's undertakings against these questions, review the deal structure from the Securities Law angle as well, and mark what is missing before the transfer. We carry out the registry checks and the signing and registration in the property's country together with lawyers and notaries licensed there.

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