Price at risk: Real estate for those with particularly strong nerves
"As the size of the risk, so the size of the chance" - is the well-known rule in economics also true in the field of real estate - and what are the possibilities of earning significant sums precisely from a risky investment in a field that is considered the most solid of all?
Nir Shmol, CEO of Snir
Wednesday, 22 September 2021, 11:31 Updated: Thursday, 23 September 2021, 12:42
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It is well known that the risk to the economy is rising, so does the opportunity for gain increases with, and the question is whether real estate can also earn money from investments in risky?
It is important to note that most of the charm of the real estate market in the eyes of many, it is precisely its solid: the market can go up or down , But the apartment never stays ... At the same time, in the field of real estate, there are more risky investments than others.
What are the options for earning significant sums in real estate, taking into account the risk component?
Types of investments The options for investing in speculative real estate:
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Buying real estate through a buying group
In the past, members of purchasing groups enjoyed a significant discount, both due to the lack of an entrepreneur and in light of tax and VAT benefits that allowed significant profits for buyers.
Also, the organizer sometimes incurs significant sums of money for managing the group locating and organizing and therefore some of the entrepreneurial profit component goes into his pocket (but still earns less vis-à-vis an entrepreneur / contractor who bears the full risk and is responsible for the whole process even after occupancy and test years).
Also cases that have happened in the past, such as in the projects of Inbal Or for example (perhaps the famous example in the field) and of other purchasing groups that have collapsed, sometimes overshadowed the successes and significant savings achieved by some groups compared to a regular apartment buyer.
And yet: there are purchasing group organizers with a great history of success.
Therefore, this is an investment that may be correct, provided that the risks are calculated in advance and take into account that the profits have been reduced compared to the past.
Purchase of agricultural land
This is one of the most popular investment options today in various publications throughout the Internet and the media in Israel.
Land in Hadera, Bat Yam, Ganei Tikva, Netanya, Raanana and ... many more options that offer Israelis an achievable dream. But with the big dream proposed, it is also important to mention its fragmentation. Thousands of Israelis have been tempted over the years to invest in agricultural land in Israel, which they sometimes still own even though they purchased the land more than 20 years ago - and there is still a field of agricultural land on the land. A residential neighborhood is not yet in sight.
Buying agricultural land in Israel is a risky investment, precisely because of the fact that in most cases the price is low and the temptation is great: there is hardly a family where there is no story about the great-grandfather who offered him to buy agricultural land in what later became Herzliya Pituach ...
If you are already purchasing agricultural land, it is advisable to seek legal advice, contact the local authority and check if there are future plans for the area, or if a road or park is planned there - then the area will be expropriated in exchange for the purchase price in the erosion of inflation (at best).
In any case, it is important to check whether the land is adjacent to the wall of a developed residential area, because then it will be easier in the future to approve plans, when the development infrastructure is close or existing.
Purchase of an apartment at a key fee
This is in fact a "protected lease", a phenomenon that existed mainly in the 80s-70s, when many apartments were bought at low prices by state authorities, including the Ministry of Defense or the Ministry of Housing and were given for a low purchase price to eligible, e.g. Institute and eligible for public housing.
In this method the buyer bought the apartment at a low price who was then the thousands - up to tens of thousands of pounds the right to live in the property until the end of his life, and only after his death the property returned to the original owners.
many of these units over the years, private owners who held the property owned Of 2/3 and 1/3 in favor of the buyer, who over the years paid very low rents.The rent rate was no more than 15% -20% of fair value rent.
Under the protected tenancy laws if the property owner wanted to evict the occupant of the apartment, he had to go to court in a lengthy process, offer compensation to the protected tenant and reach agreements with him, or alternatively transfer him to another similar property within a reasonable geographical distance. These legal processes take many years and in most cases the property owner had to compensate the tenant at a price significantly higher than the real price of the property - and all this in order to evict the tenant.
Today, the courts in Israel, especially in light of the processes of urban renewal, have significantly shortened the process and they appoint appraisers at a very early stage and try to press for a compromise at a very early stage so as not to delay renewal.
Many of the protected tenants have already passed away and the phenomenon of sheltered tenants has diminished over the years.
Despite this, there are still protected tenants and anyone who buys such an apartment with a protected tenant in it, must know that this is not a simple legal process.
Even if the purchase price today is relatively low, there is a very reasonable chance that in order to evict the tenant the property owner will be required to pay a significant additional fee.
Suspended is a term that describes the acquisition of jointly owned real estate.
The name suspended means a partnership, usually inheritances that were divided from the assets of a deceased person or several landowners who became partners in one new plot (following a consolidation and division plan).
Many of those seeking to purchase such properties come across properties listed as a block and plot only and sometimes each partner’s share reaches individual percentages in the land, when it comes to unequal parts.
In some cases there are dozens and even hundreds of owners.
Sometimes this concept is obtained from decisions of authorities approving city building plans (master plan) without the consent of owners under the law and thus decree different owners to sponsor under one large plan where each holds a small share.
From a legal point of view, any person by virtue of his private property is allowed to make a sale or purchase in plots of this type (Basic Law) even without the consent of the owner (of course, check that there is no contract or agreement that says otherwise). Himself in a deal with another X developer and anonymous ties himself with another contractor and these struggles end up in courts in many expensive hearings, while at the same time it is not possible to promote real estate development in the land.
The solution to this complex situation is another legal term called Each owner or part of them to the court and asks him to order the dissolution of a partnership when the court can also order a situation of "division in kind" ie granting specific ownership of a specific plot in cases where this is possible, or alternatively "cash sale" of land through a receiver to each The highest price.
This is a public tender where everyone has the right to participate and bid the highest bid to win.
As mentioned, these are many cases in a field that is intended mainly for experts and those with extensive financial capabilities, or alternatively for investors with patience who understand that in the future they will be able to receive better offers.
Despite all this, in Israel - even in light of the fact that the value of real estate increases from year to year - buying land in suspense for those who do not need money immediately, usually leads to better results compared to other investment channels.
Purchase of assets
Many properties are offered for sale by receivers, especially in cases where people do not meet a debt repayment and a court from which a receiver for the debtor's assets will sell the properties for as much as possible.
It is important to know that although the subject is published both on the official receiver's website and in publications required by law, many of these deals are closed by professionals in the field including appraisers, lawyers, developers, contractors and others who know how to price the property quickly to a less skilled investor. Who know how to submit the documents on time and according to the instructions.
In many cases these are people / companies with deep pockets, who come to price when they are willing to pay amounts close to the real purchase price and even beyond, especially if they know how to price the future value of the property, or the possibility of improving it in case of urban renewal.
It is also important to check the legal status of the property to make sure there will be no future claims from such and other entities and to verify its physical condition and licensing by a qualified engineer / professional and not to give up a visit to the municipality in the engineering department to understand future plans.
Acquisition of a property in urban renewal
Many opportunities in real estate lie in the purchase of a property that is supposed to undergo a process of future urban renewal, both in the evacuation of construction and in the option of TMA 38.
Sometimes the profit can reach tens of percent and even double the value of the purchase, when the time component is critical: as the purchase is made at the beginning of the process and at the beginning the price of the property will be tens of percent cheaper, compared to the same property purchased near its demolition / building permits.
The "wisdom" in these cases is to buy the property at the beginning of the procedure when competing buyers do not know that the property is likely to go through such a process and therefore the price is relatively low and represents the existing situation and not the future situation.
Today, real estate funds are being established in Israel that specialize in the purchase of such properties in the early stages with the aim of enjoying a high future profit upon completion of the urban renewal process.
Purchase of a property in advance sale
Many developers and contractors hold "presales" in which they are offered to the general public in some cases and to relatives and family members.
In another case, in order to receive the bank support that the bank requires (usually a sale of about 15% -20% of the apartments) and therefore it is possible to receive benefits that currently amount to a 5% discount against the list price.
Although a larger discount than this will usually not be approved by the bank lending the project, when it comes to an apartment that cost several millions, even 5% may be worth hundreds of thousands of shekels.
Purchase of an apartment from the Custodian General
As is well known, a guardian is appointed in exceptional cases for the benefit of people who cannot manage their own affairs. In connection with real estate this is a guardian for property, unlike the guardian body, which is for people who are unable to make decisions regarding their medical condition.
Guardian appointed by the court and the inmates are under the supervision of the Administrator General. All actions that are performed are done under the consent of the court and therefore has great significance for those Who intends to purchase such property to attach to it a lawyer who understands the field, a transaction without the approval of the court in real estate is without any legal validity.
The court will approve the transaction only if it is consistent with the true economic value of the property and if it serves the good of the sponsor. Also in this case a note should be recorded in the taboo upon completion of the purchase process and a warning note upon payment of the initial amount.
Here too, similar to buying from a receiver, it is necessary to assess the value of an appraiser, publish in newspapers and compete between buyers, all in order to obtain a maximum price and execute a contract according to the rules of the court and its guidance as stated.
Purchase of a property with a different purpose
In many cases, certain properties in real estate are actually sold as "apartments", even though in the taboo they are defined in another designation, for example: warehouse, balcony, service area, public space, etc. The risk in such an "investment channel" is that the independent "change of designation" illegal and may result in criminal proceedings due to non-conforming use and significant financial penalties.
even field splitting apartments entered a broad definition that when it is done illegally. many investors are tempted and acquire such assets at a price significantly cheaper than the apartment, but they take themselves too significant risks.
in many cases Illegal construction on the roof, invasion of gardens defined as public space, splitting of apartments, renting of apartments defined as a warehouse, industrial designation, logistics, etc. can often be rented to foreign workers who are afraid to complain or are dependent on low rents.
The only way to prepare such an area is to contact the local planning and construction committee and submit an application by an architect for a change of use / overuse for a limited period of time.
Beyond the associated costs of the application, ie the costs of planning consultants, fees, etc. - there is a danger that the municipality will find out about the illegal act in the property and this will have consequences.
In other words: it should be taken into account that even if this is approved, the property owner will have to pay improvement levies of the change of use, which significantly increase the investment in the property, even if purchased at a tempting starting price.
Nir Shmol - CEO of Snir (Photo: Tomer Feder)
The writer, Nir Shmol, is the CEO of Snir
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