{"id":245,"date":"2014-02-06T13:24:08","date_gmt":"2014-02-06T13:24:08","guid":{"rendered":"https:\/\/rk-law.co.il\/english\/\/?p=245"},"modified":"2022-04-06T09:26:33","modified_gmt":"2022-04-06T09:26:33","slug":"points-thoughts-regarding-high-yield-transactions-israel-tal-rechnitz-adv","status":"publish","type":"post","link":"https:\/\/rk-law.co.il\/english\/points-thoughts-regarding-high-yield-transactions-israel-tal-rechnitz-adv\/","title":{"rendered":"Points for Thoughts regarding High-Yield Transactions in Israel"},"content":{"rendered":"

Many consider the Israeli economy an example of successful economy, thriving despite its complicated geo-political surroundings, and therefore consider an investment in Israel in the field of real-estate, both in residential assets and commercial ones.<\/p>\n

This article will focus on real-estate investments in Israel. Some of the reasons people have for investing in real-estate in Israel are stability and lack of risk, on the one hand, and economical reasons, on the other hand.<\/p>\n

Just like anywhere else in the world, those who acquires an asset base their decision mostly on the basic assumption that if they buy for the right price and at a certain location, the investment will yield revenue in two ways:<\/p>\n

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  1. Revenue resulting from an increase in the asset\u2019s value (for example, if the asset was purchased at a value of USD 300,00o, and sold after one year for USD 360,000, than the owner of that asset enjoyed an annual yield of 20%, in this example);<\/li>\n
  2. Revenue resulting from set monthly income from the asset (for example, if you buy a property for USD 300,000, with a rent agreement yielding USD 1,200 monthly rental fees, than looking at the entire year in this example, such transaction reflects an annual yield of 4.8%). In general, we would say that a transaction yielding at least 5% annually is a \u201cgood bargain\u201d, and of course it depends on the asset\u2019s location \u2013 in certain areas in Israel (mostly in the high-demand areas, in the center of Tel Aviv), a yield of less than 5% is considered attractive, while in other areas in Israel (the north and the south), we would expect a yield higher than 5%.<\/li>\n<\/ol>\n

    In this context, it\u2019s important to clarify that during the recent years in Israel the real-estate prices have massively increased the value of the assets. However, note that the Israeli government has a very high-priority objective to cool down the Israeli real-estate market, and to mitigate the price increase mostly in the residential field. This, in order to allow young couples to purchase an apartment for a \u201csane\u201d price, matching their earning power. Therefore, there is a hunch that in the coming years we can expect stability of the price levels in the Israeli real-estate market, especially in the residential field, and some even expect the prices to somewhat decrease.<\/p>\n

    Without considering other reasons, such as emotional reasons (to purchase an asset in the land of the Jewish people), and taxation considerations and the difference between exercising a residential asset and exercising a commercial asset (for a commercial asset, you expect to pay more tax on selling with profit compared to the purchase price, since when selling a residential asset you can benefit from easements and proper tax planning that will lead to tax saving when selling with profit compared to the purchase price), many choose to invest in Israel\u2019s real-estate market with a conservative approach. They look for high-yield transactions compared to the alternatives offered to them at commercial banks in their home countries or in Israel.<\/p>\n

    In such high-yield transactions, the investor is supposed to inspect the asset and the transaction in question from several aspects, such as price, location of the asset, state of the asset, the promised yield, etc.<\/p>\n

    Without going into details regarding the financial aspects of such potential transaction (in this context, we recommend considering direct expenses related to the purchase, such as lawyer fees, purchase tax etc., as well as the expenses for financing the transaction compared to alternative investments, required investments in the asset, etc.), when discussing the principal decision whether to enter a (supposedly) high-yield transaction we should take care to inspect whether the yield is indeed promised.<\/p>\n

    In many cases in Israel (and probably, elsewhere), when looking at the details we discover that we should be more reserved regarding a transaction that seems attractive at a first glance. What does that mean?<\/p>\n

    Many details require attending to, in order to decide whether the yield presented is indeed promised and stable, such as:<\/p>\n