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The Beginner’s Guide To Real Estate Investing

iStock 000022136105SmallDo you happen to have a sum of money you aren't exactly sure how to invest? Are you just about to retire, freeing up a large amount of cash, but feel clueless as to how you should go about keeping its value and even increasing profits? Are you trying to figure out how to help your children buy their own apartment in the future?

Why invest in real estate?

Investing in profitable real estate gives us the option to create a steady source of passive income while using bank leveraging and allowing our money to work for us, moving us towards financial independence.

Call us now to set up a free consultation meeting by calling us at 03-6444500 or fill out the following contact form.

Choosing the investment goal

The first step in investing in real estate is deciding what your investment goal is: do you want to purchase an asset and rent it out to receive a monthly income, or are you interested in acquiring a property to sell for a one-time large profit? Additionally, you must decide beforehand on what sort of real estate you wish to focus on: will it be commercial, housing or offices?

Phase One: Preparing a Financial Plan

First you must decide how much money you have available for investment or if you are prepared to use existing assets, mortgaging them for the sake of a new purchase. Even if you don't have a spare sum of money you can invest in real estate using existing assets. You can receive a mortgage from the bank for as much as 50% of the property's worth. If you have an asset with an outstanding mortgage of up to 30% of your property's value, then you can increase the mortgage to achieve the required net worth for your investment purchase while paying off the remaining balance using funds from your acquired asset.

You must analyze your purchase in detail before closing the deal, translating the entire investment into money, and transform the time invested in identifying the right asset a calculation of time and money. You can set up a table as follows: the purchase of an asset incurs several one-time costs, taxes to agents, attorney fees for representation in the deal, purchase tax. Then you should consider the recurring maintenance costs, and if renting, management fees for your property. If you wish to sell the asset, then there are no operational costs incurred.

Phase Two: Choosing The Asset's Location and Finding the Property

After deciding what your investment goal is, a consistent income or single sale, you must find the suitable property which has all of the criteria you desire.

Discovering a great real estate deal requires time, patience and knowledge.

You must choose where to start looking for your investment asset. Choosing the right location is a very important step and making a wise choice is mandatory for future success. Decide on an area with high demand, in a good general area with community services nearby. Choosing the right location is your winning card.

Thus, you should focus your efforts on a specific area with high demand.

If you choose to seek and exit investment you should choose to focus on an area which is expected to receive improvements in local infrastructure, renovation plans, Tama 38 plans which will improve the neighborhood or municipal (and public) plans to renovate and improve the quality of life for citizens living in the area. This is likely to occur in the weaker neighborhoods of large cities (for example Ramat Eliyahu in Rishon LeTzion or Tirat HaCarmel in Haifa) or neighborhoods in periphery towns. Another option are cities where the government has decided to improve local education facilities and infrastructure in order to create ample housing opportunities for young local families (e.g. Nazeret Ilit or Hatzor HaGlilit and towns close to the up and coming Instructional Base Complex – Yir HaBahadim - in the south).

First, you should begin by learning the characteristics of the area and apartment costs. You can get the information either through the internet (Yad2 for example), by using real estate agents familiar with the area, or even by word of mouth. You can even contact sellers directly and get information about the area from them.

A good deal is made during the purchase of an asset. You can find properties sold by inheritors uninterested in holding the asset with other family members. Such clients will be flexible with their price. Perhaps you will meet a divorced couple, citizens living abroad or sellers in heavy financial debt anxious to sell the asset before the bank does so, abandoned property owners interested in renovation their asset or assets put up for public auction.

You can even approach the local tax execution office in the area you are interested and seek out individuals in debt who are about to lose their house. Offer to buy their asset before the bank confiscates their property and sells it off at an auction. Remember: when you check the property you should only take into account financial considerations without attaching yourself to the property or imagining if you yourself living there. Is the asset potentially good for sale or would renovating it in one way or another (such as initiating a Tama 38 program)? Should you turn it into a revenue project by renovating and renting it out to good reliable tenants at a price above market value?

Additional factors to take into account when finding an investment asset.

Periphery towns have a higher return rate than central cities but this alone does not indicate the profitability of the investment. High return rates often cover up risks such as: a low demand for the property when renting or selling, low socio-economic status tenants or a high turnover rate of tenants resulting in quicker breakdown of the apartment incurring loss of time and resources managing the asset.

That is why you should evaluate the demand for sale and rent of assets in the area you chose to focus on.

It is critical to take into consideration the potential increase in the assets value, the ease of renting or selling it and the time needed to manage your property.

Phase Three: Funding the Deal

Once you have identified the asset which fits your needs you should to choose your funding method. The key to success in real estate is leverage. As long as you can get a cheap mortgage then you can leverage the deal to purchase your desired asset with better conditions at your bank. You should approach several mortgage banks, receive a general approval and finally call the bank which offered you the mortgage with the best conditions. If this isn't your first asset, then according to the Bank of Israel's directives, you can receive a mortgage of up to 50% of the asset's total value.

Phase Four: Contacting the Seller

Come to an agreement concerning the price of the asset, payment deadlines and an eviction date (also, clarify what will remain in the apartment – furniture, electric equipment, etc.).
Contact an experienced real estate attorney and allow the representing attorneys to close the contract for the final deal. It is customary that the seller's attorney will send over the preliminary contract draft.

After signing the contract you just need to take out the right mortgage and fulfill the monthly payments.

Finding the first asset will allow you a good starting point - "jumping into cold water". After you've received the property you can decide how you want to proceed: keep holding it, rent it out and purchase another asset or perhaps you prefer selling the property for a healthy profit and purchasing another asset at an attractive price. You might identify "the next real estate gem" and purchase it with your earnings.

To conclude, we've summarized for you the required steps for your first real estate investment. However, smart investments should always be made with prior consultation and professional assistance. It is clear that the first deals you make will also include the "tuition fees" which you will pay for the lack of experience. These fees might appear as unnecessary bothers, money lost and anxiety while acquiring the asset.

Thus, it's preferable that you make use of experienced professionals for the entire length of the investment beginning with finding the property, purchase, mortgaging, renting, management and profitable sales.

Call us now to set up a free consultation meeting by calling us at 03-6444500 or fill out the contact form on the left side of the screen.

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