What is more lucrative? Investing in securities or real estate investing in the US? I recently had a conversation (in…
What is more lucrative? Investing in securities or real estate investments in the US?
I recently had a conversation (for the umpteenth time) with a friend who believes in investing in the capital market and we started to "gossip" about the essential differences. I personally do not believe there is anything better, my perception is that there are pros and cons to everything, so here too personal. At the same time there are some things that in my opinion make me prefer real estate, and especially real estate in the US.
It reminded me of an article I wrote a long time ago so I'll bring it up here for discussion.
Still wondering whether it is worthwhile to buy a property in the US?
Investors take into account the distance, the need to work with authorities in Israel and the US, and the return that goes down after all taxes, in addition, investors are wondering whether it is worth buying more than one asset? After all, there is a particular concern whether your money is intended to buy an apartment in Israel or for another economic purpose in the future.
So, real estate investors in the United States are considering and asking themselves: Is it more profitable to put the money in an investment house in Israel with similar returns and risk?
The purpose of this post is to lay out the considerations on both sides of the coin and create clarity and simplicity for you. This is to give you the tools to make an informed decision.
Investors take into account the distance, the need to work with authorities in Israel and the US, and the return that goes down after all taxes, in addition, investors are wondering whether it is worth buying more than one asset? After all, there is a particular concern whether your money is intended to buy an apartment in Israel or for another economic purpose in the future.
So, real estate investors in the United States are considering and asking themselves: Is it more profitable to put the money in an investment house in Israel with similar returns and risk?
The purpose of this post is to lay out the considerations on both sides of the coin and create clarity and simplicity for you. This is to give you the tools to make an informed decision.
The goal of investing in real estate in the US
How can one hit the target, if not characterized?
I often meet with investors who aim to find an investment with the highest return and the lowest investment amount.
It is important to understand that both investment in real estate and investment in securities is too broad a generalization. There are high yield investments in both channels. So to set a wise goal, the right question for decision making is what are the risks you want and are able to absorb? Only then, and from these possibilities, do you consider which investment channel serves your purpose best.
For example, if you are investing your last money, a capital that is critical to you in the near future, then it is clear that speculative investments in real estate or such weak projects and / or high yield speculative stocks are not the right investment position for you, and regardless of the very high yield .
Therefore, we will focus here on a targeted comparison of more solid investments in both channels. In this real estate context, this insight explains why we are targeting Cleveland Ohio to make a direct investment in rental real estate, and we will discuss this in detail below.
A similar return? Or what is actually a return?
Test A: Yield Vs Cash Flow.
Once we have clarified the purpose. In real estate investment for rent with a term of at least one year, there is a high ability to anticipate the annual return on investment profile. There is cash flow here andmonthly income Stable and predictable. This is not true of securities investment!
The closest equivalent to investing in securities is investing in stocks in a solid, solid segment that dividend dividends. This trend is also not a matter of monthly distributions and it is possible to create this with a great deal of effort in building a suitable portfolio only.
So we will focus the question. What is Better - Dividend Dividends or Investment Real Estate Stocks?
One option is both - and. So a more accurate question is how to allocate the channels. However, our question is based on the assumption that in reality, decisions are made between alternatives that what to do with investment capital is limited.
I want to share with you a case study. I worked as an engineer at the pharmaceutical company for about 11 years. I can attest in my experience over the many years that this is a great company! I have met in nature great and most professional people in their field. I have learned a lot and have seen people who are extremely talented and committed to society and its success. We felt honored to work in the most successful Israeli society. flagship.
From an outside perspective, Teva was considered a stock for solid investors. A company that distributes dividends in a stable and consistent manner. Following a combination of events and circumstances, the company's share price plunged and investors lost and wiped out most of their fortunes!
For that matter, the advantage of dividend investments is that a long-term strategy can adhere to the cash flow approach and monthly income from dividend distribution, yet the company has not surprisingly announced a change in dividend policy.
For real estate investment for rent there is no such thing !! Suppose the real estate market goes down, is it possible for tenants to now live in houses without paying rent ?!
Diagnosis: Therefore, in my estimation of real estate investment, there was and will remain a more solid and suitable investment path than investment in securities, for those looking for a reliable path to generate stable monthly income in the medium to long term.
Current return on investment in US real estate
Test B: Current Return on Capital VS. Aggregate yield
Current return on capital is the money you have entered into your bank account this year in relation to your total investment. Let's say you invested NIS 300, and you will enter your bank account at the end of the year for a total of NIS 24,000. So the current return on capital is 8%.
We will look at the option of investing in a solid channel with an expected return of 5-6%.
As mentioned, no monthly income will be received until you sell unless you have specifically invested in a dividend stock.
On top of that, let's say and sell 5 years later. So it should be taken into account that during this time in real estate investing, the capital gain component in the sale of the property also enters! In other words, the aggregate return on real estate is made up of total capital repayments each year, plus capital gain at the time of sale.
We specifically focus on previously selected investment locations in the Atlanta Georgia, Detroit Michigan and currently around Cleveland Ohio suburbs, which have a sale opportunity at a significant capital gain of tens of percent that is expected to materialize in the 5-7 year range.
If that doesn't happen, the return is similar. And if that happens then the return on real estate investment will cost tens of meters of investment in securities that produced the expected return.
Diagnosis: A wise investment in real estate is such that at the time of acquisition there is an inherent capital gain potential in the value of the property and where there is a clear expectation of price increases, from which investors can enjoy the time and patience to hold the property for several years in the market.
Yield and efficiency of real estate investment in the United States
Test C: Market Yield Vs Market Efficiency
The capital market and the real estate market are markets with substantially different levels of efficiency. In general, the capital market is more efficient. That means the ability to make profits from low market efficiency.
For example, real estate is more prevalent in property purchase situations assuming its market price due to a variety of causes and a variety of life events such as divorce, inherited property, relocation and pressure to sell for any other reason. In addition, there is an inefficiency factor in the fact that in the real estate market there are many sellers who, due to lack of knowledge, do not compete their property properly. In all of these situations, these assets are expected to move very quickly in the real estate market as well, but with the knowledge and professional infrastructure in the investment position, you can obtain these opportunities, and therein lies the great value of the local infrastructure that we have developed over many years working in the US.
An important anecdote in this regard is Israeli investors, most of them young people, whom I sometimes meet in Cleveland and have come to see assets and buy through an American broker with the aim of saving a middle and professional escort. In this way, how can you benefit from an investment position with a knowledge gap in your favor over the broker and seller? Where is the infrastructure and ability to achieve the exceptional opportunities in the market? At best, using a good and reliable broker is likely to achieve an average asset on the market. And for that, they've already invested in flight and stay. Even with the purchase of an opportunity property, delicate after the acquisition, investors have to deal with the consequences and solve all the operational challenges alone, carry out an accurate numerical business plan, carry out a professional inspection of the structure, a comprehensive and correct renovation plan, and a reliable team for ongoing management and the like. When good opportunities are a matter of speed of response, it is a difficult course of action to get the best results, but after investing time and resources to build the infrastructure.
Disclosure - I am assisting Israeli investors in real estate investments in the United States
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