# Entrepreneur_Thisweek Elhanan Magidovich Post 2 Long-term or short-term real estate investments?…
# Entrepreneur_week Elhanan Magidovich Post 2-
Long-term or short-term real estate investments?
Real estate investors can be generally divided into two types:
the first one- Short-term investors, aiming to buy property, improve and sell profit. The buy-cheap approach is expensive.
The second- Long-term investors, those investing for years, seeking long-term holdings of the property and enjoying its cash flow over the period, which is known as strategic: Buy and Hold, Buy, Rent and Hold.
Proper reservation and disclosure-
Continuing on my opening post 1, I adhere to a strategy of increasing asset holding over time, building an asset array with a monthly positive cash flow, and only optimizing the holding to increase it and increase the monthly cash flow. However, I do occasionally make quick deals when there is an opportunity and / or if needed.
But as a general rule, the main strategy is for asset collection to be rented.
Having written the reservation instead of apologizing to the holders of quick transaction access, I would like to elaborate on my worldview and my set of considerations that have led me to adhere to this strategy.
The benefits of long-term investment in income-producing real estate:
- Cash Flow: When done correctly - it brings positive cash flow and this is passive income.
- Tax advantage: The country has relatively low taxation on rental income, although the trend in this area is likely to change. In some countries abroad there is also a policy of relatively low taxation on rental income to private individuals.
- Good partners: The bank is your quiet partner, the big advantage is that the bank does not share your profits when the value of the asset increases over time, and also does not bother you.
- Transfer the debt: The renters pay the loan for you.
- Gift property: In another, you can say that the tenant purchases the property for you.
- Gift from a different angle: Even in the case of zero cash flow (Rahmana Litzlan), at the end of the period, you have property purchased by others.
- Money in the walls: You can use the increase in the value of the property by refinancing, thereby increasing the holding of additional properties and increasing the number of properties over the years.
- Self-indulgence: Want a salary increase? No problem, when renewing contracts you can make a decision to raise rent by a negligible amount of 5-10% Try asking your boss for an increase of 5% per year? Beyond that, when you hire a 5-10% increase in gross salary, in net you see much less because of taxation, in real estate you get the increase almost net in your pocket.
- Future financial security: Tomorrow, if the investor crosses Wanders Road, his successors receive assets that are free of any mortgage (life insurance protector) which is a meteoric increase in their net worth, as well as they receive a higher passive income (no mortgage for any incoming rental).
- Level Jump: Further to the 9 section, when the heirs receive clean assets, it is much easier for them to enlarge the empire, because they have a huge amount of money in refinancing walls and continued asset collection (see section 7).
- Fencing: Multi-assets actually sets us up for a situation, some of which stand vacant, which is particularly frightening for the Maccabees and the Flip people.
- Fun life: You want a two-month vacation, you know what… Take four months in the Maldives, the rent is pounding and the income is flowing, even on vacation.
Comparing these two routes:
Yielding Property vs. Exit Transactions:
- Example of the successful: As a rule, most capitalists and tycoons in any channel, show that long-term holding is much more profitable and stable than trading. Both in stock channels and in real estate.
- Let the money flow: Imagine you have a barn with milking cows, the Exit's rationale says, let's bury the cow, invest in cow breeding, which the cows will grease, and then slaughter the cows to make a profit from the sale of an entrecote.
On the other hand, long-term investing means - wait a minute ... I have a cowshed that gives me milk and that milk brings me money all the time, why sell? Let's just make sure there are more cows and more cowshed, why slaughter dairy cows? That's part of Warren Buffett's value proposition of which I'm influenced. Investment must have continued intrinsic value. - Psychology combined with vengeful reality: Fast money that comes to us from the exit is addictive, after a few rounds everyone is sure that it will continue to win, and then in weak periods eat the money. In a rental property, the money never ends, it simply continues to flow from the rental side, along with the enjoyment of the value increase (see sections 7 and 8 above), such as the story of a kind of youth.
- The additional aspect of psychological weakness- Exit success is welcome, but successes in many exits can be a problem, for an investor who does not have iron discipline, the sin of hubris can hit him. Multiple success can lead to a state of belief in the ability of "golden touch", in properties whose current profits are mainly due to rental income, there is more peace of mind from dealing with smaller amounts in the daily existence, the large profits will be reaped in the future.
- Kind banks: Banks and financial institutions estimate net worth backed by assets, much more than cash flow. Because everyone knows that cash is much easier to spend and lose than stable assets. That is why banks also easily lend a balance to multiple asset owners.
- Multi Profit Tracks: The rental property has several profit paths at the same time, the Exit property only has the exercise and profit margins.
The avenues of income in the property yield:
A. Rental income
B. Purchase of the property by the tenants - pay the mortgage
third. In Israel, for example, investing in a property also brings with it profits in the form of compound interest. According to the last 50 years (well I said I like the long term) we see an average increase of 2% per year on the value of the property consistently, even though there are also periods of declines. .
D. You can always decide to exercise and also enjoy the value of the property that went up as an exit (at a discount).
So what's better?
I honestly do not think there is a way or better approach than others, in my view I think it is more a matter of character. There are some people who love and adapt to short-term investments and some people who, according to their nature, are looking for long-distance investments.
As a long-term investor, I sometimes incorporate the flip strategy into transactions that constitute an opportunity for quick profits and find no interest in holding them long-term for various reasons that do not suit my behavior.
In the photo: Me and in the background in a pile drilling phase in an entrepreneurial project of building a villa for investment / rotation.
Nice points!
Thank you Elhanan. Regarding life insurance - does it also apply to investment properties or only to a main residential property? Can umbrella insurance also include the issue of death?
By definition, real estate is an inflationary sector in which time brokerage serves the debt.
short explanation:
Fixed interest rate at 3.39 (last interest rate I took) for 7 years ARM
If inflation is 3% in fact the effective payment is 0.39% or in fact inflation has paid 21% of the debt.
By definition! Real estate gives the most value to Buy and Hold holders.
Real estate is an inflationary business.
Excellent post
I liked that after everything you wrote at the end, you show a picture of a deal you make Flip?
Daniela Feldberg
Good post! I would love to explain the refinancing section on an apartment. Is it an all-purpose loan with a mortgage up to 50% of the property or is there another way to re-mortgage and get the money directly into the account? There is an 1-2% gap between loans
Clarification Question to Point 9 - Why Do Heirs Get Net Property?
1. There's a pretty high inheritance tax
2. I have properties with mortgages in the US: b I do not know that if I die the debt disappears, I do not know that there is life insurance in the mortgage
Also in terms of taxation: The taxation in the US on rent is like from work, and it is not low, and the 15% route in the country does not include any expenses other than depreciation
So the effective taxation is quite high
In spite of all this, I agree with everything you have written and return on a similar strategy
What fun an extended post that teaches and fun, thank you!
Just to clarify a bit for those who are undecided, you can do flip transactions and it does not go against the rental strategy, but be smart with the profits and reinvest them in rental houses, you will create a portfolio of rental properties that are appointed by a combination of leverage/loans and the profits you have generated