Getting grounded

Forget the stock market. For many Israelis, real estate is still the most solid investment.

By SURIE ACKERMAN
TzachiQuatinskyFinanceCourse311 (photo credit: .)
TzachiQuatinskyFinanceCourse311
(photo credit: .)
There are plenty of people who prefer their investments to be more solidly grounded than those in the capital market, which is why real-estate courses all over the country are filling up.
Some 40 people were recently crammed into a classroom at Cashflow College’s Jerusalem campus for Tzachi Quatinsky’s class on market research, which, he insists, must be the basis for any real-estate transaction.
“Israeli investors tend to follow the crowd,” Quatinsky, a veteran real-estate consultant, investor and developer, explains to his students. “They hear about what other people did and decide they’ll do it, too. The problem is that by the time you get to it, you may end up doing what worked in the past, instead of dealing with the current reality.”
This session is part of Cashflow’s 16-week basic real-estate course (NIS 4,000), which includes classes taught by a lawyer, accountant, interior designer, mortgage banker and other professionals who convey information a potential investor should know.
Similar courses are given by the Financial Education Center and by other institutes like Nadlanline, which has courses in Ramat Gan, Jerusalem, Ra’anana and other locations.
Yehuda Baruch, Nadlanline’s chief lecturer, notes that the purchase of an apartment, even for investment, can be an emotional decision, and such courses aim to impose some degree of rationality on the decision-making process.
“People, surprisingly, don’t know what questions they should be asking when they buy an apartment,” says Baruch.
“If, when you buy a car, you might invest NIS 1,000 to inspect a car that’s only worth NIS 10,000, then why shouldn’t you do some kind of analysis on a property that could cost NIS 300,000 or a lot more than that, to check that you are getting what you were looking for?” asks Baruch.
What a course does for the person buying his own home or a property for investment, Baruch says, “is to build him a model of the different stages, a checklist of what has to be examined, so that when you check off all the things, you know that you've brought stuff to the surface that has to be evaluated.
“This checklist does for an investor what Dynamometer does for people who buy cars.”
PRE-INVESTMENT RESEARCH involves everything from following the news to discover developments that could affect the area in question, to networking with real-estate agents and area residents to get information and locate properties, to checking city planning offices to determine what might yet be built near a property you’re considering.
While some research can be done on the Internet, there’s no getting around spending time in an area to gauge the best locations and of course, to look at apartments.
Sarah, a Jerusalemite who took Cashflow’s basic course in the winter of 2008/9, spent nearly a year trekking to and from Beersheba to see apartments. She says she looked at 48 apartments in the process of buying two, which are now successfully rented.
She had a hard time convincing her husband to spend the NIS 4,000 the course cost, but in retrospect, she couldn’t imagine investing without it.
“I wouldn’t have known what to look for when I went into an apartment,” she says. “I didn’t know anything about taxes, I didn’t know about the different types of mortgages. I didn’t even realize that we could mortgage our own apartment to buy a different one, which we did for one of the [Beersheba] apartments. Just what I learned about mortgages probably saved me the cost of the course.”
In fact, the mortgage market has changed so drastically over the past 15 years and offers so many different options that Cashflow has a six-week course just on mortgages, given by Asher Lugassi, head of the Credit Approval Department at Discount Mortgage Bank.
If you’re wondering why someone would shell out NIS 2,450 to learn about mortgages, Lugassi has a ready answer: Different types of real-estate transactions are best served by different types of mortgages, and on the average mortgage, currently NIS 550,000, choosing the right track could save NIS 50,000 to NIS 150,000 over the life of the loan.
Cashflow offers nine different real-estate courses covering different aspects of investing, including how to buy, renovate and quickly resell apartments and developing small projects.
“We know that our students are out there,” Cashflow chairman Shai Baaton says. “I hear from real-estate agents all over the country that they’re meeting up with our students in the field.”
TAKING A course can help participants approach the real-estate market in an unconventional way.
Take the typical young couple that starts out determined to buy their own apartment as soon as possible, even if it means straining to pay a mortgage, because everyone “knows” that paying rent is like throwing money away.
Quatinsky believes he has a better idea. By bucking conventional wisdom, the same young couple could use their down payment to buy two or three apartments in an outlying area and have other people – their tenants – pay the mortgages.
Then the couple is free to rent where they’d prefer to live – near their parents, near school or near their places of work. Even if they pay as much rent as they’d otherwise have paid on their own mortgage, they will be getting some help from the amount of rent received that exceeds the mortgages on their investment properties.
What’s more, over time, they are increasing their equity in those properties, which are also likely appreciating in value.
“You will have saved money over the years by minimizing your monthly outlay for housing,” Quatinsky explains. “Then, 10 years down the line, you’ll be able to buy the house you really want, because you’ll also be able to put your hand on a sum of money by selling one or more of the apartments you had bought for investment.”
Quatinsky determinedly advocates this approach in his real-estate lectures at Cashflow, demonstrating with some very simple calculations that it makes sense. But while the strategy may prove out mathematically, he admits it isn’t so easy to implement, for a few reasons.
One is that not all young people are cut out to be landlords – nor do they want to be subject to the capriciousness of other landlords, who, they fear, may force them to move every year or two.
Another problem is that many, if not most young couples buy apartments with financial help from their parents, who want the satisfaction of seeing their children settled in their own place, and may not be willing to hand over money for investments.
QUATINSKY, THOUGH, says his approach has struck a particular chord with his haredi students, for whom financing an apartment for children getting married is often an integral part of the shidduch process.
Buying cheaper apartments and having them pay for themselves or even earn income from rent can significantly reduce the financial burden of parents who will have to marry off many children, he notes. What’s more, the appreciating assets might help those young couples buy a larger home down the line, when their families grow, than they could have otherwise been able to afford.
When it comes to mortgaging the home they live in to finance the purchase of other properties, many haredim have something of an advantage, Quatinsky explains.
“Haredim in places like Jerusalem generally own apartments that have gone up in value by dozens, if not hundreds of percent, over the past decade,” he notes. “Their apartments are worth a lot of money, and if they still have a mortgage on their own homes, it’s very small. They have a substantial amount of home equity that can help them buy apartments for their children.”
Cashflow’s Jerusalem branch has designated one day a week, Thursday, for men-only courses aimed at the haredi community, of which the real-estate related courses are by far the most popular, according to Jerusalem branch manager Ofir Giat. During a recent seminar on mortgages, Giat says, registration was so high that some of the participants had to stand outside the classroom in the hall.
Because the housing issue is especially pressing for haredi families, “the haredim are the most diligent of all my students,” says Quatinsky. “They invest the most effort in the courses and they are the most likely to go out and actually implement what they’ve learned.”
Sarah from Jerusalem and her husband didn’t buy their two apartments in Beersheba for their children; they were thinking long term, hoping that after the mortgages were paid, the rent would augment their pensions. However, only weeks after she and her husband purchased the first apartment last year, the company where she works began a retrenchment that included dismissals, a revamping of work arrangements and salary reductions. Nervous about looking for another job at her age, Sarah accepted a pay cut of 35%.
“We saw a lot of divine assistance just in the process of buying the apartments,” says Sarah. “We didn’t even realize what was really in store for us.”
The rent they are receiving exceeds their mortgage and insurance expenses by some NIS 1,500. “We thought we’d be able to save that money, and now we’re eating it,” she says. “But we’re sure glad to have it.”
On her key ring, along with her car and house keys, she has the keys to their two apartments in the South.
“Every time they hit us again at work, I look at them and thank God we found some other way to make money,” she says. “I feel much less like someone’s victim.”
NOT SURPRISINGLY, real-estate gurus are convinced that property is a far better investment than the capital markets.
“Real estate is not a ‘jumpy’ investment,” notes Nadlanline’s Baruch. “Even in times of serious crisis, the price changes are relatively slow, and the time it takes to execute a transaction is longer, which tends to soften the edges of a volatile economy. Yes, there are ups and downs, but the chances of your investment totally collapsing are small.”
 Quatinsky goes further, saying that if one has learned how to invest in real estate, it’s almost impossible to lose money.
“If we’ve done our homework and our financial figuring carefully andrented our property the way we should, then if we sell the propertyafter 10 years, even if the real-estate market has ‘crashed’ and we canonly sell it for what we bought it, we still will have made money,” hesays.
How does that happen?
“If we get a normal return on our rent, someone else – the tenant – isnot only paying our mortgage and expenses, but is also giving us backthe money we invested out-of-pocket. As a result, we are earningsomething even if I sell at the same nominal price. I might not getrich in such a situation, but I’m making money. We can’t say that aboutthe stock market.”    
            – S.A.