(photo credit: Bloomberg)
Global real-estate markets have been crushed. With prices in some markets
50 percent lower than they were a few years ago, real estate seems to be cheap.
Owning property is part of most asset-allocation models, meaning that it serves
as a good diversification tool.
Even the Talmud is in favor of real
estate. The Talmud (Bava Metzia 42a) advises that one should keep a third of
one’s assets in property, another third in business and the other third in cash.
For those of you who do not have exposure to real estate, the question is
whether now is a good time to start to invest in it.
ISRAEL VS THE WORLD
Although the local real-estate market has been on a tear, it’s important to note
that nothing goes up forever. Moreover, investors should note that the
old refrain, “Real estate never goes down in Israel,” isn’t necessarily true. In
fact, earlier this decade, the real-estate market in the country was
Keep in mind that while supply is limited, which is good for
price appreciation, both the Bank of Israel and the government are doing all
they can to try and cool off the local market.BUY LOW/SELL HIGH
that old investing refrain. A good way to potentially make money is to buy
quality assets when they are out of favor and trading at low levels. That brings
us to international real estate. After such a serious fall, can prices keep
The answer to the question is a resounding, maybe! But for an
investor, that question may be less relevant. It is virtually impossible
to pick the exact low price of any asset. What is possible is to buy a quality
asset at a huge discount; i.e., buying low.
I’d like to highlight
four ways to go about investing in real estate.
• Investment property
out and buy an apartment. As an individual property owner you are in
control. You decide when to buy or sell, how much rent to charge, etc.
There are a few negatives to an individual buying an investment property. When
buying an investment property, a common problem faced by many individuals is
raising the large amount of money needed to get started.
Even then, the
high initial investment minimum means that most beginners are only able to
purchase one property, and this lack of diversification enhances the risk
involved with the investment. There is also the headache of being a landlord and
having to deal with leaky faucets and burst pipes.
: Another option is to invest in a real-estate investment trust
(REIT), which is a trust company that raises a sum of money to buy, develop,
manage and sell assets in real estate. By purchasing one unit of a REIT, you are
purchasing a part of a managed real-estate trust, providing much greater
REITs are similar to investing in regular stocks, so
there is no prohibitive minimum investment and they are publicly traded on major
stock exchanges, providing relatively quick liquidity. In addition, REITs are
normally required to distribute 90% of the income that was generated from their
real-estate holdings. This way, you receive your rental income without having to
fix the plumbing!
: There are many people out there peddling real-estate
deals. For a reasonable investment you become a limited partner in a group that
is going to buy a building, a strip mall or some other property whose price is
well beyond the average person’s means.
Keep in mind that you need to do
a lot of due diligence on the people behind these deals to make sure they are
honest. The media is full of stories of fraudulent real-estate deals.
: Ask your financial professional for stocks that are related to
the real-estate market. They may include publicly traded roofing, landscaping
and lumber companies, to name a few. These companies have the potential for
price appreciation if the construction market would stabilize or start to grow
in the United States.
Whether looking to enhance your income, or for a
capital gain, at these depressed levels, real estate is worth taking a look
Aaron Katsman is a licensed financial
adviser in Israel and the United States who helps people open investment
accounts in the US.