Investments: Thinking about purchasing real estate abroad?

When investing in real estate, the goal is to put money to work today and allow it to increase so that you have more money in the future. The profit must be enough to cover the risks you take.

A SIGN advertises an open house for sale in Alexandria, Virginia. (photo credit: JONATHAN ERNST / REUTERS)
A SIGN advertises an open house for sale in Alexandria, Virginia.
(photo credit: JONATHAN ERNST / REUTERS)
People with small savings can only dream of buying real estate property abroad. However, in today’s reality, where interest rates are almost unexciting, any offer to buy property for a reasonable five or six figure number, which will enable a long-term quality investment in countries such as Eastern Europe – especially in Romania, Bulgaria and Hungary – as well as in Germany, the USA and England, sounds like a dream come true.
When investing in real estate, the goal is to put money to work today and allow it to increase so that you have more money in the future. The profit, or return you make on your real estate investment, must be enough to cover the risks you take.
Therefore, before hasting to sign the purchase documents and thinking about your future pension, there are a number of basic drawbacks for Israelis to consider in purchasing real estate property abroad: the distance issue (remote control), the disadvantage of not knowing the language, the different laws, regulations and economic issues in the target country that may affect the investment, the cost of legal proceedings if something goes wrong, and most importantly – the securities and guaranties provided by the seller.
In view of these shortcomings, and especially because recently we came across cases, in which people woke up one day, after a year or two of investment, facing a total loss of their (sometimes only) capital, understanding they were lured to invest in failed real estate transactions abroad, it is highly important to spend time and invest a relatively small amount, in advance, to get the help of professional experts in order to research the investment and make sure it is viable.
For example, it is important to read the jurisdiction clause in the contracts indicating where the investor is required to conduct any legal proceedings and/or claim of rights. This will almost always be in a foreign court and subject to foreign and unfamiliar law and legal systems. Hence, high costs will be involved as well as the issue of translation from a foreign language. (e.g.) an investment via a management company that after a period of returns stopped doing so as it was declared bankrupt, only to realize that you are not the only creditor and that numerous investors around the world have begun legal procedures, thus the chances of reimbursement or any profit from the investment is out of your reach. Alternatively, one may find out that the property is subject to a poorly drafted lease (sometimes by the inclusion of a series of charges and additional liabilities imposed on the property owner, and sometimes by not including certain clauses required, for example, authorizing the mortgage for the purchase of the property).
In order to maximize investment return, one should consult with a legal counsel who is well acquainted with the laws of real estate and land in the target country, well aware of the risk of various restrictions that could arise along the way, who can address the attorney of the transaction, who can observe the property and also check the background of the seller – and thus prepare a proper due diligence check.
Appropriate legal counsel will also perform, on behalf of the investor, investigations into the investor’s legal status in the transaction, namely – what legal safeguards, securities and/or guarantees for the benefit of the investor actually exist in the investment transaction, as well as conduct in-depth review of all contracts related to the transaction (such as the investor’s contracts: with the lender and/or the bank; with the company managing the investment or the property; with the seller and/or with the tenants of the property etc.), and also legal inquiries regarding the relevant applicable laws of the target country, the relevant taxation aspects, and more.
It should be noted that the contractual framework of such investment usually includes long-term agreements in complex legal language. Therefore, despite the fact that brokerage and investment firms offering overseas high rates investment properties with beautiful pictures often refer investors to the details of a foreign attorney, acting as the appointed legal counsel charged with handling the transaction on behalf of the purchasers, we recommend working and consulting with legal counsels solely on your behalf as an investor – lawyers in your country as well as local attorneys in the target country – that will review on your behalf the transaction and the foreign law contract clauses, and also explain to you the meaning of the whole foreign opportunity and its implications, so that you can get accurate explanations about the purchase process, rights and obligations and how to maintain the property. Small sums invested in proper personal preliminary legal surveillance may turn out to be the best long term investment you make.
The writer is a senior partner and head of the international department at Gideon Fisher & Co Law Firm and Notary.