Why should one invest in real-estate?
In my case, I sometimes feel I was destined to do so. My grandfather, may he rest in peace, was an architect, my mother is currently one, and my brother is studying to be one. My father used to be a realtor, my parents invested in real-estate, and if all that wasn’t enough, I have a Masters degree in finance and worked as a mortgage banker.
Your response may be: “Well, good for you, but why should others also invest in real-estate?”
I can think of three main reasons:
1. It’s simply profitable. Under certain circumstances (usually, but not always!) real-estate investments are more profitable than alternative investments in the stock market. This is especially true for investments in the peripheral areas of Israel, and when these investments are made with a mortgage.
2. This is a comprehensible investment. I have no idea what’s going to happen to Apple stocks next year, whether the Soda Stream hype will continue’ or what will happen to the USD/NIS ration. I’ll let you in on a secret – nor does anyone else. On the other hand, if I take the time to study a certain area and to find the right apartments, I can get a better return. (This, of course, is true for the contrary as well- If I am not interested in making the effort, I will probably end up with inferior properties, in which case I may be better off investing in ETFs or other alternatives).
3. This is a means of committing to a monthly savings: If someone buys a property with a high mortgage, the monthly payment on their mortgage may be higher than the rent they are receiving for the apartment. This sum that they have to add every month is actually another means of saving money, as it increases the value of their house minus the loan amount. People with strong self discipline, would never want to commit to such a draconian saving plan, but I know some people who would actually be grateful to sign up for such monthly savings, that can’t be broken even for an amazing sale at ZARA.
There is much to be said about each of these points, and I intend to do so in the coming posts. My next post will deal with the calculation of real returns in real-estate, so stay tuned…