It is no secret that housing prices in the US have fallen. Nor is it surprising that many buying opportunities have cropped up, even as the US housing market shows signs of recovery. As to whether the Israeli investor can also exploit these opportunities without being worried about the distance, language barrier, and inadequate knowledge about the housing market is such a huge country - the answer is yes.
While there is no mass rush by Israelis, thousands of people are definitely involved. Like French or American Jews who come to Israel for the summer or during the holidays, and pick an apartment on the way, Israelis making trips abroad during August take the opportunity to come home with a residence, along with the suitcases full of presents for the kids.
The Israeli investors are men and women aged 25-70, and the investments too range widely, from $25,000 to $500,000.
In an interview with "Globes", Gazit-Globe Ltd. (TASE: GLOB) chairman Chaim Katzman mentioned that he took advantage of the bargains to buy an apartment in Miami for his daughters.
The first signs an upswing in the economy are fueling the trend. Three months ago, housing prices in large US cities rose for the first time since the outbreak of the economic crisis. According to S&P/Case-Shiller US National Home Price Index, which tracks prices in 20 cities, price rose by 0.5% in May, compared with April, after 34 continuous months of decline. Home prices have fallen by a third from their 2006 high, while the number of foreclosures has skyrocketed, flooding the market with homes that put even more pressure on prices.
In addition to showing stabilization in home prices, the figures also point to a rise in home sales thanks to the Obama administration's $275 billion in incentives to help first-time homebuyers, and to help financially troubled mortgage holders fend off foreclosure.
The US housing crisis generated plenty of legends about houses sold for $1, as well as reports of homes sold for less than $10,000.
On the ground, things are more complicated. The so-called bargains are usually in dangerous neighborhoods, the houses are usually is poor condition and need thorough renovations to make them fit for habitation, leasing the house can be almost impossible, and just as important, the house is often burdened with debts that can amount to tens of thousands of dollars. Few people realize that in the US, debt is registered on the house deed, not on the homeowners, and that local taxes and utilities arrears are passed on to the new owners.
1 COD Capital CEO Almog Levy arrived in the US last year in the wake of the crisis. He founded the company, which offers services to "remote investors", including searching for properties, close assistance for investors, and closing with the property management company. The Dallas-based company plans to expand to other cities.
"We decided to establish ourselves in the Dallas-Fort Worth metropolitan area in north Texas because it's a stable market and the crisis passed it by, since you can call a 2.5% drop in home prices as 'passed over', compared with the 30% plunge in prices in Florida, California, Nevada, and Arizona," says Levy. "The metropolitan area has 6.5 million residents in 200 towns in an area the size of Israel, and a high standard of living. Historically, this market has been slowing rising. We have investors from all over the world buying entire buildings and commercial properties in the city that 'Forbes' has twice called 'the best business city in North America'. We find properties for Americans from outside Texas, and we also have Israeli customers for whom we've found properties with swimming pools and fitness rooms in great locations. They've bought homes for $20,000-25,000 and get $500 in rent a month in a signed lease, without any need for renovations."
Levy and other people with whom "Globes" has talked mention double-digit returns on investment. A comparison with the Israeli real estate market is necessary in view of the rise in housing prices in Israel in recent years, and Levy has no doubt which pays better.
"We cannot find such returns in Israel," he says. "In Israel, the ratio between home prices and rental prices is disproportionate. An average three-room apartment in central Israel costs NIS 1 million and the average rent is about NIS 100,000 a year. In north Texas, a three-bedroom house with two bathrooms and a two-car garage costs $140,000 (about NIS 500,000) and rents for $57,000 a year (about NIS 225,000)."
Levy notes another advantage of buying property in the US: prices and information are transparent. "In Israel," he says, "you cannot know the real value of the home you're about to buy, or the price of the home next door, and so on. If you ask the agent, you can't be sure if he's telling the truth. In Israel, there are agents who work with both the buyer and the seller. That's not legal in the US. I understand Israelis who buy homes to live in. But for investment? That I can't understand. The Israeli investor now has options that did not exist before. Investment in the US is easier and simpler today."
Consultancy firms do not work for free, needless to say. Some firms charge fees for their services, while others are so sure of the potential in the US housing market that they forego a fixed fee in favor of a percentage of future profits. One of these firms is London-based Global Property Investment (GPI), which operates in the US and UK housing markets and is a corporate affiliate of the Europeak Group of Companies. GPI has offices in Chicago and Florida. It recommends two different investment strategies for the two areas. It also has an office in Jerusalem.
GPI partner Shea Rosenbaum says, "Florida is attractive because of the rate of foreclosures, which is 7-8 times the US average. Florida also has good conditions that haven’t changed: good weather, proximity to the ocean, and strong building standards. If six months ago there were 20 people at every auction, today it's 120. People believe that we've hit bottom."
GPI collects about half of future profits from a property sold, although this figure is negotiable. The company's business strategy in Florida is geared to short-term profits (over two-three months), not rent. Rosenbaum says that the Florida rental market is too weak and does not pay, especially if the tenant damages the home and the owner then has to make repairs.
A buyer who wants to hold onto a property for a longer period is invited to do so, and could enjoy a better return on investment, assuming that the housing market is now recovering. "If a house remains empty, maintenance could cost $4,000-6,000 a year in taxes, insurance, and so forth," says Rosenbaum. "It's hard to say what the profit might be in two to three years, but I think a return of 50-100% is realistic."
In Chicago, specifically the northwest side of the city, GPI's strategy is completely different: it does not seek a quick sale of the property, but makes long-term investments on which the return comes from rent.
Nevada and Arizona are two states marked out as good housing investment opportunities, although the rental markets in both are weak, a factor that has to be taken into account.
Eli Kashdan, CEO of Citybook Services Ltd., says there are many bargains to be had in those states. “A house in Arizona that cost $250,000 at the height of the market and has fallen 70% represents a buying opportunity, not because of the rental, but to wait and sell at a higher price in the future. Even if the price never returns to the $250,000 peak, but only to $200,000, it’s an excellent deal. That’s what investors are doing. They prefer not to let the property, because there is a large supply of houses and so the rental market hardly exists. The investor must ask himself whether it’s worth bringing in a tenant and taking the risk that he will damage the property and make it necessary to renovate, all for $400 a month. To my mind, the answer is no.”
The case of Citybook is instructive. The company has been active in Israel for six years, and employs only haredi (ultra-orthodox) women, about 200 altogether, immigrants from North America. The company is partnered with Madison Commercial Real Estate Services, owned by president Joseph Rosenbaum. Citybook is not a real estate agency or property management company, but provides legal advice, due diligence, and real estate services.
Published by Globes [online], Israel business news - www.globes-online.com - on August 17, 2009
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