In my last lecture on real estate investment, one of the attendees raised his hand and asked: I invested in an apartment a few years ago. Its price has risen significantly and now I can sell it, pay off the mortgage, and be left with 100,000 NIS. Should I do it? I answered him in the Jewish custom of old, with a question of my own: "What is your family's plan?" He raised an eyebrow and didn't answer. The lecture was given at a high-tech company. I assume everyone present is required to meet work plans, goals, and budgets. Nevertheless, when it comes to family finances, many forget their behavior during the workday. Instead of planning, setting goals, and working to meet them, they "go with the flow," "roll with it," "live day to day," etc. Well, if you don't have a plan, it doesn't matter how you act when a good event occurs, such as an increase in the value of your asset."Would you please tell me, which way I ought to go from here?" asked Alice. "That depends a great deal on where you want to get to," said the Cat. "I don't care much about where." said Alice "Then it doesn't matter which way you go," said the cat. From Alice in WonderlandIn other words: If your plan is to buy properties in order to retire early, then after the asset's price has risen, it only makes sense to sell it if you can purchase another asset with a higher return. If your asset's price has increased, but the prices of other assets have risen to the same extent, there is no logic in selling it. On the other hand, if your plan was to purchase an asset and, after its price increased, sell it and enjoy the profits, you're in luck because the price did indeed rise, and you can fulfill your plan. Personally, this is not how I operate, but it all comes down to personal preference. Real estate investment involves a large amount of money and taking out a loan for many years. Before taking the first step, you must determine your investment goals and the steps to achieve them. Quantitative targets must be set to evaluate over the years whether you are progressing towards their realization.
There is another perspective: even if property prices have risen in the meantime, if I actually receive more cash from the sale today than I originally invested, I can use the right amount of leverage to purchase another property, since I now have more equity that I can leverage. There is also the option of mortgaging the existing property. Therefore, I need to examine the difference between the percentage of financing I can still extract from the existing apartment and the amount of money I will have left after purchasing a property that will provide me with a return similar to what I earn from the existing property. (This difference exists mainly if the leverage for purchasing the first apartment is 70:1.) Best regards, RaphaelReply
Hello Raphael, I didn't quite understand your response. Let's try a numerical example. I bought an apartment for half a million, the market rose sharply, and now the apartment is worth a million shekels. Now, according to you, I can buy two apartments for a million each with a mortgage of half a million. Result: I have assets totaling two million and debts totaling one million, or in other words, net assets of one million NIS.In 15 years, I will have two debt-free apartments (after paying off the mortgages), meaning assets worth two million shekels. I would have a very similar sum if I stayed with one apartment and saved all the monthly rental income (3500*12*15 + return on money).Reply
From your answer, I understand it's better to have one additional apartment for each family for "retirement" purposes? In light of Kahlon wanting to add another tax for those who own an additional apartment (3 and above)Reply
Hello, I don't know what Kahlon wants. There isn't even a bill yet, only headlines in the newspapers. Broadly speaking, it's accepted in economics to look at values rather than quantities. In the proposal, there's a strange exception where someone who owns 3 apartments with a total value of approximately 1,800,000 shekels Will pay tax, but someone who owns one apartment worth about 3,000,000 shekels will not pay. Time will tell what comes of this, and based on that, we can plan.Reply
Hi Rimón,Following up on your answer to Rafael, , 1. You referred to two apartments valued at one million each, paid off and free of encumbrances after 15 years, resulting in a net of 2 million, but what about their additional appreciation during those 15 years? Perhaps you believe it's not reliable, but on the other hand, you refer to the alternative of saving rent + returns. If so, here too, one cannot rely on returns, if we are to be fair for the comparison.2. If I understood your past method of operation correctly (based on your recorded lectures, at least), you spoke about building a pension from assets by encumbering an existing asset, taking out a mortgage, and buying another asset, and so on. If so, why are you suggesting a different approach here and saving on rent instead of acting in the same manner? Of course, I understand that it depends on the investor's objective, but for the sake of argument, I'm talking about your method. , Thank youReply
Hello Tal, and thank you for reading, I think you wrote a comment that belongs to another article. Good luck with everything.Reply
The post was written a few years ago, and since then there have been several regulatory changes, but none of them have rendered the post irrelevant in my opinion. Would you like to elaborate?Reply