In terms of investment options for residential purposes, the types of assets in the United States differ from what we are familiar with in Israel – in terms of definitions, the required method of investment, information required to execute transactions, types of financing and return on investment over time.
In the US market, it is possible to invest in several different types of residential real estate such as a Single-Family asset – a property for a single family – usually a single-family home, many times offered on a below market prices, due to defaults. This is an opportunity as the banks want to get rid of them quickly and the assets experienced a significant decline in value. Unlike single family assets, a Multi Family property is usually a building or a complex of several buildings or houses in a neighborhood. An asset of this type is usually owned by a single entity – a single investor, or an asset management company. In many cases, this is the ownership of a partnership – the incorporation of a number of investors for the purpose of purchasing a yielding residential property.
Multi-family asset market is considered very attractive and attracts large companies, including companies such as insurance companies that diversify their investment portfolio with such real estate assets.
Among the characteristics of the Multi-Family market:
- High profitability – occupancy of more than 90% of the leased properties.
- Assets managed by a management company that fully operates the services of the complex.
- Location of assets in high employment areas and in fast developing area.
- Diversity – assets include buildings, residential complexes and even entire neighborhoods
Among the benefits of investing in Multi-Family you can see:
- Financial flexibility in the type of investment
- Opportunity to generate passive income over time.
- Investment with a higher level of stability in terms of taxation and yield over time.
- The level of diversification is relatively high compared with the amount of purchasing capacity in Israel.
In most of the cases, Multi Family assets are handled by a management company. The company assumes responsibility for all aspects of the property’s operations – renovation and maintenance before delivery, routine maintenance and asset management on a daily basis, the property is marketed to tenants, the tenants are examined and signed. As far as the investors are involved, the meaning of working with a management company is payment for the management fees and maintenance expenses of the property.
The registration of a Multi Family property ownership is performed on one entity and therefore, the expenses and income are divided among all the partnering investors. If the property has an unoccupied apartments, taxes and maintenance must still be paid. In terms of taxation, an investment in such an asset can be made through the registration of an LLC company that allows recognition of expenses, losses and, of course, hedging of liability in the event of a claim for damages.
The significant advantage of investing in a multi-family asset is the possibility of starting the investment at a relatively low amount and creating, together with other investors, risk diversification and the possibility of taking effective financing. Even after management and maintenance fees, the expected yield in many cases is higher than that of real estate in Israel.
For multi-family investors, it is important to pay special attention to financing, taxation and due diligence issues. First, choosing the right company through which the investment is made – based on its familiarity with the local market, the history of similar transactions, bank and financial support, legal advice and familiarity with the planning bodies and American regulators. In addition, one needs to pay close attention to the issue of registration of assets and registration of investment for taxation purposes (e.g. through an LLC company mechanism) and carrying out due diligence for the property – the quality of the building, the area in which the asset is located (quality, economic robustness, (At the stage of entering into the actual operation of the asset).