Congratulations! You have $100,000 available for investment, an opportunity to leverage your capital and “let the money work”. So, what now? One of the dilemmas facing you as an investor is a where to invest. The variety of options combined with the unwillingness to risk the hard-earned capital make it difficult to make investment decisions. Combined with the complexity of the financial instruments and the inability to effectively compare risk and yields in different investment channels, things get complicated. As investors, we will be very happy to earn as much as possible and risk nothing but in our financial reality, it is clear to us that there is an inverse relationship between the level of risk and profits. Investing in the high-risk capital market can generate extraordinary profits which can go just as easily as result of a change in the market situation.
Although a $100,000 sum does not allow a wide range of options in Israel, it offers a large number of opportunities abroad – different types of real estate, diversified projects and investment in funds.
So why should we turn our money into real estate?
Return on investment – Investment in real estate produces a more stable flow of income than investing in the capital market, and an asset acquired for investment usually generates a steady stream of income on a rent basis. Are gains on the capital market higher than real estate investments? It turns out that over time, the profitability of the capital market is similar to the profitability of real estate mainly because real estate investors tend not to sell their investments and hold them longer. Ease of investment, economic stability and regulatory transparency make it possible to achieve better returns over time.
Liquidity – It is true that investment in the capital market is more liquid and easier to realize. Today, a buy or sell order is made at the touch of a button from a computer or phone and the ability to meet with cash is much easier in the capital market. However, the investment of capital in a real estate fund that specializes in asset management or entrepreneurship, becomes similar to investment in a mutual fund, with high liquidity – real estate funds are public companies that are traded on the stock exchange and it is possible to buy and sell the fund units at any time.
The level of risk – the two investment channels are exposed to different types of risk, but it is possible to say that the level of risk in real estate investment is lower than that of a similar investment in the capital market. The level of stability of investment in real estate is higher than investment in capital assets and the revenue model is steadier over time. Investment in real estate by its nature is a long-term investment, thus avoiding investors’ impulsive decisions of buying and selling.
The various risk levels and the lack of correlation to the capital market enable investors to diversify into their overall investment portfolio by diverting part of the money to the capital market and part of the real estate market, thereby neutralizing the possible risks in both channels. Make up for volatility in your stock options.
Protection from inflation – Since lease contracts of real estate assets usually include protection clauses that link the rent to an index or currency exchange rate, it can be said that investment in real estate offers some protection from inflationary erosion – as opposed to investment in the capital market exposed to market fluctuations and currency exchange rates, without sufficient protection.
Investment Diversification – as opposed to a local investment in a single asset related to one market, investment in REIT funds enables real estate investors to create a certain dispersion capacity and higher liquidity, since the purchase of units in a real estate fund is similar to the purchase of units in a mutual fund. In addition, the funds invest in a variety of different assets, so that a certain diversification of the investment is achieved.