Difference between the types of projects (Income producing / value add / Development)?

The term “investment in real estate” in itself is a broad term that includes a variety of investment avenues. Those who are thinking about purchasing an apartment for rent, which will also be a source of income for the retirement years, are often casual investors, looking for a stable investment avenue, sometimes while maximizing repayment and financing capabilities , in favor of a solid and permanent investment, which yields a long-term return. Another type of investors are those who have dedicated capital for investment purposes, striving to increase capital through investment strategies based on experience and prior knowledge, who will often choose a global view, and striving for an investment that yields a significantly high return potential, And as part of a series of investments by leveraging existing capital and other investments.

This is not to say that one investment is absolutely more correct in relation to other real estate investments, but it is important to understand that when choosing an investment channel, one must take into account many variables, financial and personal, in choosing the most suitable investment route.

In order to understand which is the right and most suitable investment channel for the needs of every investor, it is important to know:

Three types of real estate investment projects:

Income producing

Income producing real estate transactions are transactions whose main purpose is the purchase of a property for the purpose of renting it. These transactions may include an investment in a residential apartment, an office or a commercial property. The investor who puts his capital, and in many cases helps with bank financing by taking out a mortgage, puts the property up for rent, and collects the The yield and/or covering the financing costs from the rent.

Profitable real estate transactions are long-term transactions, requiring in-depth knowledge of the investment area and socioeconomic characteristics, in order to ensure a high demand for rent and fixed rents that will make the investment worthwhile in the long term.

Income producing real estate transactions provide financial security and a regular income to investors, which may, with proper planning and the selection of an investment area in an area with a medium-high socioeconomic status, be especially profitable and attractive. Risks of loss if the property remains empty and is not rented during certain periods.

value add

value add also called flip transactions – a concept that refers to a quick transaction designed to grow a high yield.

The principles on which real estate value add are based:

– Buying an old/neglected/worn out/defective property, which suffers from low demand and needs investment, in a demand area.
– Additional investment in the renovation of the property and its improvement
– The sale of the property in a short period of time and with high percentages of return.

The advantages of investing in real estate value add short-term conduct and liquid investment, a return that can be controlled through a decision on the scope and characteristics of the investment in the improvement of the property, and a reduction in the risks of falling prices and changes in market value due to the short holding time in the property.

The disadvantages of the investment are in purchase, renovation and sale procedures that require the involvement of the investor intensively, and in many cases also high taxation, depending on the destination country and the investment region.

Development

Development investments are investments in projects that are in the planning and construction stages, by real estate entrepreneurs. These projects may include the construction of a residential complex, the construction of a commercial or business building, the purchase of an old building for renovation and improvement, or alternatively demolition and rebuilding. The entrepreneur raises the capital he needs through investors, in exchange for raking in capital from the expected profits.

Development investments will not deal with the purchase of a single apartment or business, but rather with integration into a group investment in a real estate complex that includes a large amount of residential units and/or businesses, jointly owned. These investments may be for rental purposes and deriving a profitable return that is shared between the investors, but they will usually be aimed at selling and deriving a return from the profits of the entire project, in proportion to the investment.

The advantages of investing in development: in many cases, it is the raising of capital by the entrepreneur that enables him to progress in the project and meet his obligations, and the investors will be able to receive better terms at the stage of deriving the yield. In addition to this, the group investment brings, in addition to the distribution of the capital, also a distribution and reduction of the extent of the personal risk .

The disadvantage: the investor does not own an asset and decisions regarding the investment are joint decisions that apply to the entire group.

SDB Real Estate Investments accompanies investors and capitalists from Israel, and assists them in locating properties and integrating into entrepreneurial projects and investments of various types in Europe and the USA, under a broad and comprehensive legal and professional framework and while fully protecting the interests of each investor.