The international real estate industry offers a variety of investment types to foreign and local investors, in a global market. More and more Israeli investors are choosing to leverage their capital in favor of real estate investments abroad, while maximizing the benefits and advantages that apply to foreign investors, and striving for a high return compared to the local market.
Among the investment platforms and concepts that investors encounter, two leading types of investment stand out: equity transactions and debt transactions.
These two types of transactions deal with investing in entrepreneurial projects in the field of real estate, in multifamily complexes, business complexes, commercial complexes, residential buildings, improvement of buildings and complexes, etc.
Investments are made in construction companies and real estate enterprises, the investor is one of a group of other investors who provide the completion of the capital required for the project for the developer, in a model of raking in a relative return according to the scope of the investment and its relative share in the financing of the project.
The differences between debt transactions and capital transactions
Despite the similar characteristics between the types of investments, the essential difference between them can be found in three factors that form the basis of any investment whatsoever:
– The status of the investor vis-à-vis the entrepreneur
– Potential return
– The scope of the risk
Debt transactions
Debt transactions are transactions in which the entrepreneur works to raise the capital he needs to complete the project. The status of the investor is that of a lender, the capital invested in the project is given under a loan arrangement, and the expected return is determined in advance in the agreement between the parties.
The entrepreneur may raise the capital he needs in this model due to exhausting the financing options with the banks and other financial factors, and sometimes also due to the lack of bank support as the main capital.
The return is a derivative of principal + interest, for a predetermined period of time.
Advantages: Debt transactions are considered low-risk, stable and offer a predetermined return. More suitable for investors looking for security through an investment that is considered quite solid.
Disadvantages: a fixed and predictable return that is not affected by the increase in the value of the property.
Equity Transactions
Investment in capital transactions is carried out under a business outline that refers to the rights of the investor, his percentage of partnership in the property/project, the dates and the method of realization of the returns. The investment is based on the success of the project and its profitability, and the more questions indicate growth, the greater the expected return of the investors in it.
Naturally, a return derived in fair percentages from a profitable project may be high and attractive, in relation to a fixed interest rate given for a loan, and at the same time entails higher risks. In the case of a real estate project that did not meet the profitability goals defined for it, or even fell into losses for the developer, the investor is exposed to these losses and may lose his investment money.
Advantages: partnership and ownership in a large-scale real estate project, higher return potential.
Disadvantages: The return is a derivative of the project’s profitability and the investor is exposed to a higher level of risk.
Several tips and tools for choosing an investment channel and reducing risks:
– Investment in real estate initiatives in western and advanced countries in Europe and the USA.
– Choosing investment areas that are in demand.
– Investment in projects with high improvement potential.
– Investment in projects managed by local real estate developers, sellers, with a high reputation.
– Professional support that includes a range of professional and legal services to protect the interests of the investor.
SDB is an old Israeli company with many years of experience, which specializes in locating projects and real estate assets in the USA and Europe, connecting with local entrepreneurs and in-depth familiarity with the local regulation and bureaucracy, for the benefit of capital raising and investments in short-term transactions with high return potential and maximum protections against risks.
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