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Expert to Israelis: Stay Away from U.S. Home Investment 'Scam'

For Israelis, it's best to stay away from investments schemes that involve purchasing real estate and homes in the U.S., says an expert
By David Lev & Eliran Aharon, New York
First Publish: 6/17/2013, 12:44 AM

Tzvi Kaufman
Tzvi Kaufman
Arutz Sheva

With interest rates at an all-time low, Israeli investors, like investors everywhere, are seeking higher returns on their money. One option that has been seized upon by some Israelis is investing in real estate in the United States.

Several companies have sprung up that promise to help Israelis find and manage real estate bargains in the U.S. Most of these companies concentrate on distressed properties in the industrial cities of the east, like Cleveland or Philadelphia. The companies claim they will find property and fix it up, with the total cost of a home as low as $79,000. The new Israeli owner can then rent the home out, with the management company collecting the rent, making repairs, and generally acting as “landlord.” The management company takes a fee, and sends the rest of the money on to the property's Israeli owner.

According to the claims of these companies, investors could yield a return on investment of as much as 10% a year.

It's a deal that sounds too good to be true – and it is, according to Tzvi Kaufman, an American real estate investor and attorney. Israelis, he said, make the mistake of thinking that the U.S. real estate market is similar to that of Israel's. Many of the homes being purchased are inexpensive because they are in distressed areas, where prices are low because the residents have poor credit. Even within neighborhoods, prices of homes, and the credit ratings of residents, can vary wildly.

An Israeli purchasing a home “long distance” has no way of knowing where the home is located and how much it is really worth. If the house is on the “wrong” street, one that attracts the “wrong” element, they may not be able to pay the rent, either. Even if they do rent out the home, there is a the very real danger that the renter will stop paying rent at some point in the lease, and the Israeli homeowner has no real tools to deal with such a situation.

In addition, said Kaufman, transitioning between tenants is also very difficult. Homes need to be prepared for the next tenant, with repairs, painting, and other services involved. The cost of those services can easily be several months rent, and without proper oversight it's likely that the jobs won't be done properly.

In the final analysis, Kaufman said, it's unlikely that the Israeli investor will make any money on the deal. Kaufman said that he had received many complaints from Israelis who feel they were swindled in these deals. It's best to stay away, he added.