With banks paying next to nothing in interest, Israeli householders are actively looking for alternative investment vehicles – a situation that numerous entrepreneurs have taken advantage of by structuring investment vehicles for Israelis to invest in American real estate. With house prices in many parts of the US still depressed, there is an opportunity, these investors believe, for profits to be made from rent and eventual refurbishing and sales of houses.
But these investments, which have become very popular over the past year, don't always work out – and in fact, according to a new report by CBRE, an American commercial real estate data company that is the world's largest commercial real estate services firm, they don't work out more than half the time. According to the report, 55% of Israelis investing in these projects lose money, sometimes most of their investments.
Israelis currently have about $5 billion invested in the funds that invest in US homes, mostly in depressed neighborhoods in the east, such as Cleveland, Pittsburgh, New York, and Baltimore. Most of the investments – 70% - are made via funds that are administered by a real estate management company, which either rents out the homes and distributes rent money to investors, or takes the fund money to fix up homes and sell them. The rest of the investments are made by individuals, who mostly buy homes and rent them out.
Ads and prospectus brochures for these investment promise profits of upwards of 10% a year, but the report said that such returns were rare. Most of the investments yielded far less, due in part to management fees (for the real estate management firm, and the Israeli fund managers), while for 55% of investors, the investments were a total flop – with the fund in some cases losing money on the homes, with any income gobbled up by fees, with nothing left for the investors, or in other cases just going out of business. These investments, the report noted, are not regulated or insured by any financial regulator either in Israel or the US.
According to industry officials, that lack of oversight has encouraged many fly by night speculators to get into the business. Many of them have no experience in real estate or financing, and they don't have resources to provide their investments with financial backing.