Entrepreneur of the Week Yossi Golan # Post 3 Land in Israel - risk…
Entrepreneur of the Week Yossi Golan # Post 3 Land in Israel - risk management In a previous post we analyzed the issue of new land construction in the US and detailed a list of issues required for examination in the decision making process on land acquisition. But what is happening in the Holy Land?…
With our help you will spend less and earn more
Entrepreneur of the Week Yossi Golan # Post 3
Land in Israel - risk management
In a previous post we analyzed the issue of new land construction in the US and detailed a list of issues required for examination in the decision making process on land acquisition.
But what is happening in the Holy Land?
The answer in a nutshell - even more complex and challenging than in the US.
This post is unique to the world of agricultural land.
Thawed and approved land for construction, unlike agricultural land, has very low risks, but also has low entrepreneurial profit.
Therefore, we will deal with agricultural land, the huge entrepreneurial profit inherent in it and the risks.
Many investors want to purchase agricultural land in Israel.
The purpose of the investment - to create a passive future profit resulting from the increase in the value of the land as a result of a change in its designation.
Some investors want to do so in Israel with the intention of spreading risks between real estate investments abroad and in Israel, and most of them out of a desire to purchase a property that is linked to rising real estate prices in Israel.
It has been said from the beginning - the critical step, which has the greatest impact on the value of the land - here is the completion of the thaw phase for construction.
Let us explain for a moment the concept:
The process of thawing / change of designation - means changing the designation of the land from land that is not approved for construction, let's say an agricultural to land designated for private / saturated / commercial construction, etc.
When we come to consider the purchase of land that is not intended for construction, we must consider a large number of considerations, the most important of which is the length of time until the end of the process of changing the designation.
That is, the period of time that will elapse until we see an increase in value in our investment.
It is clear that the longer the process, the less attractive the investment.
Let's take an example to illustrate with realistic numbers:
Agricultural land is currently sold in an excellent location in Hodesh for about NIS 300,000. The value of this land as thawed is NIS 1,000,000. Suppose that after a praise tax and expenses, a profit of NIS 500,000 remains.
And here comes the dimension of time - if the thawing process lasts 5 years, an annual profit of 100,000 NIS will be created, which is an annual return of about 33%.
However, if the thawing process takes 25 years, an annual profit of NIS 20,000 will be generated, which is an annual return of about 6.6% (and in practice even much less if we consider inflation and interest-bearing issues).
While Case A is a good deal, it is clear that in Case B it is not economic-entrepreneurial, with the only difference between the cases being the duration of the improvement / change of use process.
It should also be noted that most investors do not sell the land upon thawing and cut an oil coupon, but continue to build entrepreneurship as part of purchasing groups to increase profits several times over.
So how do you get started claiming a daycare tax deduction?
The answer - this world is very complex and depends on many variables, from the local committee, through the position of the district committee, to the entrepreneur's abilities in promoting the program and ending with the state of the economy.
In this post we will try to get to know the most influential elements of the process when we come to make a wise-economic decision.
The explanation will come in the following example.
A few years ago, a friend came to me and asked for my opinion on a land deal that should provide him with the right to a housing unit in one of the cities in Israel. He approached me because he knew that my specialty was lands with a change of use.
With the intention of showing me how successful the negotiations were, he told me that out of 200 units in the project, about 190 units were sold.
Moreover, he showed me that while the average price at which a unit was sold is NIS 300,000, he skillfully lowered the price to only NIS 270,000 in negotiations with the developer. 10% below the market price.
My first reaction was that it would not be responsible on my part to advise him on the matter, as I do not know the city where the land is located, nor the city building plans, nor the city craftsmen, nor local nuances, nor the forces working to advance and reject the plan nor material details. Many more.
However, it's a friend.
The original responses to the post can be read at the bottom of the current post page on the site or in the link to a post on Facebook and of course you are invited to join the discussion
With our help you will spend less and earn more