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General background on the US real estate market
The US real estate market has been attracting a lot of interest in recent years. The main reason for this is the economic crisis that erupted in the United States and around the world in 2008, which led to a significant drop in real estate prices in the United States. Foreign investors from around the world, including from Israel, hoped to find in the United States an opportunity for investment at a low price that would lead to handsome profits. However, when a non-local investor wants to invest in a foreign market he must first learn about the market in which he is interested in investing so that he does not waste his money for free.
Investment in real estate in the US compared to other investment channels
Investing in real estate is different from other investment channels, such as buying shares on the stock exchange or buying bonds. The main differences are:
Buying an apartment for investment is usually done for a longer term since the liquidity of the money is low. Unlike the stock exchange, it is not possible to get the money invested by giving a command but rather have to sell the apartment. The process of selling an apartment may take several months.
Investment in real estate is made for the purpose of making profits from rental income as well as from future sales at a price higher than the purchase price.
Investing in real estate usually involves a lower risk than investing in the stock market, since fluctuations in prices are more moderate and do not necessarily affect rental prices or the demand for rent. It is also possible to more accurately predict what the expected cash flow from the investment will be.Characteristics of the US Real Estate Market
The US real estate market is not homogeneous and is divided into many sub-markets. Investing in Florida, for example, is not the same as investing in Michigan. The differences between the markets stem from, among other things, the location, the socio-economic situation in the area, the level of crime, whether there is positive or negative immigration and so on. However, there are a number of characteristics common to all real estate in the United States: First, the price concepts there are completely different from those used here in Israel. In the United States you can buy a spacious villa for the price of a 3-room apartment in the country in peripheral areas, and it is not just because of the economic crisis. In the US the price of land is not as significant as in Israel and the construction methods of the houses are cheaper.Second, the price differences of US homes are much larger than we are familiar with in the country. This is important because when you hear information about the average price of apartments in the United States, you should remember that the average is also affected by the price of luxury apartments. When their value drops it greatly affects the average. Most Israelis interested in buying real estate in the United States are not looking to buy luxury apartments and therefore the average is less relevant for them.
Another characteristic is that the process of purchasing real estate in the United States is done in a very orderly manner from a legal and legal point of view. There are differences, for example, in the issue of legislation and taxation, as well as in terms of administrative transparency. This means that a potential buyer can get all the relevant information about the property in which he is interested. Most of the transactions made are registered in an orderly manner on the MLS - Multiple Listing Service website, which allows for cooperation between brokers, where information on real estate transactions can be found.
In the current situation, a significant proportion of real estate investors in the United States are foreign investors, and most real estate transactions are made in cash. We will expand on the process of purchasing real estate in the USA below.
Characteristics of US apartments
Unlike in Israel where most homes are still built of stone, apartments in the United States are usually built using wooden or prefabricated construction methods. One reason for this is that the United States sometimes suffers from earthquakes and more resilient wooden houses due to their flexibility. These are also very fast construction methods, and natural disasters such as tornadoes that sometimes hit the United States leave tens of thousands of homeless people and require a quick housing solution.The implications of the nature of construction on apartments in the United States are that the cost of building a house is cheaper and therefore the price of apartments in the United States is generally cheaper compared to Israel. On the other hand, it should be remembered that wooden houses require more maintenance, such as painting the wood every few years.
Once we understand what characterizes the US real estate market, we can move on to the next chapter, in which we will elaborate on the subprime crisis that changed the face of real estate in the US.
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