Deal Checkers: Instead of Avoiding Risk, Learn How to Profit From It

With investment abroad potentially at a very high risk, Israeli investors are seeking ways to mitigate their risk exposure and to profit from it. "Everyone looks for a high return on their money," says attorney Erez Almog, financial expert and founder of the real estate investment company Deal Checkers. "But Israelis who do this by investing outside Israel confront high levels of risk."

They must choose among several options, according to Almog. "They can decide against it altogether, and keep their investments in Israel. They can go ahead, relying on luck or the advice of friends, and hope for the best. A third option is to find financial products that instead of running from risk actually make it profitable."

One such product is alternative investment in mortgage-backed loans for property owners, which is known as note investment. This, he explains, is investing in a debt that the borrower repays with interest within a specified period. A note contract essentially puts the investor in the role of the bank, allowing him or her to profit from the loan's interest.

"There are US apartment owners who are unable to meet their mortgage payments to property," explains Almog. "An example may be a high-earning Wall Street trader, who's been paying off his mortgage for the past decade, and is unexpectedly fired. During the six months it takes him to find a new job, he can't meet his payments. Even when he starts earning again, he must climb out of this financial hole. The bank responds to unpaid mortgages with the tedious procedure of foreclosure — devastating for the property-owner and a headache for the bank. This is where the opportunity lies. The fired trader is ready to take out a short-term loan at higher interest until he improves his credit rating and either renegotiates his debt or clears it altogether."

Conservative investment strategy

In the world of note investment, finance companies identify people in this difficult position. They settle the client's debt with the bank, draw up a new debt settlement with the struggling property-owner and receive an initial lien. The terms are usually three-year balloon loans for $70,000 to $120,000 on properties worth $150,000 and more. Interest is paid monthly, directly into the lender's account, with the principal returned after the three years.

With the US real estate market shaken up this past year by increased Federal Bank interest rates, the popularity of this type of investment product has surged, says Almog. "It's become more profitable because interest rates for problematic customers have increased, and they're finding it harder to secure loans."

It is only recently that note investment has opened to Israeli investors, he continues. "As an investor with capital in both American and Israeli real estate, I studied note investment for quite some time, but was afraid to go it alone," he confesses.

"Then, at a seminar in the US a few years ago, I met Chad McCall, who owns a company that's successful in this area. As I got to know him, I learned he has over 25 years' experience in US real estate investment and has been in note investment since 2002.

In 2023 alone, his company effected over 500 note investment transactions, and during the past decade, it has provided some $490 million in loans." After getting to know McCall and thoroughly studying the field of note investment, Almog realized that it suited him well.

"I'm essentially conservative about investment strategy," he says. "What I especially like about McCall's approach is that it applies a conservative strategy to a fundamentally risky area, always careful to avoid underwriting borderline clients, so that the necessity of evicting people from their homes is minimized."

Work fast, work smart

Following that seminar and his introduction to note investment, Almog and McCall got together — and today Deal Checkers serves as McCall's representative in Israel, integrating Israelis into the world of note investment.

"We work principally with qualified investors and Family Offices, but smaller investors sometimes come to us, as well, through personal connections," says Almog. "Generally speaking, however, it's the professional investors who know how to react quickly and shrewdly. Those who are less professional may consult me, learn of an investment, take time 'to think it over' or consult with an accountant — and come back to me a month later ready to move forward. By then, of course, the deal we talked about no longer exists!"

Profiting from risk in real estate investment is the basic promise of note investing, concludes Almog. "With the increase in interest rates making it difficult for many mortgagors to make their payments, this type of alternative investment allows investors to profit with a product that doesn't shun risk but is fed by it," he says. "For those seeking investment that produces a double-digit cash flow return quickly and with a relatively reasonable level of risk, it's well worth exploring the world of note investing."

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The above should not be considered as investment advice, recommendation or opinion regarding the viability of the investment. Nor does it substitute for advice based on full data and the personal needs of the investor.