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Spanish real estate has been tanking. Over 1.5mm units unsold. I think it's a good time to buy, perhaps towards the end of the year. My wife is a self-employed

Spanish real estate has been tanking. Over 1.5mm units unsold. I think it's a good time to buy, perhaps towards the end of the year. My wife is a self-employed travel agent catering to the Russian market (I'm Russian/Cuban). I she would love to go into property management, specially if the property is ours. I'm reading about LBOs in "Barbarians at the gate" and I think it's a bit like that. You need to figure out the potential rental income of a property and convince the bankers that it's enough to service the mortgage debt. All the while putting as little of your own money in as possible.

roel_v 16y ago
"You need to figure out the potential rental income of a property and convince the bankers that it's enough to service the mortgage debt. All the while putting as little of your own money in as possible." This last part is not true. 100% leveraged properties are hard to make serious money on, and it makes for a fragile business (you only need one down cycle to bring down the, ehm, house). Average return on rental in the private is 4-5% in most parts of Europe. Right now you can get a mortgage lower than that (I actually took one out this morning for this exact purpose) but only for variable rate ones, which will reset almost surely to above 4% in a few years. It depends on the circumstances what the most profitable thing to do is, but it's almost never to finance 100% (which would be 100%+ because of closure costs...)
- wagerlabs 16y ago
  Roel, I was thinking of a regular 20% downpayment, maybe a little more. That's about 30% with closure costs in Spain.
  - roel_v 16y ago
    Yes, I too feel that that is about the right level at this moment.
nagrom 16y ago
I was in Tenerife earlier this year and I was shocked at the number of properties that were lying around, half completed. It seemed like every cove and beach along the south and west coasts of the island had uncompleted holiday/retirement apartment buildings lying semi-built. I was also amazed that prices in the local agents seemed ridiculously high given the obvious devastation in the market. I would be extremely wary about entering the Spanish real estate market right now...
- wagerlabs 16y ago
  Developers are going out of business and don't have money to finish properties. Banks are saddled with large inventory of foreclosed properties and are getting rid of it very slowly, hoping not to show large losses, I think. The asking prices are set high all over the island in the hope that foreigners will bite. You need an official appraisal by the bank before you get a mortgage and you may then get 80% of the amount. Asking prices used to be exactly 80% of appraised value or less and people are still clinging to the high prices from the market top. Try negotiating, though, and you'll see prices come down rapidly. I rented a house a few months ago and the owner wanted 330K or so. I insisted on renting and the owner said that if the price is the problem then he could go down to 290, 280, etc. It's not even funny how prices in the US are more or less uniform, as if people are aware of property values around them and are trying to price them fairly. No such thing around here as people ask what they want and then negotiate down, down, down.

roel_v 16y ago

"You need to figure out the potential rental income of a property and convince the bankers that it's enough to service the mortgage debt. All the while putting as little of your own money in as possible." This last part is not true. 100% leveraged properties are hard to make serious money on, and it makes for a fragile business (you only need one down cycle to bring down the, ehm, house). Average return on rental in the private is 4-5% in most parts of Europe. Right now you can get a mortgage lower than that (I actually took one out this morning for this exact purpose) but only for variable rate ones, which will reset almost surely to above 4% in a few years. It depends on the circumstances what the most profitable thing to do is, but it's almost never to finance 100% (which would be 100%+ because of closure costs...)

wagerlabs 16y ago
Roel, I was thinking of a regular 20% downpayment, maybe a little more. That's about 30% with closure costs in Spain.
- roel_v 16y ago
  Yes, I too feel that that is about the right level at this moment.

nagrom 16y ago

I was in Tenerife earlier this year and I was shocked at the number of properties that were lying around, half completed. It seemed like every cove and beach along the south and west coasts of the island had uncompleted holiday/retirement apartment buildings lying semi-built. I was also amazed that prices in the local agents seemed ridiculously high given the obvious devastation in the market. I would be extremely wary about entering the Spanish real estate market right now...

wagerlabs 16y ago
Developers are going out of business and don't have money to finish properties. Banks are saddled with large inventory of foreclosed properties and are getting rid of it very slowly, hoping not to show large losses, I think. The asking prices are set high all over the island in the hope that foreigners will bite. You need an official appraisal by the bank before you get a mortgage and you may then get 80% of the amount. Asking prices used to be exactly 80% of appraised value or less and people are still clinging to the high prices from the market top. Try negotiating, though, and you'll see prices come down rapidly. I rented a house a few months ago and the owner wanted 330K or so. I insisted on renting and the owner said that if the price is the problem then he could go down to 290, 280, etc. It's not even funny how prices in the US are more or less uniform, as if people are aware of property values around them and are trying to price them fairly. No such thing around here as people ask what they want and then negotiate down, down, down.