Badalona, Spain · Member since 2020 · 7 posts · 8 votes
Hello BP community!
This is my first post (and first day as an active BP member). First off, I live in Barcelona—actually, Sant Adrià—and I am just starting my education process to begin investing in rental properties, hopefully within a year or two. I am currently reading the BRRRR book by David Greene and this strategy seems very reasonable—at least in the US.
I will be looking in the Barcelona area and want to set an objective of how much capital I should aim to save up (pago y señal o al contado). My basic question is: Can a property purchased in cash be easily refinanced to convert it into a mortgage? Is that a thing here?
Investor · Barcelona & Valencia (Spain) · Member since 2017 · 322 posts · 177 votes
5y
Got back from talking with the mortgage broker.
In general, the explanation goes like this: difficult because of xyz here in Spain. The mortgage system is different between the US and Spain in that in the US the refinance mortgages are supported by institutional investors - the largest of them being the US government. Here in Spain this is not the case, especially not after the '07/'08 financial crisis. They have no providers of these money lending partners to enable refinancing/BRRRR operations.
This is just a difference in their mindset he says. Because, of you think about it, refinancing a property after renovating could be seen as even more reliable than normally financing a property that still needs work.
However, the BRRRR method could still be possible in Spain though as explained in the above answers. They would be willing to provide refinancing if you already present a new property that you are planning to buy. The mortgage broker told me that the total LTV of the two properties together could not exceed 60%, which basically means that you will need to keep bringing a significant part in cash.
This gets me thinking what the next loophole could be to still make it work
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
3y
I would certainly think so (although admittedly have never been to Spain). But interest rates are bad here (US) and I believe they're even worse there so that makes BRRRR very difficult.
Investor · Barcelona & Valencia (Spain) · Member since 2017 · 322 posts · 177 votes
3y
@Andrew Syrios we have been rising in Europe as well however in Spain today they published an article that the average mortgage rate is at 3,25% so that is still doable in these refinance operations. Especially when the yield is healthy as many times we are able to boost this with a tourist license on the properties.
@Andrew Syrios we have been rising in Europe as well however in Spain today they published an article that the average mortgage rate is at 3,25% so that is still doable in these refinance operations. Especially when the yield is healthy as many times we are able to boost this with a tourist license on the properties.
The average rate in Spain is still only 3.25%? Wow! I would take that in a heartbeat
Not that quick! Yes, interest rates are lower than in the US but:
1. The ECB has raised interest rates already twice since then.
2. These interest rates are variable, with just a (short) period fixed at the beginning.
So imagine you got a 3% mortgage in the US 2 years ago and now the banks adjusts your rate to the current 7.65%. Would you take that in a heartbeat? Maybe not. These higher interest rates have caused a huge drop in the number of mortgage rates in Spain so Spanish borrowers don't like it.
I quote: "According to INE statistics, which are based on Land Registry data, the average interest rate at the start of mortgages taken out was 3.24% in July, 132 b.p. compared with 1.92% a year earlier, reflecting changes in international financial market conditions and, in particular, the policy of the European Central Bank, which from July 2022 to July 2023 raised the intervention rate by 350 b.p., a move that was passed on to a rise of 365 b.p. in the 12-month Euribor."
I don't see any reference to fixed-rate mortgages. Moreover, they say "the average interest rate at the start of mortgages", which clearly indicates that they talk about variable rate mortgages and the 12-month Euribor refers to variable rates as well.
Investor · The Americas and Europe · Member since 2016 · 1k+ posts · 1k+ votes
3y
@Erwin Groenendijk that's great but none of the several non-Europeans I know who recently tried to get a mortgage in Spain could get a 30-year mortgage with the interest rate fixed for 30 years or anything close to that from any bank or credit union, even if they filled the criteria and were younger than 45.
Not that quick! Yes, interest rates are lower than in the US but:
1. The ECB has raised interest rates already twice since then.
2. These interest rates are variable, with just a (short) period fixed at the beginning.
So imagine you got a 3% mortgage in the US 2 years ago and now the banks adjusts your rate to the current 7.65%. Would you take that in a heartbeat? Maybe not. These higher interest rates have caused a huge drop in the number of mortgage rates in Spain so Spanish borrowers don't like it.
Sounds like what happened in here in the states around 2008 with all those teaser rates. Hopefully nothing like that comes to pass.