All Forum Posts by: Verity Macdonald

Thank you both so much, I will try there instead! 

Hi everyone,

I'm currently considering purchasing a property at auction to either flip or rent. It's in an extremely desirable country village in southern UK, 2 hours from London, previously a school building but with planning permission to convert it into a residential property. The potential could be huge but there's a catch.... The access to the property, a tiny country lane, is owned by an anonymous third party. 

Because I grew up next door (and estate agents aren't always discrete) we discovered that the access land owner is likely a near neighbour who may have bought the land specifically in order to eventually get a good deal on this property by scaring off other potential buyers and pushing the price down. Smart move. 

In the legal documents there are letters between the current owners (the school) and the lawyers of this land owner disputing this issue, I need to read them more carefully. Bearing in mind the auction is on the 11 SEPTEMBER, how tricky does this hurdle seem to you? Are there any legal precedents that turned out in the new buyer's favour? Should I run a mile?

I need urgent help to make a decision in time to participate in the auction! Or not as the case may be :) 

Thank you so much in advance!

Verity

Hi @Mike Lambert and @Erwin Groenendijk

To answer your points Mike:

No it’s not a crisis deal, we were in the process of buying before COVID hit. It’s a long term investment that we think could return around 6-7% a year renting higher over the summer (€1,100/m) and lower over the winter (€850-950/m). By leveraging with the mortgage it becomes more like 11% return on a €50k down-payment. We don’t plan on living in it (unless sh*t really hits the fan!)

We’re not considering capital gain, trying not to be in the business of speculation! But of course this is a potential upside of real estate vs other investments

Re. mortgages, I agree about interest rates but I worry about other conditions changing such as down-payment or loan-to-income requirements as lenders brace for tricky economic times over the next few months.

We’re not so worried about prices going down, it’s hard to predict and if they do, great, we’ll buy another place!

International real estate: to clarify, I live and work in Barcelona, so I´m familiar with the market and exchange rates are not an issue

Thanks for the party pooper point of view!! It’s always good to see both sides so thank you.

I hope I've answered your points too @Erwin Groenendijk, feel free to pick apart my calculations in case you think I've got something wrong!

I was wondering, are you concerned at all about the rental market over the next few months for your co-living business?

Hi @Paolo De Leon thanks for your reply! We're using a mortgage lender called UCI. Our contact has assured me that they are still going through with applications but I guess there may be other delays as you mention. That's a really good point about checking wiht local agencies about the rental waiting list, we'll give that a try! 

As for the plan for renting it, we would do the same as you, rent for 6-12 and then see. We're a bit worried that All the Airbnb properties which will not be rented for tourism aer going to flood the market and drag rents down but that just something we'll have to deal with in the short term I guess...

Thanks!

Hey @Erwin Groenendijk! Thanks for your helps as always. To answer your points:

> How will we fill the apartment? 

Longer term rents and more competitive pricing I guess, making it slightly less profitable in the short term. I think it could still rent for €750+.

> Mortgages are good now

Agree, and we are working with Leo from UCI on your recommendation (thanks!). Problem is that their offers have 30 days validity and in such a dynamic situation, anything could change in the intervening months before signing, what if our financial situationchanged and the offer was not renewed in time for the purchase? Our plan is to pay the arras with the clause that you mention and put the following dates: contingent on approval of the mortgage by 1st Aug, exchange on 1st Sept or something like that. 

> Timing

Our thinking is that the market is paralized at the moment so we can push it out a few months to make sure we're not paying a mortgage while still on lock-down and unable to rent it. No renovation needed so as soon as things start to look better we can go ahead and finanlise the purchase.

> Discounts

We tried that! We said "either you knock 6 months' rent off the price or we back out and wait to see what happens". They chose to wait. 

Hope that makes things clearer. Let me know if there's any other factor we should consider!

Thanks :)

Here's the deal:

Agreed price: €159,000

€1000 Reserve put down and lawyer instructed

10% deposit not yet paid (can walk away)

70% mortgage pre-approved but not officially offered (€514/m) 

pre-Corona rental income: €850-950/m

Based on no particular expertise but a bit of research I came to think that any dip in the real estate market due to COVID-19 was likely to be V shaped and short-lived. Therefore as a long-term investment, provided the deal was good, I could go ahead with this purchase now and as long as I had rent coming in, it made sense. However, there are two variables I´m now worried about and would love some advice:

1) The property is located in Barcelona by the beach. Part of the attraction of the property is the elevated rental income over the summer, which is now all but impossible. Who knows when travel restrictions will be lifted, September? Later? 

2) I'm British so I follow the UK news and have seen articles about the mortgage market coming to a complete standstill: https://www.bbc.com/news/business-52106119 Some providers are no longer offering new loans or asking for a much larger downpayment. Will Spain follow suit? Should we take advantage of the current offer ASAP? Currently both full-time employed but who knows..

Does anyone have any clever strategies to a) mitigate our risk in the short term (avoid paying a mortgage with less or no rental income), b) figure out whether now is the time to get a mortgage or c) have any general advice about timing etc.? I´m basically stuck between wanted to delay completion on this deal for as long as possible without losing favourable mortgage conditions by waiting too long. 

I'd appreciate any thoughts or comments!

Hey Bjørn! You should speak to Erwin and Adrià from BlueBricks. They are doing a similar concept in Barcelona and can definitely advise you. I can't see how to tag people here until they have participated in the discussion but here are their profiles!

https://www.biggerpockets.com/users/ErwinG

https://www.biggerpockets.com/users/AdriC1

@Erwin Groenendijk Likewise! I would absolutely love to see one of your projects in Terrassa. You have my phone number and email, just let me when we can arrange it. All the best. 

Wow, thank you both SO much for the insightful and helpful opinions. 

@Taylor L. Interesting comments on the house-hacking and owner occupancy. We would probably have to put the property in my partner's name anyway as a second property (in my case) incurs higher tax I believe, need to look into it. The situation with the current property where I own 25% is that my mum owns the rest! We pay only €600 rent (roughly 25% off market rate to account for my share in it) for the space we occupy even though the rest is empty most of the time when she is not using it as a holiday home (her prerogative). 

@Georges A. thanks for all your advice!

Location: Agree Terrassa and Rubi are looking good. I just wish I had the same local knowledge I have in the centre. Maybe I'm overthinking it and just need to focus on the economics of it. 

Multiple properties: By "diversifying" here do you mean it could still be multiple units in the same property (eg. duplex) or do you advice separate properties entirely?

Mortgage: Hearing you and Taylor loud and clear, seems like the sensible option. And 100% agree about the market correction, the rest of our savings will go into stocks and to a smaller extent P2P. Or as you suggest just bide our time and go for more RE deals..

Renovations: This will be tricky for me personally, I know I will have a tendency to overspend! Luckily my partner is more frugal..Another consideration would be keeping frequent repairs to a minimum by doing a good job in the first place and also being an ethical and considerate landlord. Had enough bad ones ourselves to know how important it is!

House-hacking: Yes, for F.I. seems like a must to try and eliminate our biggest monthly expense. 

If you'd be up for getting a coffee at some point I'd love to hear more about your experience in Barcelona RE!