Newbie - Analyzing an Overseas Vacation Rental Property

[Ryan Cramer]

I am an architect in New York and pretty much a beginner in Real Estate investing and development. My fiance, who is from Ireland, bought a derelict home on an ocean front property in her hometown of Sligo, Ireland. It is a coveted property, as they no longer allow building on that side of the road anymore, but we can demolish the existing house and build new so long as it stays the same size as the current building on the property.

My question is really how do I even get started in analyzing the property - is there a specific tool to assess overseas rental / vacation properties? She has about 40,000 Euro of the 90,000 Euro cost of the land/current property already paid off. Based on research, we anticipate it will cost about 300,000 to 350,000 Euro to demolish the existing house and build a new one in its place.  I am doing all of the drawings and design for the home and have had some communication with the Planning Department there. We have a rough idea of how much it will cost to build, and what income we can get from it (as her family has another holiday home they rent out just down the road that is similar size). How can I assess this to know if it is a good deal, or what tweaks we may need to make to the design or construction budget to ensure that it is?

Really just looking for any advice in general as to how to best approach this project from an investment / developer perspective. It is really my first project and want to ensure that we approach it and do it the right way. Recommendations on how to analyze the project, approaches to getting financing to build (this one seems to be a challenge), etc would all be much appreciated!

[Alexander Szikla]

Hi @Ryan Cramer - Looking at this from an investor's perspective here doesn't seem like the right approach. Seems like you folks want this as a second home, not something to rent out - right? So cash flow / yield is sort of inconsequential. 

Your best bet is to look at comparable properties. You wouldn't want to spend more to build something than it will be worth. Naturally, Europe is not always as good with "centralized databases" as far as RE goes (no Zillow type websites to my knowledge). So I would connect with local real estate brokers and have chats or e-mail correspondence with them. Perhaps you can also call the township or local government and speak with their assessor?  

[Ryan Cramer]

@Alexander Szikla I very much appreciate your quick response!  The house is hopefully a bit of both a rental/second home.  We would ideally stay in it for probably a week each year when we go to visit her family - or may for a few weeks at a time down the road when we have kids.  But for the remainder of the year we'd rent it out as a vacation home / Air B&B.  The area is a surfing village, and they get a lot of travelers from central Europe and even the states who rent Air B&B homes in the area.  The occupancy rate is about 50%, mostly busy in the summer months.  We'd like it to generate passive income for us for many years to come.

That is great advice; I hadn't thought to reach out to local real estate brokers to get an idea of comps or what the property might be appraised at once completed.  Will definitely do so!  One big hurdle is financing; she has talked to Irish banks, who won't give her a mortgage because she a US resident.  US banks won't entertain giving her a mortgage because it is an overseas property.  Do you have any ideas on how to creatively approach getting financing for a project like this?  Again, any thoughts or advice you may have would be very much appreciated!  Thank you Alexander!

[Alexander Szikla]

That's fine, but I would just see that as "gravy". I wouldn't count on it to let the deal stand on its own. Moreover, that sort of model will lead to higher wear and tear. 

Other ideas to get some creative financing:

(1) HELOCs on US property which you can deploy as you wish

(2) Margin loans against stocks/bonds

(3) Junior Debt or Preferred Equity on a crowd sourcing website - if the numbers are that compelling

[Natasha Hardy]

Hi @Ryan Cramer. Why not work out a deal with a family member who lives there and who could take out a mortgage, in return for a piece of the equity pie?

[Ryan Cramer]

@Natasha Hardy thank you for the reply!  It is definitely something we've considered.  I have actually suggested the same to my fiance, however she has expressed she doesn't want to burden her parents with the mortgage.  Her cousin who is our age as well currently has his own mother's mortgage in his name, and she feels bad asking.  However, her younger brother who currently lives in Vancouver is likely to move back to Ireland in the next year or so, and we are considering having him take out the mortgage when he is back and going in on the property together.  So it's definitely in the cards!  

[Natasha Hardy]

Good luck! Sounds like an interesting project.

All the best.