What should we do with €200k in or near Barcelona, Spain?

Question

Hi!

I've been living and working in Barcelona for a year and I'm working towards financial independence. As part of my plan, I want to invest in real estate in or near Barcelona and together my partner and I have €200k to invest, however we wouldn't necessarily put all of it into a property. I already own 25% of a city-centre 3 bedroom flat in Barcelona where we live, paying only €600/m in rent (much better than market rate).

I have so many questions! If you have an answer or opinion for any one or more of them I would LOVE to hear from you!

CENTRAL OR SUBURBS?

It feels more comfortable to search for and, in the future, manage a property nearby in the central areas that I know, but will I ever get a good enough deal here? Should I definitely look outside Barcelona? How do I build relationships with banks to find deals? What about auctions?

ONE OR MORE?

We have a decent budget so should we be looking to quickly build a portfolio of smaller properties or is a larger place a better bet? What are the tax implications of buying multiple properties sequentially? Which option is likely to have the best returns (eg. 3x 1 bed properties or 1x 3 bed proeprty)?

MORTGAGE OR NOT?

Originally we were planning to pay cash for everything because of an aversion to debt, but as interest rates are low, would it be a better idea to get a mortgage for the property(ies) and use our cash to invest elsewhere eg. stocks? Should our budget go beyond the cash we have?

RENOVATIONS?

@Flippers, how do you decide how much is too much work to do on a property? If I'm just aiming for rent and cashflow should I always go for somewhere that doesn't need much work? Or is a partial BRRR (minus the refinancing bit) a good idea?

HOUSE-HACKING?

If we bought a multi-unit place, would it make more sense to live there and save rent? What if the unit where we would live could be rented out for more than €600 (what we are paying currently)? Then we should stay where we are right?

Apologies for the brain dump! I feel like we're really close to finding the right formula but I would really appreciate the wisdom of the forum for support.

Thank you so much!

Verity

Taylor L. · Answer

Regarding getting a mortgage - absolutely do get one. Debt is exceptionally cheap right now. You can drastically increase your cash on cash returns with a modest mortgage, when comparing to all cash transactions. I only invest in the States, but that math is going to work no matter where you are.Regarding your house hack: if you buy and live in one unit, once you're ready to move on to the next one then you'll have 2 units renting at over 600 EUR. If it's the difference between doing a deal and not doing a deal, I say go for the house hack. I can't speak for the EU, but on this side of the pond we can get much cheaper financing for owner-occupied properties, including duplexes.Can you explain more of your 25% ownership position, with also paying rent? Sounds like a unique situation

Nick Rutkowski · Answer

@Verity MacdonaldMisread: 200k is 20% of 1M. The point is LEVERAGE, LEVERAGE, LEVERAGE!!!!

Erwin Groenendijk · Answer

Will keep you updated when we are there the next time.

Georges A. · Answer

Hi @Verity Macdonald and welcome to real estate investing as one of the best ways to financial freedom. Here are my thoughts on your post. While I am also new to the area, this has worked for me in Boston (which is also a big city, so I am being generic)CENTRAL OR SUBURBS? The ROI in my experience is always higher in suburbs as long as they're close enough to public transportation and the city. For example, in Barcelona, that would be areas like Rubi or Terrassa. You'll put less money down and get a similar or higher ROI than a property in central. ONE OR MORE?It really depends on the actual numbers but I am a big fan of diversifying as it reduces risk. For example, one of my units right now is vacant and my ex-tenants left a big mess behind them. This unit will be undergoing repair for at least 2-3 weeks. That's 2-3 weeks of lost revenue. The other units being rented definitely make up the lost revenue.MORTGAGE OR NOT?Mortgage 100%. The rates are very low right now here. Try to put down the minimum possible down payment and have the tenants pay your mortgage. You're not paying for it so while you're missing on that additional profit, think of it as money set aside for more investments. Also, we're due for a correction so don't you want to save some of that money that you have to invest later when the prices are lower? RENOVATIONS This is tied to the quality of the tenants you're trying to bring in but keep in mind that the more you renovate towards luxury you're hurting your profits, adding maintenance costs, and relying on tenants to maintain the value (which they won't). Try to find that balance between quality and necessity. HOUSE-HACKING? I am a big fan of house hacking. Did it for 2+ years and saved so much money (think of this as profit, as it's money saved). @Taylor L. said it perfectly and I agree with him.Hope this is helpful!

Javier De la Rosa · Answer

Hi Verity,Slightly late, but in line with Georges and others:1- Central or suburbs? Suburbs offer a higher ROI, but once the market correction comes, suburbs will be the first to be hit (and usually harder). In any case, remember that profits are made when you buy. On the bright side, suburbs will offer you a better diversificaction: you'll be able to buy more units.2- Yes, do leverage, as long as rents do pay the mortgage. Fix rate for sure nowadays.I'd advise you to do your research rigjt now, sort all your financing/taxes options and wait to see how the market evolves in the coming months!

Selorm Solomon Nyale · Answer

Hi Verity,Am responding a bit late but these are my thoughts. I have invested a lot of time to learn and understand the Barcelona market over 1 year of studies, research, contact with agents, banks, etc and finally bought my first property (a duplex) with which am house hacking with Airbnb. My property in which am living now with my wife is on the edge of Barcelona, Esplugues. So am not in the center of Barcelona but I can enjoy the benefits of Barcelona; which are quick connection via tram and metro, lower house price with better ROI than in the center where prices are in the roof and is mostly for capital appreciation, Airbnb, high rents income in Barcelona etc.I think whether Barcelona or Suburbs depends on your strategy. At the center, you will benefit for high rental income, good for Airbnb, high appreciation etc. But homes are overpriced at the center and you will have to land a really good deal. Remember the most important thing in real estate is location. Suburbs will allow you to start small and get higher ROI as prices are lower there. I still believe in buying close to the center (metro or tram ride away). In any case, you know better the center and feel more comfortable. Long distance investing is also good, just another approach of doing things.To answer your question on house hacking, in my case is convenient for me and my wife because we bought a duplex and there is a top and down floor and each floor has a bath so though we share the entrance, everything else is completely cut off. By that we can make some money and live here too.Leverage with mortgage but settle only for fixed interests and a shorter term and watch out that for some terms, you pay mostly interest for the beginning years which is not really a good thing for your FI journey.Renovations; i have not done big renovations yet.I am still looking to make another investment to grow my portfolia and make some more rental income and also keep learning.CheersSolomon

Nick Rutkowski · Answer

@Verity MacdonaldI’m going to answer one of your questions. Get a mortgage and leverage your money. 600k euros is 20% of 3M So...you have more purchasing power than you thought!

Verity Macdonald · Answer

@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.

Verity Macdonald · Answer

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 Arnaout 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!

Erwin Groenendijk · Answer

@Verity Macdonald, nice to also see you here! In line with many of your points, why don't you join us to one of our projects just outside of Barcelona, in Terrassa. We are getting ready to finish one of our two apartments in the same building, so we are there quite frequently from now on. You will get a feel for housing in the suburbs of Barcelona, see renovations first hand, and we can discuss the mortgage and house-hacking topic more in detail.