All Forum Posts by: Erwin Groenendijk

@Joaquin Camarasa, we wish we would have the same cash out refinances here in Spain. However, now with the interest rates that are rising and people are buying less, they were saying that the BRRRR method also became a bit more difficult there right?

Yes, you are right regarding the closing costs. In theory, you would need to pay the closing costs 2 times. When purchasing the property in the beginning and then after selling it again to your other entity. 

The thing is that with a company you can do some creative things. As we are buying with an entity commercial real estate from (most of the times) other companies, the purchase tax changes from transfer tax (ITP, 10% in Spain) to value-add tax VAT (21% IVA in Spain).

Why this is important is because as a company purchasing in this way in Spain, you can receive and pay the VAT at the same time, meaning buying the property and ending at 0% and effectively not having to pay purchase tax. 

Now, once done with the development of the property, when selling it to your other entity, the same is happening because we are usually investing more than 50% in structurally improving the property. And when you do this, the property is seen as a newly developed unit, and newly developed units can be sold with VAT again. And the same story as before applies. Two times you could be at 0%.

The only downfall would be if you would transfer the property to yourself as an individual because then you would need to pay the 21% VAT (which is kind off the transfer tax). 

Yes so if you are used to refinancing in the UK then see it like this: how banks in the UK are willing to lend up to 75% of the newly taxated value in the same entity that you are using, this in Spain is different. In Spain, they will only lend you up to 70% of the purchase price. And there the whole model doesn't play out anymore.

However, this is only when you keep it in the same entity. 

As previously explained, if you create a second entity (even if this is yours again) you can buy the property against a 70% LTV on the newly taxated value and the money that you are paying as a purchase on one side is being received as a sale by the other side. And this means that your development entity can reinvest it again in new projects while at the same time, you are building a rental portfolio in your management entity.

Hope this helps   

Pleasure @Simon Thomas.

This is for @Robert Downs to comment.

What we have been doing to simulate the BRRRR method is creating company entities and selling the property from one entity (usually the developing part) to another (the property management part). By doing this, the property management entity can obtain financing up to 70ish% and pay the developing entity. The interesting part is that you can own both entities yourself.

This set-up we are now doing this on big scale and yes it is working 

Hi @Johan Petter, good to see someone else from the area in the forums. I also got started as an expat in Barcelona and in the end living here for almost 8 years.

Let's first start with your questions:

- Banks will normally give you 80% LTV for the first two mortgages. After they rather like to give something lower bit by bit. So your downpayment would be 20% + purchase taxes of 10%

- Not sure how you wanted to spend your 60k and if you were calculating renovation inside of this budget next to the down payment and transfer taxes

- It is worth buying in- or outside Barcelona if you know what you are doing. I would advise to become an expert and choose one of them  

- A M2 price for a renovation depends on the quality you are after. This could range between €500-1000 if you are not touching any structural parts

- The ley de la vivienda is applying for long-term contracts and yes you should have this in mind. We try to play in the mid- and short-term space where this law is not pointing at (so far). However, now with the elections being favourable, let's see what and how much they will really apply.

- Of course that renting can be a good way to pay your mortgage and make a profit. That is what we all do. You should make your calculations and see if the deal makes sense. Also think about what rental strategy works best (traditional, mid-term. perhaps short term if you can still manage to get a license for this)

Not completely understanding what you mean by that flipping at these values doesn't make much sense but guide me here in your thinking.

As far as I know is that Spain is not taxing worldwide income on its residents 

Hi @Nina Erlandson, yes we just had our last one last Wednesday and we were talking about the new Spanish housing law in Spain (nueva ley de la vivienda). 

This was an interesting one because this new law will affect everyone in some way or another that is investing in Spain.

You can send a private message so we can add you to the group. 

Hi guys, we are investing in and developing STR for investors here in Spain where we also live. The time difference is something we can't do anything about of course, but as far as the other points, we know a thing or two.

A property management company will charge you anywhere between 20-30% of the gross rental income and will take care of most you need to consider: bookings, customer service, maintenance, reviews, and cleaning. You as the owner would still need to oversee the occupancy, prices, and the total income they are generating. 

I wouldn't worry too much about knowing the language because the property management company will be able to speak English and most of the time your bookings will be with international people. 

@Tom Brown I've been quickly going through it and it looks quite solid. Not sure if you are including mortgage payments in your income statements.

The height of the amounts is more difficult to analyze when you are grouping everything in operational costs for example. 

Where is the property located? For a purchase price of €200.000 achieving almost €47.000 of expected rental income is not bad at all.

@Edward Stephens, like this nobody ever will get motivated to start something ;-)

@Jeulissa Gonzales, he is partly right though.

Some things to have in mind when renting by the room is that there are all kinds of different people living in the same house which could get friction (by the way, a lot of times it also leads to friendships or even entrepreneurs that start a business together like it was in my case). To overcome most of the common issues is to have at least good customer service, management, maintenance, cleaning and rental teams from which we have been seeing for the last 4 years having 350 rooms in our coliving portfolio in Spain.

@Mike Lambert have to admit that in my first reply I also had to double-think about including the property management or not. Hope you are well and congrats on your apartment in the Costa del Sol. 

@Chris Tedeschi on average you will find a higher m2 price in the Costa del Sol because there are a lot of new developments. Also in the Costa Brava going up from Barcelona this is mostly the case in the more popular towns. In the Costa Blanca and Valencian coast, the m2 prices are generally lower. 

This is how we can offer a relatively low investment entry barrier (to first try out if Spain and this area are fitting the needs, which mostly after starting it immediately does) and offer good returns.

The difference between our projects and these new developments is that with these new developments, you can buy off plan when it is almost finished or buy a completely new apartment to immediately start renting it out. You basically pay the margin of the developer. This is fine when the investment still makes sense of course.

However, what we normally try to do is keep this margin for ourselves and step in from the beginning (lower total project costs and because of that higher returns). The downside though if we can call it like that, is that it takes a year to complete the project and be able to rent it out.

Have a good weekend guys