All Forum Posts by: Javier De la Rosa

I hope I'm wrong! But even if I am not, we can't stop, so we'll need to keep working and re-adapting ourselves to any circumstance.

Hi @Erwin Groenendijk,

As I said, I may be totally wrong, and economists are always said to be good only at predicting the past... 

I think the common approach of considering Covid-19 as a short term shock is misleading. On one side we have financial markets and on the other side we have the real economy. Financial markets have been very pleased with the measures taken so far in the US (not so much in Europe...) and have rebounded pretty quickly. Let's remeber that financial markets have been artificially boosted for a long time...On paper, the value today of a stock has to reflect the future cashflows of a company. That is not hapening at the moment, as valuations are too high considering the damage in the economy in the next 12 months. Big companies are unable to forecast their future sales and even refuse to publish them because they have no clue (can't blame them). If they can't, how could investors?

And what about the real economy? Well, the "2 months" shock has disrupted supply chains worldwide and is stress testing every single business, no matter how small or large. The key is the shortage in liquidity: if they can't sell, they can't pay their staff, suppliers, taxes, banks and so on. Even if the economy is back to normal in 2 months time (which I doubt), many companies suffering right now liquidity issues might be unable to reopen. So these jobs are gone.

Some countries might be better prepared than others and the US seems to be taking the "right" measures. 

The Spanish government has not taken enough measures. I could elaborate more on that, but it would be too long and too boring. Simply put: many employees have not received yet their unemployment benefits and many business owners have had no access to all the promised funds, therefore they will shut down. It is true though that the Spanish problem has a lot to do with the EU as a whole...

But if Spain is to have unemployment at ca.20% (as the IMF and BoS are projecting), well, I find it difficult for all those unemployed people to repay their mortgages.

On a positive note, the financial system is much better prepared than it was in 2008 and politicians are reacting faster than they did then, so perhaps the consequences are limited after all.

@Joaquin Camarasa, asking prices in Spanish main cities have been overvalued for a long time already... I think the recent adjustments we are experiencing on Idealista and other portals do not reflect yet the market reality, but people are just trying to revert prices back to what the "fair value" should have been a few months ago.

The market is frozen so far and sellers are holding their breath for a while, waiting for more clarity to come soon. Desperate sellers may have been adjusting prices more aggressively, but I don't think this is happening widely yet.

By the way, the Bank of Spain (BoS) has officially requested surveyors to adjust their valuations down on a preventive 10%. If current buyers ask for an additional 10% reduction due to "covid" or any bargaining reason they may have, prices could effectively go down ca.20%.

That being said, my gut feeling tells me that as soon as the covid situation eases, prices will increase again, at least for a while. Think of it: interest rates are on historical lows and many investors are afraid of stocks, so they have to allocate their excess cash. Plus, man is the only creature to trip over stone twice...

In my view, the real "blood on the streets" will be seen in 12-18 months when people currently furloughed will be officially unemployed and unable to service their debts. Then the "short-term demand shock" in the economy will again be a risk for financial institutions, and I think the story should sound familiar to some of us...

But I might be completely wrong, of course. The truth is nobody knows, but I just spoke yesterday with a colleague from the Bank of Spain and they pretty much are expecting a foreclosure fest in 2021-2022.

Hi Colby, Erwin will surely provide you with excellenyt insights, but if I may, I would suggest start looking for a relatively liquid market (large cities like Barcelona, Madrid, Valencia...).

Why? Investing from overseas might mean you have, on paper, less local knowledge and limited direct contact with what is going on in that specific market. You can possibly find better deals with higher ROIs in other locations, but if for any reason, you may need to exit the property earlier than expected, you surely want to find buyers for your porperty at a fair value. Demand for properties in alternative locations may dry up very quickly, leaving you with an unwanted asset that you may find challenging to sell if the market turns sour.

Factor in as well that unless you travel often, you will have to rely on trusted local partners such us property managers, lawyers, etc. You will find more of them in large cities too.

In addition, I would focus on properties which have great potential to be rented quickly. These might not always be the best property in the best neighbourhood you can find, but the ones that tick many boxes for potential tenants. Keep in mind average salary per person, credit availability and other demographic metrics for the region. 

Guys, I'm late on this thread because I had to deal with dozens of tenants threatening not to pay a dime on our rents...but, as @Mike Lambert mentioned, I don't think expecting a V-shaped recovery is realistic at all for the real estate market. Although financial markets and RE tend to be aligned, they are completely different, with RE being closer to the real economy than financial markets. So, if tenants, potential tenants or potentital Airbnb guests haven been laid off or just have seen their wages/hours reduced, I'd expect:

a) lower rents (therfore lower ROI, regardless of leverage)

b) increased bargaining power for tenenats

c) higher vacancy rates, specially for vacation rentals or mid-term rentals (remember, corporates are already in wartime economics, so sending teams abroad will not be a must)

The sales markets is basically frozen. But the good news is interest rates don't look as if they're gonna increase any time soon, so yes, buyers with already available funds or borrowing capacity will buy, but not at a premium. Remeber we are likely to be past the peak market and a correction was overdue...

Rentals: we still have candidates willing to move in to some apartments, but they are already pushing the pre-agreed rents lower. Some other candidates are just re-negotiating with their current landlords and will probably stay longer and put off or cancel their plans on moving. 

My suggestion: Although I agree the market will stabilize, go for the worst scenario possible and if your numbers still look good, go ahead. If markets perform better than your projections, your deal will be even more profitable.

Hi Erwin! Awesome case study! Would you be able to ellaborate a bit on how the mortgage brokers provided you with added value?

Will try my best to join you guys on wednesday.

Thx!

Very interesting conversation guys.

@Nathan Williams I agree with @Mike Lambert. Bidding on Spanish REOs is a painful process which most of the times ends in nothing, unless you are a hedgfund or a private equity shop.

I was fortunate to be on the team designing and implementing the restructuring of the Spanish financial system back in 2011. Banks would definitely sell to unload s**t from their balancesheet in order to look prettier to shareholder's and the ECB's eyes, but would focus only on massive transactions.

SAREB, which is not a bank, is not really interested in selling these properties despite the effort on pretending the opposite. My guess is that they will try to hold properties for longer looking for appreciation so its balancesheet looks stronger. We assisted a customer trying to buy a €5M+ building from SAREB and it was a pain in the back. Eventually we gave up.

As to flipping/holding, Mike's right again. We use both strategies depending on our needs, as they have different objectives that complement eachother. Flipping can be useful to manage short term cashflow needs and to build up some muscle.

@Morten Lund Kirkvik we own a couple of rental properties in Gavà and they are fantastic. The area's got a high demand for small and mid-sized apartments, which suit very well to pilots and plane crew members.

Hi @Yulia Minina and welcome to BP!

Spain is a great place to live in and invest. May I ask in which part are you planning to move in? 

We are in a transition period right now for the Spanish market and good opportunities may arise in the near future. I live and invest in Barcelona and, despite of the recent political unrest, Barcelona is a perfectly safe and very comfortable place to live.

It is true there's been ackward situations recently, but Spain is a complicated nation (as many others) and we have always thrived to succeed both economically and culturally. Barcelona is particularly blessed by its weather and convenient location in Europe.

On investing in RE, if you are familiar with public markets, it is the same with RE. Make your profit on the purchase, have a target ROI in accordance with your risk tolerance and go for it.

If you need assistane on Barcelona's local market, please feel free to reach out.

Best

Javier

Hi Lars,

With a newborn at home and a business to run, my schedule is pretty much full al the time! I'd be great to mmet you at ESADE, however, a quick coffee nearby my office would be easier. Otherwise, feel free to ask on a private message!

Best

Javier

Hi Lars,

Welcome to BP! I've been a consultant myself and can tell you the hours are crazy and that you'll probably be living on an airplane! But the experience you get in a very short time is well beyond what you'd get in any MBA, so it is totally worth it. Well done!

On the overseas RE investing, yes, it can be done, but either you know very well the market you are investing in or you must have someone on the ground you can really trust.

I personally would not be comfortable investing overseas as I do really like to have my portfolio under control, but I do have foreign customers (particularly German, Swiss and French) that do not even live in Spain but have a sizebale portfolio of properties each that I manage for them.

You should expect to spend a decent amount of time at the beginning (sourcing the opportunities and property managers, setting up your taxes and other red tape), but once this is done, the rest should be mor or less on auto-pilot.

Happy to discuss it with you anytime!

Best

Javier