All Forum Posts by: Robert Downs

Hello @Alejandro López, 

With absolutely no intention of being rude, your use of "EEUU" instead of "USA" in the subject line means you have a long way to go in terms of learning the lingo. It is definitely true that credit is much more free-flowing in the US, from credit cards to government backed loans, etc., but unfortunately you would not be able to benefit from any of that living abroad.

As an American living in Spain, the roadblocks to real estate investing here can be frustrating. However (and this is my humble opinion),  it is much less risky to invest in a rental property in Spain than try to invest in and manage a property from accross the pond (even for me, a US citizen with access to credit in the US market).

Hey @Inigo A., I hope you are finding success in my home state of Minnesota.

Obviously govenment-backed loans make real estate operations more profitable in the US, but if no profits were possible in Spain the entire rental market would collapse. Also, the incredibly low interest rates and low yearly property taxes (depending on your location) help a bit on the cash flow end.

From my understanding, opportunities exist in different cities in Spain, especially when considering distressed properties outside of inflated metropolitan areas (not to mention the alternative ways of acquiring property like judicial auctions, cash purchases, etc.).

 

Thank you so much for this info, Erwin Groenendijk. Let's throw logic out the window about which transaction is more reliable for the bank and play with the cards we're dealt in the Spanish system. Thus, an optimal (¡idealísimo!) BRRRR transaction in Spain would play out like this:

1. Purchase a property in cash and use your own funds (or a line of credit) to renovate. In keeping with our example above, let's say the full purchase price is $50K, plus $20K in renovation.
2. Rent the property. Nice, you reached the 1% rule and got €700+/month after expenses!
3. Identify a 2nd property you wish to purchase. Make sure the mortgage on that property would be at least €210,000. If not, you have no deal (see below).
4. Approach your lender and tell them you want to take out a mortgage on a fully paid, cash-flowing property. You designate the appraiser and in a few weeks you have the great news: Your appraisal came back at €100K! The lender sets a minimum LTV of 30% for the 1st property, meaning you can take out €70K (at the most). However, the lender wants to make money, and thus sets a maximum of 60% for the two properties together. That means the €70K must make up a maximum of 30% of the 2nd property's mortgage... Oh, your ideal price range is under €100K? Too bad. This obligation of a max 60% on the two properties means the mortgage value must be at least €210,000.
5. The 2nd property you chose (point #3) was WAAAAY outside the city. It's a multi-family building (four units!) with parking spots and storage spaces included—an empty bank property from the 2008 housing crisis.
6. Rent the 2nd properties. Nice, you reached the 1% rule and got €525+/month after expenses on each one of them!

In this optimal situation, you put down €70K in cash and get two mortgages worth €310K. Now, let's imagine a traditional approach to both properties, paying 20% down plus 10% in taxes to acquire each of them. Let's just say this included fees, for simplicity. We would have paid:

BRRRR Method:

1st Property
€50 for purchase, taxes and expenses
€20K for the renovation

2nd Property
€0 for the down payment, taxes and expenses

Traditional Method:

1st Property
€15K for the down payment, taxes and expenses
€20K for the renovation

2nd Property
€70K for the down payment, taxes and expenses

Please correct me if I am wrong!!! 

All in all, it seems like it would work, especially if the plan is to do this multiple times. The important thing to note, however, is that you are obligated to pay more than you want for the second property and must take out a hefty mortgage. That said, if these types of investments are your plan, you just saved yourself €35K (best case scenario). Case closed??! Thanks everyone!

Hello @Javier De la Rosa, thank you for the reply. OK, that is good and positive information (although it's curious that you can assign your own appraiser, which is prohibited in the States. Along those lines, I would definitely be interested in talking to you about your favorite appraisers when the time comes...).

My biggest doubt is when I refinance the first property (and if they allow it), whether the bank would obligate me to invest ALL of the money from the first mortgage into the second property as principal/taxes/fees, or whether it would allow me to split this amount between principal and rehab costs. @Erwin Groenendijk, do you know the answer to this? The first case would be a big problem, as the second property would have to have a much higher purchase price (around €220k).

If the bank is flexible with how I use the money (as long as it is invested into the second property), the BRRRR method would basically work in packs of two. You pay for the first property in cash, and use its equity to finance the second property. If you want to repeat, you have to save up to purchase the next property in cash again.

I will report back on what the bank tells me.

Hey everyone, thanks for the responses. @Celia Fernández, regarding your example of a 50K down payment, 20K rehab, 30K in equity (which stays in the mortgage as the down payment after the reinance), this would be the ideal BRRRR situation. The problem (entre comillas), as @ explained, is that I would have to wait until I have the second property ready to purchase in order to take out that capital and reinvest it “immediately”.

Here is where my additional questions come in:

• How long does this additional appraisal take? Since I wouldn’t be able to request the loan early, the bank would order the appraisal at the time I requested the refinance, causing a delay and possibly problems in the second purchase.
• Who assigns the appraiser (tasador) in Spain, a third party or the bank directly?

As @ said, feedback from somebody who has attempted this transaction would be valuable. Thanks again to everyone who responded, I will be speaking with the bank that provided us the mortgage on our condo and ask my agent about the possibility of doing a refinance on a future purchase. Hopefully I will have an answer within a few days.

Thank you @Joaquin Camarasa for the reply. Yeah, since I posted this I saw another post about BRRRR in Europe in general and it looks like I may have to toss the refinancing part of the idea in the trash. That's OK, the part about adding equity to a home through rehab is also an interesting thing to consider (though not immediately rewarded, in terms of an appraisal and getting your cash back out).

Hello BP community!

This is my first post (and first day as an active BP member). First off, I live in Barcelona—actually, Sant Adrià—and I am just starting my education process to begin investing in rental properties, hopefully within a year or two. I am currently reading the BRRRR book by David Greene and this strategy seems very reasonable—at least in the US.

I will be looking in the Barcelona area and want to set an objective of how much capital I should aim to save up (pago y señal o al contado). My basic question is: Can a property purchased in cash be easily refinanced to convert it into a mortgage? Is that a thing here? 

Thanks in advance for your responses.

Robert