The Naked Agent Spain

When buying a property in Spain (or anywhere in the world for that matter), we are often quoted rental return rates that don't really add up.  For example, some sellers, agents or developers may say "Buy this property and you'll easily be able to make 5% return by renting it out".

BEWARE AND DO YOUR OWN HOMEWORK FIRST.

When calculating your returns it is important to take the following steps before getitng excited with the possibility of your rental returns and parting with your hard-earned cash:

1) Calculate how much the property will cost you in TOTAL (including all purchase, mortgage, legal costs, running costs, and furniture)
2) Get an idea what a similar property to yours may rent out for (either short-term or long term)
3) Ask local rental agents in your area how much they may charge in terms of commission and services
4) Make sure there is a strong demand for rentals in your area
5) Work out what tax you may have to pay on your rental income

For example, if you plan to buy an apartment for 200000 Euros, and you're told you can get 5% return (on the purchase price), you would assume you could walk away 10000 Euros.  In reality, a property priced at 200000 Euros, will probably cost you in total about 236000 Euros (including 13% purchase costs and allowing for 10000 Euros to fully furnish the property for example).  In reality, your max. return would be 10000 / 236000 Euros = 4.24%.  However, moving one step further, you'll probably have to pay your rental agent 10% + (or maybe one months rent), leaving you with 9000 Euros.  9000 Euros / 236000 Euros = 3.8% return.   If you then allow for taxes at 20%, your net figure in your hand would be 7200 Euros over a total cost of 236000 Euros  = 3% Return!  I think you get the idea.

Therefore, for those of you looking to buy a property, to rent out, the secret is find the property, which will give you a comapratively high rent, giving you a higher rental yield  or return per year against your total costs.  With the market in a bit of turmoil, there are a few bargain properties out there which will give you a good return, so look carefully.  If you do find a bargain, you may even be able to make a little on the capital appreciation.

Adios for the moment.

www.nakedagentspain.com

Tip of the Day:
As a buyer, once you have signed your completion purchase deed (Escritura de Compraventa) at the Notary, you should ask for a Copia Simple.  This is a stamped copy of the title deed.  In the weeks following the completion, you will receive your bound official Escritura. This is sometimes sent to your lawyer, or for those taking out a mortgage, it may be held by your bank.

IMPORTANT TIP:  About 2 to 3 months after your completion you should double-check with the Property Registry Office (Registro de la Propredad) in your local area to ensure the property you have purchased is now officially registered in your name.  YOu will need to apply for a NOTA SIMPLE, which is summarised verison of your title deed containing details such as ownership, property description, finca number and charges.  If you apply in person it can take up to 48hours and cost about 3 to 5 Euros.  If you apply online it will cost you about 9 or 10 Euros, and the Nota Simple will be emailed to you as a PDF within 24hrs.  You can apply online at www.registradores.org and click on the link title Registro de la Propiedad. You can use the FINCA Number on your copia simple to apply. (The finca number is a unique property ID number for your property as regsitered with the local registry)

It is important to check the Nota Simple for the following:
1) The property is now registered in your name (and not the previous owners)
2) If the previous owner had a mortgage, this no longer appears
3) If you purchased with a new mortgage, this should be correctly reflected
4) The correct dimensions, description and Finca number appear on the Nota Simple
5) There are no unexpected embargoes or charges against the property

If there are any problems or issues ensure you consult your lawyer and the Notary.

The reason why it is important to check, is that sometimes mortgages and old debts and charges remain on a property. While they may have been economically cancelled at the time you signed your escritura, they may not have been correctly removed from the registry office and as a result still appear on your Nota Simple

www.registradores.org
www.nakedagentspain.com

    
YOUR 'STRIPPED-DOWN' GUIDE TO BUYING A PROPERTY AND GETTING A MORTGAGE IN SPAIN

Hasta Luego.

When selling your property in Spain, many sellers are not fully aware of what they are going to have to fork out in terms of costs before getting the real net figure they want  in their hand.  

Make sure you take into account the following costs when selling:  
1) Plus Valia - every seller has to pay a tax based on the incremental value of the land which the property occupies over the amount of years you have owned it. (eg: small apartments may be about 50 Euros per year, whereas villas may be a few hundred euros and more per year of ownership)
2) Community Fees: Make sure your Community Fees are up to date - normally you will have to present a CERTIFICADO DE COMUNIDAD to the buyer on signing the Escritura.
3) IBI & Utilities- Ensure your local tax council rates are up to date.  You will have to provde the original proof od payment at the signing.  Also ensure your utility bills are paid to date.
4) Mortgage Cancellation Fees - Your bank will probably have anywhere from a 0.5% to 1% cancellation charge on the balance of your outstanding mortgage
5) Mortgage Notary Cancellation & Registration Fees - In addition to point 4), as  a seller you will have to ensure your mortgage is cancelled at the Notary and Registry.  This may cost anywhere form 600 Euros to 1000 Euros, and is  an amount that wil probably be retained by the seller to ensure this is done

6) Non Resident Retention Tax at 3%: If you are non-resident in Spain, the buyer of your property will also have to retain 3% of the Escritura Sales Price to pay directly to the Spanish tax man (hacienda) on your behalf. Residents do not have any retentions made on them.
7) Agents Commission - If you have used an Agent to sell your property, then you will also have to account for the Agents fees which can range from a 3% to 8% depending on the agent, and the agreement you have made with them.

Obviously you will still have your Capital Gains Tax Liability (18% on profit), but that will depend on your profit. For non-residents, the 3% retention tax counts towards this.  Those of you who are making a loss still have to pay out the 3% retention tax, but can reclaim it back from the Spanish tax providing you have all the correct documentation and receipts to prove you have made a loss and paid your annual taxes.

Once you know what all of these costs may be, you can then work backwards to calculate what price you need to sell at inorder to walk away with the amount you have in mind in your hand.



That's all for today.

The Naked Agent Spain
www.nakedagentspain.com

Author of :  "Your Stripped-Down Guide to Buying a Property and Getting a Mortgage in Spain"

In Spain, until recently owners of property and assets had to pay wealth tax (impuesto sobre el patrimonio) on their assets (other than on their main home). If you were a resident of Spain you would be taxed on your WORLDWIDE assets. As a non-resident you would only be taxed on your assets held in Spain.  

Therefore many of those who had become resident in Spain suddenly found that their assets in and outside Spain were taxable, with rates of 0.2% to 2.5% or more per annum depending on the value of the assets.  ie: those who came out to live in Spain, and who owned other properties and assets were subject to tax on these assets as part of their net wealth (unless they could find a creative tax vehicle to hold the asset)

However, the good news for residents is that following the elections earlier this year, the Spanish Government has put in motion the abolishment of this tax, (as of Jan 2008), making Spain a more attractive place for residents to live and saving all residents a bundle of cash!! 

Adios

www.nakedagentspain.com

Every week we read stories of developers in Spain going into administration or falling into financial difficulty.  This gives little or no confidence for those of us looking to buy in Spain.  Reality shows it is the same story in UK and US -  we just need to look at recent examples of Taylor Wimpey  and their financial difficulty in the UK.

But who is too blame?  Obviously, recent market conditions (high interest rates, high prices, currency exchange rates,tougher lending conditions and Spains rediculous attempt to improve the planning laws) have played their part, resulting in fewer buyers purchasing off-plan or new properties.  As a result, many developers have struggled to maintain a decent enough cash flow to maintain operations - ie: pay the banks back on the mortgage financing they had in place with their banks while paying their contractors to finish off the building works. 

Essentially, during the boom times the banks were all too keen and quick to lend money, and as a result many of the developers are now over-leveraged, and cannot afford to pay back on their loan commitments.  The developers 2 to 5 years ago would have paid a premium for the land, and that in turn got translated into high prices for the buyer. 

Where does this put us as the buyers? In short, given the current market climate, it is best for buyers to look at buying something which is built and established, rather than taking a risk at something which may or not be  finished.  However, for those of you who are not risk averse and are willing to take a punt and long term view, it may be a good time to negotiate a good deal with most developers.  My advice would be stick to what you can touch and see (something that is built with ALL licences in place)...If not walk away!

Essentially the Government and the Banks are to blame for this mess in what we could call a mixture of 'bad' urban planning laws and a lack of regulation coupled with unethical lending.    Spanish banks however continue to post decent results, but I fear the reality will hit home to some of them who have over exposed themselves to developers whose business plans were not thoroughly scrutinised.  

Anyway who likes playing the market, and is willing to research which banks may be over exposed to these problems, may stand to make a profit by shorting the shares. However, I am no stock market investment guru, so we should leave that to the pros.

Hasta pronto