Spain: The Tenants Paradise

I am not sure if ‘chit chat’ is the appropriate thread but it is a general observation anyway. I have been browsing the long term rentals on here. I just can’t over the bargains and choice.

 For exactly the same reasons people buy houses in UK if they want to make them their homes.

OK, I know not so many people in Spain will want to live in their houses for 20 years or more (although that is what I plan to do).  Rent somewhere for 500 euros a month over 20 years and you have spent 120,000 euros.  At the end of it, you have nothing.  At least buying you can (in better times, admittedly) sell it and get your money back. Also rents (like everything in life) goes up.  Once you have bought your house, that's it.  No increases (and, again, if you have a mortgage then that will probably go up) if you own it.

Plus, having lived in rented accommodation for 30 years, I was so glad when I bought my first house and I could decorate it how I wanted, put my furniture in and make it mine, not someone elses that I was just looking after.  

Renting may suit some people but, I would hazard, not all and I would not dream of telling anyone that buying or renting is better.

(After moving houses over 30 times during my army days, the gypsy life is no longer for me and I am very happy to put down roots, thank you very much)

I tend to agree with Bob, from an emotional point of view - but with the state of play today, it's hard not to consider the alternative to the "bricks & mortar" mantra instilled in many of us by our parents. I think it may really be just a state of mind, perhaps even our culture. Germans, for instance, don't seem to be as bothered about getting on the "ladder". Another factor: maintaining a property can be a real drag, both in practical terms and financial. Add to that the major headache that being part of a community can be (especially when you get lumped with being president!) and renting starts to make more sense. If you could only eliminate that emotional factor! I've actually arrived at the conclusion that if you can afford to, you would be better off renting. When my boat comes in (which it's unlikely to as long as I hang around airport lounges) I intend to sell up, rent a swish penthouse on the beach and forget all my worries.

Extract from an interesting article on the subject from Money Week:

'Lifestyle choice or the only choice?' Clearly for most young people these days, the answer is 'only choice'. There are many more high loan-to-value (LTV) products on the market than there were two years ago, but that doesn't make them easy to get. If you want to be sure of getting a loan you still need a good deposit (25% is OK, 40% should do it); you need a high and regular income; and you need a very clean credit record. That's why there are 90% fewer first time buyers than there were in 2006 and why the average age of a first-time buyer is 37.

You can argue for days about whether that matters to house prices or not (there is still a deluded sub-sector of society who think that buy-to-let investors can pick up the slack). But the fact remains that with only 45,000-odd mortgage approvals going through a month vs 130,000 at the peak of the boom, an awful lot of people who might once have bought will now have to rent instead. It is the only choice.

However given the high tax and high cost nature of buying houses in the UK one might wonder if, for those in their 20s at least, it shouldn't be a lifestyle choice as well. Work isn't that easy to come by these days, something that means workers have to be flexible: they have to be ready to move cities and possibly even countries to follow jobs.

But imagine if a 27-year-old could buy a £300,000 house somewhere in the UK with a mortgage. It'll cost him £1,000 in arrangment fees plus another £1,500 odd in legal and other fees. Then it'll cost him £9,000 in stamp duty and he's very likely to spend another £2-3,000 on improvements of one kind or another when he moves in (curtains and new bed and so on). All in, he's going to be down ten to fifteen grand or so on the costs.

How mobile a worker is he now? If he sells up – even if he gets the price he paid, which in today's market he probably won't – that money is gone for good. And if he moves without selling he is stuck with all the admin and financial problems that come with being an undiversified small landlord (voids, repairs, low yields, non-payment of rent).

Look at it like that and, even before you take in falling prices, a house is surely less a source of great joy than something of a millstone to a young and ambitious person. So it would seem to me that at least until you have children and so need security and residential certainty in your home life (i.e. you need to know where they will go to school) you are better off choosing to rent – even if by some miracle of the mortgage market you are able to buy, and even when ultra-low interest rates make it look cheaper to buy than to rent in some cities.

Bob you are 100% right Long term renting is a complete waste of money I remember in 1988 I brought my first home it was a real struggle to pay the mortgage but we managed now I have a healthy property portfolio the best PENSION you can ever have

I am fortunate enough to be able to give my 3 kids a home each 

The sad fact is now if you havent got your own home now you probably never will with deposits of 20% required to get a UK mortgage.

If I had rented this would never have happened and I would have lined someone elses pockets.

Property is an excellent long term investment and is the core element of a succesful wealth portfolio

Regards

Rod

This message was last edited by rod on 12/03/2011.

This message was last edited by rod on 12/03/2011.

I think the other assets that come with renting include a comparative end of home owning related bureaucracy and taxes. There is little or no maintenance to carry out. In addition the renter has a far greater choice of location; the property he rents can be tailored, and adjusted to his income.

 You moved the goalposts a little there.  The thread was about renting in Spain but you've introduced the pitfalls in UK.

However, yes, youngsters will lose their mobility and the other problems you've mentioned but I doubt that many of those who buy in Spain are in their twenties (or even thirties).  By the time you get round to moving to Spain, you should be in a bit of a stable relationship (I hope) and these problems won't occur.

I still stand by my original assertion that buying a home is the best way to go in the long term.  Short term then rental would probably be better.  Financially, in the long term, it makes more sense.  For example, I bought my first home when I was 35.  The mortgage was £363 a month, a lot of money then and, like rod, we struggled as that was about half my pay.  Renting was then around £300 a month for a similar property.  In time, interest rates came down and my payments reduced to £275 a month.  When I paid off my mortgage, I was still paying £275 a month but rentals were now around £600 a month.  I sold my house (even though the nasty recession had kicked in) for around 5 times what I'd originally paid for it which enabled me to buy my home in Spain.  Lifestyle in your home has got to be better than "borrowing" someone's house for a while.  I can have the gardent as I want, I can have my own furniture etc as well as the decoration.  If I want a dog, I can have one.  If I want to smoke, I can.  (not for some time, I'm glad to say).  And I know my rent isn't going to go up so I can plan more for the future.  

It's still only comparatively recently that prices have gone down.  If you are buying for a long term and because you want it to be your home, it doesn't matter.

So, long term buy, short term rent would probably be the best way to go unless you feel you will want to move on later, you are afraid the missus will run off with the milkman or you don't have the family to look after you when you get old in which case, live out of a suitcase or run away to sea.

I do, on the other hand, concur with one point made by Roberto.  If my numbers came up on the lottery I wouldn't buy but, then, nor would I rent.  I would be living in luxury hotel suites and being waited on hand and foot.  Probably move every few months to follow the sun. 

Spain & the UK are two completely different markets. In Spain now the bubble has burst , either prices have to come down another 50% or rents need to double. There's far too much property available for rent & no tenants, or tenants with no money !  In the UK the situationis completely different when you have the soc. sec. funding rents  & being required to 'supply' housing to people.  From the outset we struggled to buy in the Uk as renting is money down the drain but as far as I'm concerned now the situation is reversed completely ,with the home-owner getting nothing if they fall on hard times & the renters getting everything available. It's ok if you can get on the ladder & avoid losing your job & hopefully you'll have an increase in the sale price over purchase. That's ok if you don't need to pay for care at a later stage in life. Whereas the renter is going to get his care for free. Whilst the governments pay for rent & benefits the rents are never going to drop. Remove that from the equation & the roof will fall in.

Spain is not worth buying in now, I'd never buy again I'd rent. The buying costs alone mean you need a 10% increase to wipe your face if you want to sell next day , if you can sell at all in this market ! Rents are so cheap, & still dropping , with hardly any prospect of an upturn for the forseeable future that it would be madness to buy.

Dear All,

lots of valuable information and experiences to aid the forum, thanks to all, but...........

some rather rigid and narrow views from those experiences.

I am afraid one size does not fit all and changing times are a strong influence.

buying and the property portfolio can be a great investment, some luck is required but the basics are sound........

borrow the widow's mite and pay her little interest, add a little work and finance, then reap the rewards, those that are left anyway after Maria's "financial crazies" have taken their share (if not all and more).

whether you use it for residence or letting, slowly with inflation the value grows and the widows are swindled relentlessly.

I have of course swindled thousands of them myself by taking advantage of low cost mortgage possibilities.

But it has not been a very flexible "investment" it has been a burden around my neck, now carried into old age by "interest free".

I recall as a young man being told by a tory politician that if I fell out of work I should get on my bike and move to where the work is.

with a young family in school I wondered whether he meant for me to abandon them and move on, or did he live a more flexible lifestyle than mine?

did he perhaps envisage a fully rented sector where all were free to move around, did he not understand that most of the jobs were located where the houses and rentals were most expensive, perhaps he was going to provide new rentable accommodation at a discount for us all?

it all seemed rather odd when his leader was flogging off all the council houses for a pittance and the planning restrictions were being tightened to strangle any natural expansion increase in new build stocks.

all very peculiar, but not needed by me as I already worked in London.

though I did rather think that perhaps providing some employment incentives where accomodation was plentiful and planning was easier might be a better idea, perhaps even improving transport and infrastructure instead of shutting down the railways might also be worth consideration?

But he was very sure that he knew all the answers and he had the inititive, so there.

As far as Spain goes it was just an inheritance holiday choice with the guaranteed low cost mortgage as a plus for me.

All lies of course, but there you go this is Spain with the big C predominant.

Regards

Norman

This message was last edited by normansands on 13/03/2011.

I've done the sums a few times.

Right now if you rent AND wisely invest the money SAVED that you would have laid out on the deposit, solicitors fees, notary, mortgage fees etc etc  you will be better off in the long term renting.

Off course if you smoke and drink the savings you make renting, then yes in  20 years time you are worse off.

I've run these numbers through DCF model with various assumptions.

It's the converse of buy to let.  Would you invest in buy to let in Spain right now?   Will your net rental yield cover all your outgoings and give you save 5% return after repairs, insurances, cleaning, furniture, fittings, community charges, IBI  and allowing  for periods of zero occupancy?  Hell no !

Dear All,

well done that man, realism dawns and no spin.

A big improvement.

Regards

Norman

P Millsom "I've run these numbers through DCF model with various assumptions"

Depends on the assumptions.  More useful would have been to tell us the break-even rate of house price inflation over each of 10, 20, 30 and 40 years.  Because, as others have pointed out here, probably the majority of folk who bought property in Spain did so on the back of capital growth on their main home in the UK.

I accept that you would not buy to let in Spain now.  You'd take a punt on when the market had bottomed.  And similarly for personal use.  But that assumes that you are content to rent short-term.   Lifestyle choice has to be given a weighting for some people - especially those newly retiring to Spain.

As an owner of Buy to Let properties in Spain and the Uk I can with experience say  that my UK portfolio is averaging 7.8% gross and 5% after Taxes and Costs which is acceptable considering cash earns on average 2% at best 

My Spanish property yields less but it was not brought as a pure investment I would buy another Spanish Property if the lending conditions were more favourable as the prices are in my view now very reasonable particulary for an Independant Villa my personal strategy is to move up the Property Ladder in Spain as I have in the UK an Independant Villa with Pool can command 1500 to 2000 euros a week and normally 15 to 20 weeks short term rentals could be achieved with a bit of effort.

I would not offer my Spanish Property on a Long Term let its just too dodgy as the law seems to favour the Tenant over the owner 

I admit its far less risk to LET than BUY but lives full of risk and some times it PAYS and sometimes it DOSENT

TIMING always seems to be the BIGGEST factor

Regards Rod

This message was last edited by rod on 14/03/2011.

Dear All,

that is impressive Rod, well done, but as an outsider mostly, I sometimes wonder about these calculations and percentages.

isn't it the case that you are getting your properties' equity free of charge, courtesy of someone else paying for them?

and don't you get tax relief on all your expenses including whatever interest you pay on your cheapo mortgages?

isn't in fact a wonderful steal, this buy to let lark?

you have only got to find a reliable tenant and you are made and on the way to millions?

it is rather ridiculous to quote percentages on capital that you do not theoretically own, don't you think?

in the bad old days when I looked at this the only finance available was bank loans, with high interest rates and a max of 50% loan to value with quite conservative values.

largely too late for me but I was astounded when Buy-to-let mortgages came in with domestic interest rates, unbelievable really.

I did manage to get three of my four children into it though.

currently the money-men here are boasting of their "below market value" purchases in the sector.

basically if you can get the mortgages it is money for nothing.

even in Spain when the price is cheap enough it could be a goer, though as you point out the tenant situation is different.

Regards

Norman

An obstacle to moving up the property ladder in Spain is the high acquisition and disposal costs.

Also impossible to sell.

I remember a few years ago in UK it was not unusual to find someone who had bought and sold 2 or 3 times in as many years.

Dear All,

please note my earlier error, "interest free" should of course have been "interest only".

sorry about that.

Norman

Dear Faro,

even the high costs are claimable against tax and why would the entrepeneur want to sell if he is building his portfolio wisely?

Regards

Norman

Jek,

"Capital appreciation" - I would suggest captial depreciation would more likely apply in Spain for the next two to three years at least..

Four factors to consider:-

1. Interest rates are rock bottom. They can only rise and when they do the market will continue to be flat in money terms (and fall in real terms).

2. Real earnings are currently falling in Europe.  Therefore affordability and ability to borrow both impact.

3.  There are still many owners of Spanish property yet to liquidate - fire sales galore.

4. Supply and Demand.  Too many surplus properties.   Its a buyers market - and I would expect rents to fall in Spain.  If I were renting I would be looking to enjoy falling rent for the next few years with plenty of supply and deperate owners.

The UK ,market is of course is another matter but I assume this thread relates to Spain.

I have been renting out my two properties in Costa Blanca South for y years and have noticed a positive trend in the last two. I don't mean an upward trend in the rental cost, but increased interest in two months plus lets during the winder months. This has added about 1.5 to 1.8% to my annual yield, birnging it up to 7.5% based on an average price of 150000 E of each property. I'm quite happy with that. I did have one of the properties on the market for 18 months before I withdrew it in 2009, having decided that, given the state of the market, I would "sell" it to myself.

Like many other owners, I'm reluctant to let either villa long-term, as the risks involved a re not worth the hassle. One of my villas is fully booked until spring next year (incluidng two three-month bookings during the wihter months), with the exception of three weeks in May/June. No winter bookings yet for the other one - a couple of enquiries, though. I'm confident that, with the porspect of another lousy winter, it'll be booked febore September.

To sum up, I'm in not hurry to sell, as my intention was alwaus to keep one villa for my retirement and the other one to generate some income. And if/when the Murcia theme park becomes a reality maybe I will be laughing all the way to the bank?