Should I sell or hang on?

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14 Jun 2008 12:00 AM by manorpark Star rating. 165 posts Send private message

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I bought a property on the Costa Blanca which has gone down in value and is now worth less than the mortgage on it. There are several properties on our development for sale , all at  a cheaper price than originally advertised. I don't know whether to cut my losses now and bail out or hang on and hope that the Spanish property market improves. IBailing out would mean taking a large financial loss, hanging on means paying a large mortgage for many years.I know that without a crystal ball no one can predict what will happen but I would be interested to hear opinions and advice from others.



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14 Jun 2008 5:59 PM by EOS Team Star rating in In Spain of course!. 4015 posts Send private message

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I really feel for you.  I know many people in the same position and it's not an easy decision.

I personally recommend that if you can afford to hang on to it then do so.  Maybe even rent it out, perhaps long term to cover most of the costs.

The market will turn but it will take a good few years.  

Is there rental potential in your area?

Justin

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15 Jun 2008 4:07 PM by manorpark Star rating. 165 posts Send private message

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Thanks for your comments Justin. I am sure we are not alone but it is very worrying all the same. We would prefer to hang on to our property if we can. Unfortunately ,we ,like so many others believed the sales pitch we were given when buying and foolishly thought we couldn't possibly lose money. Sadly the three year rental agreement  with mortgage paid we had been offered when buying failed to materialise when the promoters ran off taking  some  purchasers' deposits. Then the large international company we bought from( who have sinced closed thier office in the CBN)  did not bring us any of the rentals we were told we would get. We have advertised ourselves and last year got 12 weeks rental. This year we have had only half ot that. Looks like the credit crunch is affecting everyone. A long term rental would be ideal but getting one seems to be the problem. Would be interested to hear from others who have had success with rentals long or short term.





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16 Jun 2008 1:03 PM by georgia Star rating in Algorfa (As seen on .... 1835 posts Send private message

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The clear message at bthe moment is if you don't HAVE to sell then Don't.
You will get pulled into the mire of bargain property at the moment and have to sell at a loss.
If you can get a long term rent hen do so,it seems that the nrental market is quite bouyant at the moment as people are holding off or cannot get a mortgage at the moment.
Hang on in if you can,it will come back........

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16 Jun 2008 1:53 PM by semijubilada Star rating in London/Torrevieja. 1052 posts Send private message

Ir might help if you let us know where your property is then other owners can comment on how they are faring with rentals.

Wish you luck with what ever you decide to do.





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16 Jun 2008 4:46 PM by manorpark Star rating. 165 posts Send private message

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Our property is at El Vergel near Denia. There is a lot of development going on there and there are many new properties for sale.  This means buyers have a good choice in the area and can also pick up some bargains . Many people who have bought there are also renting out so there is stiff competition in the area. The area is not fully established and it changes every time we visit so hopefully as it becomed more finished  it will attract more holiday makers. Would like to hear how other people are managing with rentals this year.



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02 Jul 2008 2:04 PM by TJ222 Star rating. 317 posts Send private message

I feel for you, but want to offer some realistic advice. I think things will get much much worse over the next few years and there will be no recovery for the best part of a decade. The problem in Spain is not just that houses were overvalued dramatically, but also that there is too much supply and much much too little demand. Also Spain is heading with the rest of the world into a major recession.

Things are going to get as bad as they can get. I understand that this might be depressing news, but it is also the truth. Armed with a realistic evaluation of the situation you can then plan what to do for the best. Don't beleive the people that tell you, you will get your money back in two years it aint going to happen. banks would have to go back to ultra easy lending, they are not. People would have to forget about this developing crisis and all the ensueing pain, they are not, that will take decades. Finaly droves of foreign buyers are going to have to return to the market in their hundreds of thousands, not in teh next decade if ever.

A realistic way to value your property is to take a long term rent and then mutiply it by 12 to get a yearly figure and then mutiply that by 10 again. So say the monthly rent is 750 euros, the value of your property is around 90K euros.

So if a reduced selling price for your property is say 180K currently, then bite off someones arm for the money. Its not the markets fault that you paid too much.

Historically it should cost you slightly less to buy a property than to pay rent on it. This is to reflect the fact that as a renter you are not responsible for the cost of furnishing and upkeep. The fact that it currently costs twice as much to buy a property as to rent it is just a reflection of the overvaluation of the market. It won't stay that way. The last ten years are not reflective of history or prices of property.

You don't quote any figures as to how much the loss is that you would be taking. My advice would be to take the loss if you can and chalk it up to experience. In a years time you might be faced with a much lower valuation and having paid the finance as well.

If you go the rental route, get really serious about it. Spend some time and money to make the property especially attractive to stand out. Put in a big flat screen tv, buy an X box for the kids. Get some flattering professional photograpy and an internal video thingy. Then get it marketed everywhere you can. make posters and put them up at work etc - get imaginative. You need to do more than your competitors, look at the money and time as an investment rather than more money spent.

Anyway good luck = perhaps it would help idf you could give us some figures of short tern rents being achieved, for how many months, long term rents and what you paid for it and what theya re now selling for.


This message was last edited by TJ222 on 7/2/2008.

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02 Jul 2008 2:55 PM by Sonia El Star rating in Wales / Carvajal, F.... 212 posts Send private message

TJ222

How do you get your multiplier for the valuation? Is this supposed to be standard for all areas - and all countries?  Seems a bit simplistic to me. Surely there are other factors to consider not least area. Are you saying that all areas in Spain are the same?

I could imagine some London property owners (me included) having heart failure if they used this calculation. My neighbour rents out a flat for £1500 per month comparable flats in the same street are on the market for £450k +.





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02 Jul 2008 3:16 PM by TJ222 Star rating. 317 posts Send private message

Sonia

The formulae is correct because what someone will pay to rent your house reflects the attractiveness of the property and area. It works for everywhere. The fact that currently it values your London property at half what they are currently asking reflects the overvaluation of London property as much as it does in Spain. UK propert will fall atleast 30% in the next few years, more so in real terms given the very high rate of inflation. Currently if property stands still, in real terms its loseing circa 10% a year. the fact that the governemnt choses to lie to us and say cpi is 3% is just that - a lie.

There is only one way out of this current debt inflation crisis and thats for interest rates to head into double digits. Check your financial history on this, it last happened as recently as the 80's. When interest rates are 12% my formulae is going to look generous. London property along with Spain is heading for a big big fall and you maybe right in saying that some people are going tto have heart failure. Look across the pond to the US and see that equity in property has dissapeared. What happens there will happen here withmaybe an18 month time lag.

If your property is really desirable then people will pay more to rent it and therfore up goes the valuation. My figure of 10 is equivalnet to a PE ratio of 10 on a share. Historically this has been a fair valuation, not cheap. Property assets are the same as any other assets, they all evnetually will be priced by their cash flow or earnings. Rent is earnings - its a simple as that.

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02 Jul 2008 3:19 PM by georgia Star rating in Algorfa (As seen on .... 1835 posts Send private message

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i used to rent my 4 bed detached in the UK 3 years ago for £850 per month,with that equation it should have been worth £102,000.
I sold it for £224,000 at the time,either i did quite well or the math is a little out!!!!

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02 Jul 2008 3:43 PM by TJ222 Star rating. 317 posts Send private message

Georgia

The formulae gets distorted by interest rates. When rates were 3% people were able and foolish enough to pay a lot more. But they were foolish because what you pay is what you pay regardless of what then happens to rates. It assuming rates are going to stay the same or go lower. But this is naieve. If you look back in history rates at 3% were an abnormality caused by central bank meddeling and indeed the cause of this current crisis.

Look back in history at interest rates and they are typically a few percent above inflation. Rates long term have varied between 7 and 12% but have gone as high as 19% to rid inflation from the system. And what do we have a problem with at the moment - you guessed it inflation. What will be the remedy - infact what is Trichet suggesting - yes rate rises and soon.

Interest rates are heading back to historical norms 7 - 10 %, but first they are going to go much higher to ring out inflation.

In answer to your question - you got lucky!

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02 Jul 2008 5:22 PM by manorpark Star rating. 165 posts Send private message

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Thanks for your all your comments and advice. It sounds a depressing situation. If we could find a buyer now which I very much doubt we stand to lose at least £60k which we can't afford to lose but continuing to pay the mortgage means paying out even more. The property was bought with a view to keeping it for a  least ten years but it sounds as though we may still not be in the clear by then.
Last year we had 12 weeks rental, this year we now have 8 thanks to some last minute bookings. We are actively promoting the property on UK and Worldwide websites but there is a lot of competition. We've just had full air-con put in to help make the property more appealing and it is newly and attractively furnished, perhaps your idea of the flatscreen TV and X-box might help. There is scope to add another 2 bedrooms or make a large games room in the basement  which could attrract more rentals but paying the mortgage as it is is enough for now without adding to our outgoings.
I spend a lot of time wishing we had pulled out earlier just after we had paid the deposit but like so many others did not anticipate what has happened and was optimistic that the purchase would be a sound one. If only I'd had a crystal ball !




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25 Jul 2008 2:25 PM by abbbb1 Star rating in Essex and Ciudad Que.... 306 posts Send private message

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I'm letting out my house - but not making so much overall as before.  I've always had an agent in Spain when I've let out the property - not enough friends or family over here are interested enough.  With other previous letting agents I've only paid commission when the property was let, and then only a percentage of the letting amount.  Most of the letting companies seem to have "got wise" about this situation.  This time I have had to pay out nearly 400 euros to an agent for managing the property; I also pay out a proportion of the letting amount as commission to the same agent; the tenants now get their television rental; water and electricity thrown in with the rent - whereas before this was on top of the rental amount.  Still, I count myself as lucky that the agent has put someone in for 6months, with a possibility of renewing if we don't managed to get out there again this year.  The up side is that I have good communication with the agent who seems to be very much on the ball - I say that because the property has been in the hands of some not so good ones!!  I too have a Spanish mortgage, which started off at a very low rate - and is nearly 6% now.  When I bought - four years ago - all the agents were saying that you could make vast sums of money by letting - but with all the building going on along the costas I felt a bit sceptical!  We were wondering whether to hang on to the house or to sell it - as with hindsight it may not be the place where we want to spend our final days!  Love the house, not too sure about the area.  However, if Spain goes the same way as England we may have to sit tight on it for a bit to come.
 
Have you tried any agents?






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25 Jul 2008 2:45 PM by manorpark Star rating. 165 posts Send private message

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I was glad to read of your experiences abbb1. You seem to be in a similar position to us, we also like our house but feel the area isn't what we would choose if we were to move out ourselves. We have had several late rentals which has eased the situation and helped to cover running costs . We are going out there tomorrow for the week .The house is not occupied this week so we thought we may aswell use it and get away fromt the unpredictable weather. We plan to visit some agents and enquire as to whether we can get some long term lets. At the moment we do not have an agent,  a neighbour is doing key handover, cleaning, repairs etc. She is doing a great job and people staying there have said how clean the place is unlike when we had the house in the hands of an international company who let us down very badly on all fronts.
I am hoping our visit might help us feel a little more positive about our property as we haven't been there in sunny weather, we only go in low season when the house is not used.We also intend to visit the bank to see if we can switch to a better mortgae rate, anything that might help !
Good luck with your house, here's hoping things do improve for us all.



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26 Jul 2008 10:56 AM by abbbb1 Star rating in Essex and Ciudad Que.... 306 posts Send private message

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Hi Manor Park

Hope that you've come back feeling better about things after your holiday - and hope that you had some success with your bank, and with the letting agents.  I think that a spot of good weather can really make you look at things in a different light.  

Can't complain too much about the weather in England (or at least in Essex!) at the moment though!  My friends always ask me when I am going to take my holidays in Spain - because I'm really unlucky with the weather!  I went out last September/October for three weeks - and there were awful storms and the upstairs of my house was flooded (not the best time to find out that your balconies are angled in the wrong direction) and I went out there in April/May of this year - and it was rather dismal then. 

We could only take out a 12 year mortgage - they said that it was because of our ages.  So as I'm the younger of the two of us it was linked to me.  Even so the prospect of paying it until I'm 70.....!  When the mortgage rate went up we made a decision to pay off some of the mortgage .  We then had the option to keep on paying the same amount of money but for a shorter number of years or to stick with the original amount of years and to pay a far lesser amount.  We decided to go with the latter, and for us it was the right decision. 

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10 Aug 2008 6:07 PM by manorpark Star rating. 165 posts Send private message

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Hi abbb1,

Going out to Spain was a good move. Seeing the house in the summer has helped and it was nice to try out the pool at long last. The area around the house is beginning to look a lot better despite some of the developments being unfinished ( builders going bust ) and we could see that in the future it may turn out to be not such a bad place.We have also had some really good feedback from recent renters which is very encouraging.

Like you we shall be paying the mortgage into our seventies, at least it gives the Spanish housing market time to pick up ! We saw a lot of unfinished developments and apparently nothing is selling at the moment.Looks like our only choice is to keep on paying the mortgage and renting out .

We also had problems with flooding on our balcony due to the water coming in at the wrong angle, this caused damp and  we had to have the wall repaired and the balcony tiles re-done to allow the water to run off the balcony instead of through the patio doors. 

Hope you have better weather next time you go to Spain. It was very hot last week but I'm not complaining as it was a nice change from the British weather.

Off to see if the rain has stopped yet !



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18 Dec 2008 8:43 AM by Brian2 Star rating. 8 posts Send private message


housepricecrashdot co dot uk

Essential reading and mainly about what's happening with prices, markets. There is a big section on Spain there.





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08 Jan 2009 4:06 PM by gravitatingsouth Star rating in wales. 58 posts Send private message

Hi B2

my opinion is :

hang on in spain, its better place to be

SELL UP EVERYTHING IN UK - interest rate down another 1/2% today, soon will be ZERO

When it hits Zero - that'll be a whole new ball game if you're still in the UK. People are loosing money and jobs fast as we go into 2009.

We have just put our UK property on the market, ahead of the spring normal time for new instructions. so far we have had 4 viewings even tho' particulars arent yet done. Why? reckon its coz we are rightly priced and there are buyers out there wanting to see 'new instructions' as they are up for sale at the right price today.

Its only my view, but the way things are in the UK - we dont want to be sat in the uk with a house with loads of bedrooms we dont need which we have to have to clean even tho' empty, pay stupid poll tax amounts, maintain a tiny garden thats so small its squarer than square.... i could go on,plus kids need to break their ties and become independant (theres enough shared ownership deals on new flats to get them out of the house and independant.....unless they're idol hangers on, scared of work, begging for handouts etc -  good time for the parents to put their needs first and kick em out before they bleed the bank of mum and dad dry!)

Anyone wanting to stay in the UK who has a spanish property no matter what the size - has got to be in denial when they believe things will get better. Yeah right - how many times have we heard that - eg banks and browns supposedly rescue plan (failed)

Honestly, if you have a property in spain, I'd hang on to it, and if anything else - sell up in the UK especiallyif 50-60yr age group. Being in the UK will from now on (as it is for those now becomming pensioners)  a drain on savings etc and utterly pointless - unless you're happy to see things go from worse to worser. Get out of the UK now - we are - you can always come back later - why you'd want to tho'  begs the question. Uk sucks, anyone with a property abroad has got to a off their head to stay here. If ever there was time to say goodbye to your roots/traditions its now. You bought in spain for a better life, why not follow our stand - move there perm and kiss goodbye to Britain for good (note I didnt say Great Britian, coz it aint Great no more - only fools or those in denial thinking it will get better are staying put)





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08 Jan 2009 8:51 PM by Candyfloss Star rating in Cardiff / Mar Menor. 1605 posts Send private message

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Gravitatingsouth

Loved your post, made my day

 





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09 Jan 2009 5:22 PM by Rob in Madrid Star rating in Madrid. 274 posts Send private message

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I tend to second TJs opinion, things are bad and going to get a whole lot worse (think I've been spending too much time on Edward Hughs blog). What has always mystified me is that the headline blare "Prices to fall" 35% in the UK, but only 15% in Spain. Prices (when compared to wages) are way more overpriced in Spain than in the UK. The only conclcution I can come to is that the British are used to a boom bust cycle where as the Spanish are not.

I have been in a situation of negative equity and it isn't pleasant. The choice to sell or not wil come down to when you want to move. If your planning on moving in the next few years than sell now, if your willing to stick it out longer term 10 plus years than you have a chance to at least break even. We bought our place in the 80s (Southern Ontario Canada) just before that housing bubble burst, we sold in 2001 for a "profit". It took about 12 years to recover.

I am like TJ a relentless bear when it comes to Spain. Prices along the coast, with very few exceptions, will collapse.  Madrid will escape with a mere 50% price drop. You can have 4 million plus unemployed without have a serious effect on property prices. Unfortuantly there is no good news on the horzison

I realize that's not the kind of thing that people want to hear when thinking about Spain and a new life in the Sun but it's hard to escape when people post about mortgage problems.

Bottom line is your planning on staying there long term than ignore the news and try not to think about how much your losing each month (I know from personal experience) If you think you're going to sell than price it to sell and get rid of it fast!



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Decided after all I don't like Spanish TV, that is having compared both.




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