Considering buying an apartment abroad

[Lordy]

Hello fellow Mustachians,

for many years, my dream has been to spend the winters in the south where it's warm(er) and sunny.
I have visited the major Spanish beach towns and Alicante has come out on top for me.

I am now sitting here looking at a €250K apartment, asking myself if I have either gone insane or if that is the rightful reward for my years of preparation.

I realise that from an ROI perspective, this would not be the ideal move. But I don't think quality of life and ROIs always align.

For context, I am single, in my early 40s and the stash is around €800K.
I could easily put down 20% cash and finance the rest through the bank that manages my portfolio.
I would mainly use the apartment between November and February and rent it out via a local agency the rest of the time.

Appreciate your thoughts on this!

Cheers, Lordy

[Metalcat]

I own a second home, not abroad, but given where it's located, it might as well be (rural Newfoundland, which is more like another planet).

Anyhoo, the place I bought I actually bought as an investment property with potential for personal use for vacations. However, after spending a summer there fixing it up I was like "fuck it, I love this place and I'm keeping it for myself."

You could argue that it's financially sub-optimal, but in terms of the quality of life improvement the house provides me, it's the best money I've ever spent.

I've spent two full summers there and literally anyone who has ever talked to me about it can tell you that I objectively light up like a Christmas tree with how much I love it.

So the question is how much this would be worth to you?

Also, foreign ownership can be complicated, and foreign property management even moreso. I'm looking to live in Mexico during the winters in the future and there's no fucking way I would choose to own and be a landlord. Not happening. At least not until I have an enormous amount of experience and network there, and even then, probably never.

To risk-assess a financial decision you have to be able to realistically assess your risks and benefits and that can be incredibly challenging in a whole other country where you don't even know how things run differently.

I've seen A LOT of nightmares of people buying investment properties in foreign countries expecting things to work the way they do in their own country.

So I would say that the level of reasonableness of your plan has little to do with the cost, that's either worth it for you or it isn't, but more to do with how well you truly understand the risks of what you are considering.

Lastly, there's "buying a house" in a location, and then there's buying the right house in a location.

Part of the reason I fell in love with the house I bought was because I lucked into a ridiculously optimal location. Only after living there for a few months did I realize that my very specific house location was uniquely ideal for my preferences.

You have probably had the experience of living somewhere and knowing that the difference of one street to another is huge, that certain pockets are much better value than others.

The location factors that make a specific property beneficial *to you* are very specific and you cannot know them until you experience the day-to-day of living somewhere.

Every single location I've ever lived in, and I've lived in many (moved over 40 times), has played out the same way. I move to a new place and pick a location based on research. I live there for awhile and learn how my needs/wants interact with the organization of the new area, only then am I equipped to figure out the ideal location for my needs/wants and it's often very different from what my research indicated.

The Newfoundland house was the one exception to this, I just stumbled face first into a freakishly perfect spot with a house that wasn't even intended for me to live in.

So even if buying is financially enormously advantageous compared to renting, when you buy too quickly you have a massive opportunity cost of not being able to easily relocate if your initial choice isn't informed enough with inadequate understanding of the area.

[lhamo]

Not enough information to give you useful input.

That is over 25% of your stash.  A lot of money for a place you will only use 1/3 of the year.

What are your FIRE goals?  How much are you able to save toward those goals with/without this property?

Why this particular property?  Are there other options -- either renting or buying -- that would give you similar benefits at a lower cost?

[Lordy]

Not enough information to give you useful input.

That is over 25% of your stash.  A lot of money for a place you will only use 1/3 of the year.

Well, yes. I would not sell parts of my portfolio but rather just finance it.

What are your FIRE goals?  How much are you able to save toward those goals with/without this property?

My initial goal was €600K, but given inflation etc. I have upped that goal to €1M. On my current trajectory I should hit that in the next 2-3 years.
My savings rate is well over 50% and this year could be the first year were my passive income (dividends and interest) could cover my cost of living (more or less).

If I opted to pay it off in 15 years, getting a fixed rate for the first 10, this place would cost me around 1500€ per month.
Assuming that I use it 1/3 of the year, it's empty 1/3 and rented 1/3 at €50/night (net), the cost per month would be closer to 1000€, I guess.

Why this particular property?  Are there other options -- either renting or buying -- that would give you similar benefits at a lower cost?

My main reasons for buying over renting are mostly convenience, especially for longer stays.
Sure, I could rent a different AirBNB each time I go, but having ones own place provides a lot more flexibility.
For example, I could have a proper office area (to work remotely), which most tourist rentals lack.
I could also leave a lot of my stuff (clothes) etc down there and would not have to "haul" things each time.

In terms of cost, there are certainly cheaper places available. The "base" cost for something that fits my standard seems to be in the €120K to €150K range, but that's usually quite small, without a balcony, sea view and sometimes requiring remodelling.
This place for €250K comes with a roof-top deck, a seaview and has recently been remodelled.
It also has a good location, being only a few minutes walk from the beach and city center.

[lhamo]

Thanks for the additional information.

Personally, I would not be inclined to sink that much money into a place I would only use 1/3 of the year.  But it sounds like it ticks a lot of boxes for you, and I guess if you decided it wasn't a good long-term investment you could always sell it -- hopefully for more than you paid for it.

It sounds like a fabulous property.  If you do decide to buy it, I bet you wouldn't have too much trouble finding people to sublet to for longer periods.  Including maybe me!  Never been to Spain but would love to visit for a few weeks or even months at some point in the next few years.....

Good luck making your decision! 

[GilesMM]

I would just rent instead of buying. You have much more flexibility, less hassle, less risk, and possibly even lower annual cost.  If you just want a way to store stuff there between trips you can probably figure that out also. Maybe a small storage unit or a landlord with a locking closet.

[aloevera1]

How is this property going to be taxed? What do you plan to do with it when you are not there? Properties sitting empty are not really ideal as things could happen there. Do you have someone to go in and check on it? What about insurance for it?

I feel like there are a few important considerations missing from the analysis. It's not just a mortgage cost to consider.

[Lordy]

How is this property going to be taxed?

Spain has a property tax and rental income for non-residents (like me) would be taxed at around 20%.

What do you plan to do with it when you are not there? Properties sitting empty are not really ideal as things could happen there. Do you have someone to go in and check on it? What about insurance for it?

I would rent it out via a local agency. Those are plenty in Spain and basically take care of the apartment all the time.
As the owner you get preferential access to the booking calendar, but they just rent it out and clean it in between.

[Metalcat]

How is this property going to be taxed?

Spain has a property tax and rental income for non-residents (like me) would be taxed at around 20%.

What do you plan to do with it when you are not there? Properties sitting empty are not really ideal as things could happen there. Do you have someone to go in and check on it? What about insurance for it?

I would rent it out via a local agency. Those are plenty in Spain and basically take care of the apartment all the time.
As the owner you get preferential access to the booking calendar, but they just rent it out and clean it in between.

As I said in my first response, are you very familiar with this industry? Have you ever worked with a property management company before? Know what to expect when things go wrong? Know what kind of things that can go wrong???

Having a property manager can be anything from extremely low stress to mind-blowingly stressful.

How familiar are you with what that industry is like for international owners? Do you know what to look for in terms of risks and red flags?? Do you know how you could get totally fucked and ways to hedge against it???

[Lordy]

The answer to all of these is "No". 🙃

[newco]

If you spend $5000 once a year on a monthly vacation to spain, you could go for 50 years before you hit $250,000. That is a lot of vacations....

[Metalcat]

If you spend $5000 once a year on a monthly vacation to spain, you could go for 50 years before you hit $250,000. That is a lot of vacations....

The math on that makes no sense though. You don't own a property at the end of 50 vacations.

Also, the property will not cost 250K, it will cost 250K +mortgage interest, +property taxes, +insurance, +management fees, +maintenance fees (could be $$$ for a vacation rental), minus rental income, +income tax on rental income, +possible accounting fees for managing overseas tax issues, plus whatever else I can't think of

[Freedomin5]

As someone whose family has owned property in foreign countries and whose friends own beachside condos in Thailand as investment properties, I’d say, do your research (as per Metalcat’s list of questions), then go for it if things check out. Do you know anyone who owns property in Spain whose brain you can pick?

It might be worth it if you know you want to be there long term, and prices are going up and there’s a risk that you’ll be priced out of the market, and if you buy and rent out the rent would cover the expenses or reduce it to such an amount that your personal out-of-pocket expenses would be less than you would pay if you rented an AirBnB. So, if it cost you 1000/month to own this place, but it would cost you 2000/month to rent a similar place, then it might make more sense to own. Plus you get the capital appreciation when you sell.

That’s how we calculated things for our vacation home that we use one to two months a year. We know we will go every year and want to stay 1-2 months. We did the math and it would cost significantly less to buy and leave it empty than to rent for those two months. If we were willing to rent it out, then the math works out even more in our favor.

[Lordy]

If you spend $5000 once a year on a monthly vacation to spain, you could go for 50 years before you hit $250,000. That is a lot of vacations....

That math doesn't work out for me.

If I buy the place, my net worth actually doesn't change. I get an asset worth 250K (assuming I buy somewhere near reasonable market price) and get a mortgage of equal value (minus down payment, coming from my stash).

If instead I take the "consumption route" of vacationing, I have nothing to show for at the end.

[Metalcat]

If you spend $5000 once a year on a monthly vacation to spain, you could go for 50 years before you hit $250,000. That is a lot of vacations....

That math doesn't work out for me.

If I buy the place, my net worth actually doesn't change. I get an asset worth 250K (assuming I buy somewhere near reasonable market price) and get a mortgage of equal value (minus down payment, coming from my stash).

If instead I take the "consumption route" of vacationing, I have nothing to show for at the end.

Exactly, what you really need to look at is the expenses for owning vs the expenses of renting, and a lot of the expenses of owning can be unpredictable.

The reason I asked if you know about management companies is because if you have a management company and they have a conflict of interest relationship with, say, cousin Pedro who is a contractor, then your maintenance costs can end up through the rough, and you're on another continent. 

I have a very reliable property manager here in Canada where I am very comfortable with understanding the tenancy laws, norms of business, norms within the contracting world, etc.

And I know for a fact that I paid too much for some recent cosmetic work on a unit, but because of the timing I couldn't be there to oversee the work myself, so I just swallowed the "cousin Pete" premium and the work got reliably done according to the standards that I understand and would expect.

Do you know how electricians are licensed over there? Plumbers? How they might cut costs? How permitting works? What kind of corruption there is around permitting??

These are all things that I think about when contemplating owning in a very different jurisdiction.

[Lordy]

Do you know how electricians are licensed over there? Plumbers? How they might cut costs? How permitting works? What kind of corruption there is around permitting??

These are all things that I think about when contemplating owning in a very different jurisdiction.

Given that I reside in Germany and the property is in Spain, the rules are not going to be that different (both EU).
Since this has been a long-term goal for me, I have learned enough Spanish so that I could call a plumber or electrician myself, if need be.

I know that I need a "licencia turistica" for the place, if I want to rent it out as a holiday rental.
That process is fairly clear and I am not worried about corruption in this regard.

[Metalcat]

Do you know how electricians are licensed over there? Plumbers? How they might cut costs? How permitting works? What kind of corruption there is around permitting??

These are all things that I think about when contemplating owning in a very different jurisdiction.

Given that I reside in Germany and the property is in Spain, the rules are not going to be that different (both EU).
Since this has been a long-term goal for me, I have learned enough Spanish so that I could call a plumber or electrician myself, if need be.

I know that I need a "licencia turistica" for the place, if I want to rent it out as a holiday rental.
That process is fairly clear and I am not worried about corruption in this regard.

That helps, I'm on my phone and just default to assuming folks here are American, which is funny since I'm not American, lol.

[spartana]

How is this property going to be taxed?

Spain has a property tax and rental income for non-residents (like me) would be taxed at around 20%.

What do you plan to do with it when you are not there? Properties sitting empty are not really ideal as things could happen there. Do you have someone to go in and check on it? What about insurance for it?

I would rent it out via a local agency. Those are plenty in Spain and basically take care of the apartment all the time.
As the owner you get preferential access to the booking calendar, but they just rent it out and clean it in between.

I rented a small apt in a beach town on the Costa Brava years ago for almost a year using a property management/rental agency and they were fantastic. They not only took care of ball the details but often checked in with me just to make sure I was doing well and even brought me treats! I believe their fee was around 30% of the rent (which was very inexpensive as a furnished monthly rental). So I doubt you'd have any worries if using a reputeable agency.

At that time I had considered staying in Spain permanently and buying a small place but I wasn't really interested in being tied down to one place at that time. I was FIRE and had relatives in Europe (grandparents in Germany where My mom was from and another set of grandparents and some cousins in Sweden where my dad was from as well as in the states - I'm American but born in the UK with dual citizenship) and wanted to be free to roam to different areas while younger.

So that would be my main concern for you with buying as you'd be limited to just one area 8f you buy rather then rent. You may wish to explore other places in Europe or thru out the world during winters and not just the same city in Spain year after year. Especially if you own a place in Germany and mainly live and work there.

[Lordy]

So that would be my main concern for you with buying as you'd be limited to just one area 8f you buy rather then rent. You may wish to explore other places in Europe or thru out the world during winters and not just the same city in Spain year after year. Especially if you own a place in Germany and mainly live and work there.

I have approached this quite methodically.

My starting point was, that I wanted a place in the EU as I am a citizen (right to move/work), same currency, free roaming and health care coverage.

When looking for a sunny winter, that leaves countries like Portugal, Spain, Greece, Italy, Malta, Cyprus.

Since I am going to be there for weeks at a time, I also wanted to be able to speak the language, at least on a foundational level. The reasonable choice was Spanish.

Since I want to be by the seaside, I visited all the cities in Spain that are candidates like Bilbao, Barcelona, Valencia, Malaga, Cadiz and Alicante.

From all of these, Alicante came out on top. Will I still like it in 10 years? I don't know. But that problem exists for all real estate you buy.

[spartana]

So that would be my main concern for you with buying as you'd be limited to just one area 8f you buy rather then rent. You may wish to explore other places in Europe or thru out the world during winters and not just the same city in Spain year after year. Especially if you own a place in Germany and mainly live and work there.

I have approached this quite methodically.

My starting point was, that I wanted a place in the EU as I am a citizen (right to move/work), same currency, free roaming and health care coverage.

When looking for a sunny winter, that leaves countries like Portugal, Spain, Greece, Italy, Malta, Cyprus.

Since I am going to be there for weeks at a time, I also wanted to be able to speak the language, at least on a foundational level. The reasonable choice was Spanish.

Since I want to be by the seaside, I visited all the cities in Spain that are candidates like Bilbao, Barcelona, Valencia, Malaga, Cadiz and Alicante.

From all of these, Alicante came out on top. Will I still like it in 10 years? I don't know. But that problem exists for all real estate you buy.

I understand and it makes a lot of sense to buy there in your situation. But I wondered if you'd miss out on opportunities to go to other destinations during the winter if you tied yourself to owning a second Home/holiday property in Spain. You are young and single and I think.childless so being free to roam can be very nice.

I live full time in ski resort town and own a small house. Most people here live elsewhere but own a 2nd home or apartment here they use a little but each year and rent out too. While many love coming back to their second home for a few weeks or months  year after year, I've heard many more (especially younger single people) who'd rather have more options to travel regret it.   I'm FIREd and generally travel a few months a year but I lime going new places and would be bored and feel somewhat limited if I only went to the same place every year. But lime you said - you can always sell!

[MathematicalCycler]

You've clearly thought this through, and you're right that it will be less complicated for you, being a EU resident and buying something in the EU.

I live in Spain and would hesitate to buy a property that would be left empty due to the threat of squatters. It seems bizarre from a North American or northern European perspective, but squatting does seem to be a real problem here. It might not happen to you, but when it does it can take months to get your home back. I would want to talk to many other vacation homeowners in your town, as well as the property management company, to get their perspective.

Aside from that, I can definitely recommend the Spanish lifestyle, particularly if you don't need to earn a living in what is a struggling economy!

Enviado desde mi SM-A415F mediante Tapatalk

[lutorm]

Why not finish your FIRE journey and then move there permanently? Are you certain you want to stay rooted in Germany? The economics would work out better if you occupied the place full time...

[Lordy]

No, I don't want to move there permanently.

I like it in Germany, it's just the winter that's depressing and I want to do it like the birds and go south.

[mistymoney]

No, I don't want to move there permanently.

I like it in Germany, it's just the winter that's depressing and I want to do it like the birds and go south.

did you buy the place in spain??

[Lordy]

did you buy the place in spain??

The rationalist in me won and I did not buy.

[mistymoney]

did you buy the place in spain??

The rationalist in me won and I did not buy.

hope you are happy with the decision!