Renting Your Property In Spain
Avoid the Hassle
Holiday is over and it is time to get on back to work. Your bags are packed - you are headed home, rested but anxious. As you look around for any last minute things you might leave behind and will surely miss, you walk around checking all the doors and windows to make sure they are locked. You peek out the window to the pool area to make sure all the furniture has been stored and the fence is secure. On and on, the list to make ready to leave your vacation home seems endless. Wouldn’t it be nice to not have to worry about all that?
Is Renting a Good Idea?
Have you considered renting your property in Spain while you are away? The benefits of renting are numerous. For example, your home would be occupied year round, reducing the chances of someone vandalizing it, causing costly damage and possibly stealing some of your property. Additionally, you could potentially same money by not having to contract maintenance services for the pool or landscaping. Consider also, that if anything goes awry you would be notified immediately and would be able to respond to the situation in a shorter amount of time. Not to mention, you would have the additional income from your renters helping to offset the taxes and insurance and perhaps putting something extra in your pocket.
Get a Reputable Agency
If you decide to rent out your home while away, be sure to vet out the property management agency you hire. Check their reputation and review their background for any renter complaints. Be sure to ask if they conduct background checks on potential renters for your home. Check their performance against other agencies and ask for references of other property owners you may want to contact. Ensure that they will be mindful of the property on a regular basis and will interview other renters in the event one moves out.
Recent studies show that the real estate market in Spain is on the rebound and stabilizing due to increases in real estate purchases by Europeans. This increase will influence the number of homes available for purchase, creating a bigger demand for rentals. The drop in the housing prices makes this a prime time to buy houses and apartments for sale in Spain, whether as a vacation home or investment, and turn it into a profit center by renting it while away.
Financing an Overseas Property Purchase
The Lawyer and the Real Estate Broker
How to best finance an overseas purchase can become quite a task .Unless you have been an expat for a considerable length of time, and are familiar with all the ins and out of the local real estate laws and requirements, two of best people to have on your side are: a reputable real estate agent and legal representation, preferably someone who is current in the laws of the country.
By having a local real estate broker where the property is located and who specializes in foreign mortgage transactions you can ensure a more efficient mortgage closing with the least amount of hassle.
Lending regulations and requirements, as well as real estate practices and law, differ tremendously from country to country. A trustworthy broker can help you navigate these differences and may be able to direct you to certain lenders or loan products to assist you further. Check with the local chapter of International Consortium of Real Estate Associations for reputable brokers.
How Best to Protect Yourself and Your Investment
Another safeguard is to have all the documents translated into your native language, alleviating any surprises. Negotiate and understand all the terms of your contract. Legal matters that involve overseas transactions can become much entangled, and become very difficult to sort out.
While every investor seeks the next big deal to sink their money into, if you are ready to invest abroad, look for “hot spots”, study what’s trending where, and ensure there is a need for the particular type of development you are considering, whether it be housing, office space or commercial real estate.
Shop the exchange rate fees. Typically local banks and currency exchange stores charge more. Choose an international bank or a well-known foreign exchange service for the best deals.
Options for Borrowing
Borrowing money overseas to finance real estate can be very cumbersome. ARMs (adjustable rate mortgages) are the norm; fixed rate loans are very scarce. Additionally loan-to-value ratios can run 50-80%. If you are planning to purchase for investment purposes only, the task becomes even more complex.
It is highly recommended you discuss all your options with a financial advisor prior to committing to anything. Foreign currency mortgages are not always the most advantageous. By capitalizing on significantly lower foreign interest rates you could potentially save a lot on repayments. Be cognizant of the constant fluctuation in these rates, the short-term, as well as the long-term impact.
Don’t forget to look into your IRA funds as a financing source Check with your IRA custodian to see if "non-traditional" types of investments, such as foreign real estate financing, are allowed. Here again, talk to a professional financial advisor who may have some additional insight on products that may allow you to structure your portfolio in such a way as to allow these types of transactions.
Know the Requirements
Some foreign requirements may not be what you expect. For example, a bank may require you to purchase a term life insurance policy that runs concurrent to your loan. In the event of your demise, they don’t have to deal with foreclosures. The term of your loan may be predicated on the term of your life insurance policy. If you are 75 years old and the policy covers you until age 85, your loan term will only be 10 years.
Another requirement in some countries requires a person to establish a banking relationship with a local lender prior to that lender offering you a mortgage. This can be accomplished by simply opening a bank account and keeping it in good standing. Look for formal developer financing as well; this type of financing is typically available to all buyers. Be sure you understand the expectation are on all sides of the contract.
