I am just back from a two week holiday in Spain with my family. And what struck me whilst over there was the number of Se Vende signs outside apartments, townhouses and villas - they were everywhere. And of course Se Vende translated into English means, For Sale.
In the departure lounge on the way home, Roseann and I began talking about how great it would be if we had a property of our own in Spain. It is a country we visit almost every summer, so we began to daydream a little.
After we got the taste of Tinto de verano out of our mouths, and stopped thinking about the long evenings we would have lounging in our own pool if we bought, we came back to reality and began to think seriously. What if we did buy? What would the initial upfront costs be? What would our annual costs be?
We had property in mind because about a year ago, while looking to rent a property in Spain a number of adverts would pop up advertising property for sale. I signed up to a mailing list to notify me on new properties that would come to the market. So, I have been getting emails for the past 12 months and what I have noticed is how the price has been coming down on properties in Spain in the past year.
Anyway, one property that was emailed to me in June 2015 was initially being offered at €250,000. It was a three-bedroomed detached villa, with its own pool in a golf resort. That same villa just before I left two weeks ago was for sale for €185,000 - that's a decrease in the asking price of 26% in just 12 months.
This seemed like a great offer so my next step was to enquire from a mortgage broker in Spain about what percentage I could expect to receive if I wanted a mortgage from a Spanish-based lender. Their response was that I would probably get a mortgage of 80% of the purchase price, and I would have to come up with the remaining 20% myself.
OK, so if I was to buy this great villa that was now costing €185,000, I would have to personally contribute €37,000. But it wouldn't stop at that, because when you buy a property in Spain, there are other costs associated with buying a property and they are:
Transfer Tax - This tax applies if the property you buy is not the first time it has been owned. The cost of this tax I have been told for the particular property I was looking at was 7%, so this was going to cost me €12,950.
Legal fees - I was quoted 1% of the purchase price which was another €1,850.
Notary Expenses - this is an expense that is incurred by the buyer in most cases and is calculated in relation to the purchase price on the deed of sale. Again I was advised to budget for a cost here of 1% of the purchase price.
Property Registration Fees - Another fee payable by the buyer and again 1% of the asking price needed, although in many cases the likely cost will be c. 0.5%.
Mortgage costs - I was going to have to get the property appraised and the cost of getting this carried out was going to be c. €185 and there was going to be a mortgage arrangement fee as well which was going to cost me c. €1,850.
Furniture costs - the property I was looking at was unfurnished, and apparently the general rule of thumb to furnish a 2/3 bedroom property to a decent standard would be somewhere between €10,000 and €15,000. So, I was going to budget the cost of this by setting aside a maximum of €12,500.
That was it for my up-front costs, and when I totalled them, it meant I needed €70,000.
Now I wanted to look at what my on-going costs would be if I decided to proceed. The mortgage of €148,000 over 15 years (they wouldn’t give me a longer term) was going to cost €1,200 per month, insurances included.
I was going to have an annual maintenance cost of €2,500 which was charged to owners in this particular resort, and I was going to have to have the pool maintained and cleaned once a week which was going to cost €1,080 per year.
Apart from mortgage repayments and general maintenance costs, there are other costs in the form of taxes that property owners also face. The first is a property ownership tax which is set by the local council and ranges from 0.4% to 1.1% depending on the region your property is in. Let’s say for this particular villa that it was 0.4%, the property tax for the year would therefore be €740.
You also have to pay personal income tax on your property even if you don’t rent it out and this is calculated by applying 25% to what 2% of the property is valued at. So, 2% of €185,000 is €3,700 and I would have to pay 25% of this which is €925 every year.
So, if I bought this property, and when you factor in other costs like flights, car rental etc. my annual outlay would be about €25,000 which is c. €2,083 every month.
What I have learned from this experience is that I don't want to own a property abroad if it is going to cost me that much up-front and that much every year. What I want is freedom, freedom to holiday if we can in different places each year, enjoy different countries, have different experiences, that's what I want.
I don't want to put anyone off buying a property abroad - and wherever you are looking, the key is not to be blindsided by how great a property looks, or how much the asking price has fallen. Do your, research first, take your time and know exactly what your upfront and ongoing costs will be, then decide. Adios Amigos.
Liam Croke is MD of Harmonics Financial Ltd,
based in Plassey. He can be contacted at firstname.lastname@example.org or www.harmonics.ie