Asset Evaluation: 95,000 Euro Spanish Condo

I went to view a second condo in Santiago de Compostela. A 1-bedroom near the USC (Universidade de Santiago de Compostela) Medical School. It was listed by a private seller at €95,000 and it’s about 39 sqm or 400 sqft = €2,435 per sqm.

I made the appointment with the seller and she and her wife showed up with 2 little ones to show me the place. Their family had outgrown this Spanish condo and had moved into a larger place a few miles outside of town.

The unit met most of my criteria:

• <100,000 euro
• quiet part of town
• good lighting
• ready for move-in
• minimal chance of chain-smoking neighbors
• walkable to a cafe

Real Estate in Spain

The average home price is €1,591 per sqm. Which would come out to €62,000 for this unit. But prices range from as low as €1,300 to as high as €3,300 per square meter.

This unit lands somewhere in the middle at €2,435 per sqm.

Prices have been going up ever since they crashed back in 2007. And nearly 20% of the purchases are made by foreigners who have regained their faith in the Spanish real estate market.

From the late 1990’s until 2007, Spain saw massive real estate gains. Many large real estate groups were building lavish villas here, hoping to sell it to rich Europeans. But they didn’t see the 2007 crash coming.

Rent

Rent isn’t too bad in Spain – except for maybe Barcelona, Valencia, and Madrid. The national average is somewhere around €8.22/sqm. So about €320/month for this flat, potentially.

Rental prices are in the €12-13/sqm range in Madrid and Barcelona. That’s around €490 for a 400 sqft flat.

1-br Flat

The price of €95,000 is high for Santiago de Compostela but property prices are higher near the USC campus. This one is 39 sqm which is nearly 400 sqft, about the size of my studio in Portland, Oregon.

It has 2 large windows, one in the living room and one in the bedroom. Wood floors, which is nicer compared to the tiles I see in older Spanish homes.

Supposedly it’s a newer build – apparently 1980’s. Though I suspect that’s when the place was remodeled. It’s your traditional stone building with plaster on the inside.

The building only has 4 units. 3 residential units stacked on top of each other, with this unit sandwiched in the middle. There is a basement commercial unit as well which is empty but could become a cafe or an office.

The current owner of this Spanish flat has been there since 2007 and she renovated the bathroom which used to have a tub. It’s pretty small without an exhaust fan – fairly standard for homes in Santiago de Compostela.

Kitchen is simple and small, though it’s a little larger than my Portland kitchen. There is a washer/dryer combo under the kitchen counter. No oven. And an electric range.

Above the fridge is an electrical water heater. These are current guzzlers but since she hasn’t hooked up the natural gas, it’s the only option.

No A/C. There is an electric wall radiator for heat. I could install a wall A/C with the compressor sitting on the exterior of the building. I would only need the permission of the other homeowners which I hear isn’t a big deal in Spain.

Utilities

The unit has water hookup and electricity, no gas. There are pipes running to the building for natural gas, a relatively new concept for these older Spanish condos.

I’m waiting for the owner to give me a breakdown of all the utilities for the past few months – when she used to still live there with her partner.

All monthly utilities:

• HOA – €26 (includes individual unit insurance)
• Property Tax – €7 euro (I know!)
• Water – €50
• Electricity – €30
• Total: €115

Closing Costs

In Spain it’s estimated that you’ll pay somewhere around 12-14% for closing costs which could include the following:

• notary (€800)
• registrar (€400)
• taxes (~10%)
• appraisal (€400)
• realtor/legal (?)

The taxes are obviously the largest expense. Fortunately, ongoing annual property taxes are much lower. You pay the majority of the taxes upfront when you sell the property – similar to an automobile purchase in the states.

Because I don’t have any experience buying a place in Spain, I will need a lawyer who can handle the property research for me. I would need them to make sure there are no issues with the land, no tax problems, or any chain of custody issues.

Rental Income

If I buy this place, I’m sure eventually I’ll get bored of it or want to move somewhere else. So the asset has to make sense as an investment if I decide to sell it one day or rent it out.

Since I would be buying at the height of the market it’s less likely that the property will go up too much in value. It might keep up with inflation, much like most real estate. Renting the place out would be an option.

Average Spanish rent is somewhere around €8.22 per sqm. This unit is around 40 sqm – so €320 would be the national average.

Based on local comparables, I could get about €350 a month for the place. That’s 4,200 euro a year of gross income. I would need to factor in the following expenses:

• repairs (~1% a year) = €800
• occupancy rate (~92%) = €320
• taxes (19% annual taxes on rental income revenue) = €800
• property manager (?)

If I make her an offer of 90,000 euro and pay 13,000 euro in closing costs then I’d be right at €103,000 ($115,400). I wouldn’t need to do any repairs since the place is move-in ready.

After accounting for all of the expenses I would be left with around €2,300 a year. That’s approximately €200 a month of income for tying up €103,000. A rate of return of 2.2%.

Comparing to Cheaper Units

2.2% isn’t impressive but it ain’t half-bad. Especially when factoring in my own desire to live in the place. As an investment alone, I wouldn’t take on a rental income property with such rates of return.

The other unit I saw was going for 60,000 euro and was a 3 bedroom. It had a patio but it had a little less light coming in. It also had 7′ ceilings. Finally, it needed about 12,000-15,000 euro worth of work to get it to be livable.

My Concerns

The price.

Cigarette smoke.

There is a small village bar across the street. The reason I say village is because this entire neighborhood is rather small and the cafes and bars here are very local. It’s rare to find a tourist walking through the neighborhood.

The bar is still far away that I think I’ll be okay as far as the patron noise and people smoking outside of it.

As for the price, for Spain, specifically for Santiago de Compostela, €95,000 is expensive. I’m assuming she bought the place for around €35k back in 2007. Maybe my lawyer can dig up the tax records.

It’s still within my budget but I would like this place more at 75,000, perhaps 80,000.

I also worry about the smell of cigarette smoke. I’m both sensitive to it and it’s also damn near impossible to escape in Spain. A lot of people smoke and so you get it from all directions. People smoke in the parks. They smoke in the narrow streets of downtown. And they smoke inside their flats.

Purchase Process

I haven’t decided on this property yet. However, my next step is to find a law group who will represent my foreign ass. There are some law groups which specialize in real estate sales to foreigners, such as Balcells. I’ve contacted them and will report on this in future posts.

I will have 3 months to secure a mortgage unless I choose to pay in cash. I have a few medical board matters still up in the air, which will decide whether I would need to finance the house or if I can pay in cash.