So I decided to run some numbers on my cost of living if I were to buy a piece of property outright here in Spain. This is relevant because unlike the US, real estate isn’t as expensive of an asset to hold.
Primary Residence Ownership in the US
If you own your home outright in the US then you are still responsible for the following items. The percentages approximate annual costs based on the value of the property.
- annual property taxes (0.5-1.5%)
- HOA dues (0-3%)
- property insurance (0.1-0.5%)
- maintenance (0.5%)
- repair and remodeling (0.5-2%)
- utilities (0.5%)
This isn’t too far off when I compare the numbers to my own piece of real estate in Portland, Oregon. I’ve kept detailed records since purchasing it because I want to know if real estate really is this big American dream that it’s advertised to be.
Imagine an elderly couple living on Social Security income. Their primary residence may have been bought for only $250,000. But it has since appreciated in value up to $1M. They have to pay real estate taxes based on the value of the property. Depending on the rate of appreciation of this asset, their costs might outpace inflation.
It’s hard to feel financially secure when there is such a heavy wealth tax on your primary residence. In a sense, your primary residence really is an investment because it’s certainly being taxed as such.
Primary Residence in Spain
The same expenses exist when you own property in Spain. However, the ongoing costs are lower; it costs less to own the home. Think of it like a bicycle versus an automobile. Owning a car is a financial disaster, while a bike has almost no ongoing costs regardless of how much you paid for it.
Because the standards of property luxury here in Spain are lower, it’s less likely that you have to spend a fortune remodeling your home in order to maintain its market worthiness. Compare that to the US where the lack of granite countertop is residential suicide.
In Spain property taxes are paid up front when you purchase your real estate. There are annual taxes but these are negligible. By paying the main tax upfront (sales tax), I can protect myself against inflation.
Most homes in Spain are apartments or condos. There are few single family homes but these are often further outside of the city limits and this not very well connected.
Condos, or flats as they are referring to here, have monthly HOA dues. However, here HOA dues are 1/10th of the cost of HOA dues in the US. This could certainly change in the future and special assessments are still part of owning property here.
Household Spending in Spain
Let’s take Santiago de Compostela as an example, where I can buy a beat up flat for 60,000 euro. Or I can buy one in decent shape for around 90,000. Luxury ones start at around 150,000 and go well into the millions.
My ongoing real estate costs might be €200 a month. This would include utilities and taxes an HOA dues. I would get rid of rent as an overhead. Currently my month-to-month rent is $740/month but it includes all utilities.
$740/month is for an Airbnb, so I’m paying a short-term premium. If I rented something long-term it would cost me somewhere around €350-450/month.
With the property purchase I would get rid of the biggest housing expense, rent. The other monthly living expenses are rather manageable and for me limited to:
- food (€300)
- healthcare (€60)
- transportation (€0)
- communication (€10)
- entertainment (€200)
I’ve run the numbers for myself and it’s cheaper spending for these categories here in Santiago de Compostela than in Portland, Oregon. A good cost-of-living comparison tool is Numbeo.
Real Estate as an Investment
The argument might be that the property won’t appreciate as much in this market as in another, say Portland. Buying a €90k condo here might go up to €100k after a decade. Or just as likely, it might go down in value.
But I can’t ignore what it would save me on my housing budget category. Sure, if I invested that money then it could potentially appreciate a lot in value and earn me a decent long-term return.
But since I already have the passive income category covered and I’m still able to earn an income doing things I enjoy, investing that money in the US market is a less important factor.
Another important factor is whether I can purchase this property with a mortgage. I met with my banker again a week ago and she told me that because I’m a dirty, filthy foreigner, I must pay 50% down.
I’m kidding, she didn’t say foreigner. She asked why I wasn’t willing to just buy it all in cash since she’s seen my list of assets. Naturally, I’d much rather invest my cash instead of parking it in real estate in Spain. I can get a better return (possibly) in the securities market.
Today, I went to another bank and inquired about a mortgage there. Carlos claimed that I could get a conventional 20/80 mortgage, we’ll see. I started the application process and fill follow up with him.
Why This Matters
I hope that every medical professionals will accumulate more than enough assets for their retirement. But some will fall short. Some will burn out prematurely or have serious life circumstances to deal with.
Knowing that you can live somewhere else for less money, somewhere livable and safe, is a good back-pocket strategy. Maybe you’ll never have to use it, but knowing it’s possible should give you a little more courage to be bold when it comes to your medical career.
Ongoing housing expenses in Spain aren’t high but laws can change and they could skyrocket.
The same can happen in the US. I pay somewhere around 1.5% of property taxes and 2% in HOA dues as of 2019. My HOA dues can double or triple and my property taxes can follow suit.