Sunday, November 30, 2008

Other Options for Property and Loans in Spain

If you want to earn some money in something apart from just simply buying a property here in Spain off the main site,, then here are some options. We can help you out with all of the things below and if you have friends or colleagues you refer you can get a commission.

In principle there are four main areas and then of course there are other ops that come up;

1) Private Capital Loans.

These can range from 6000 Euros up to a few million. They are loans making the loanee the first debt on a property or second when the first debt is very low compared to value. The guarantee is notarial and the loan is inscribed in the property registry. Time periods for PCL's are 6 or 12 months. Interest rates are 20-25% and payment has to be made in full if done before the end of the time period. If a PCL is not repaid then you start the process of repossession of the property that guarantees the loan. This usually takes about 6-8 months from the beginning to the end of the process but is very open and transparent. We earn from the person who we have obtained the money for initially and then on the earnings of the investor. If the investor gets the money back then we take just 15% of earnings, see example below. If the investor gets the property then we earn 30% of income if rented on an ongoing basis or 25% of net capital gain if sold on, again see example. These earnings would be split with anybody referring clients.

Example 1
PCL of 1 million Euros. Paying 20% in one year.
Return 1.2 million Euros.
Valuation of Property. 3.2 million Euros with no debt on it currently.
Property consists of 10 flats and a shopfront right by the Plaza de la Reina in Valencia. Dossier available.
Probable outcome. Payment by the debtor.
Possible Outcome. Get the block of flats and be able to sell on at 200-240k each unit for very quick sale plus 200k for shopfront.

Debtor profile.
Builder needing liquidity to finish off other projects and sell them. By being able to finish off he expects to sign for them and therefore have the money to pay within the year. If not repo process starts on day 366 and is guaranteed.

Commissions. 45000 Euros on obtaining funding, paid for by builder. And then the 15% if repaid (30000 Euros) or 25% if we get the building and then sell on. Estimate of net gain around 1 million Euros therefore 250k commissions.

More simple example 2
21000 Euros PCL
Property value 72000. Suggested sale price for quick sale 60000.
One year for repayment at 20% = 25200 Euros.
Potential earning 4200 Euros. Costs 15% = 630 Euros.
Potential Earnings if Getting Property 25% of 60000 - 30000 (Approx after lawyers/barrister and costs.) 7500 Euros.

Debtor Profile
A man who has just got a new job in Northern Spain and needs the money to set up his business there and get working. He expects to refinance after around 6 months and pay back the money at that point as he will have been working for six months and the banks may be lending better by then

2) Purchasing bank debt.

If a property is already in the repossession process then we can make an offer to the bank to purchase that property. We would usually do this in blocks of 5, 10 or 20 properties that we would offer at a certain price from the bank. Obviously the higher the number of properties bought the better the discounts. On some properties however we do not need a discount as the LTV is so low so we pay what the banks call the foreclosure fees. We then offer a service of taking the property through the repo process. What we charge on this is the initial study fees for each property purchased (1700 Euros) and a percentage of earnings depending on IRR for the batch. The investor needs to realise that they purchase the debt and then pay for the lawyers to conduct the process, we have an agreement at 4500 Euros per property for lawyer and barrister fees reducing to 4000 on the purchase of multiple units. The lawyers are paid half up front and half on completion. Barristers are paid on demand.

If we earn 25% in three months on one property it is annualised to 100% roughly. If we earn 10% in two years it is annualised to 5%. I am sure you get the picture. Our earning capacity depends on the higher IRR (Annualised Return) because we take a percentage of earnings. If the real return is less than 10% and the IRR less than 20% we take nothing. We choose debts and properties very carefully to make sure a good IRR and fast turnaround is possible but we also choose the investors carefully as we need to be sure that they let us work for them and use our methods rather than using the baseball bat method of recovering debt. The investor needs to provide a power of attorney for the lawyers and barristers to act on their behalf and a letter of intention showing their interest in the project. We are happy to visit or receive visits to explain the process.

3) Purchasing Repossessed Properties.

Properties that have already passed through the bank's repo process are sitting on their books gathering dust. Through our contacts in the banks we can identify the best purchases and negotiate discounts on the asking prices for properties in their portfolios. Banks are happier giving big discounts to cash buyers and the more units purchased the bigger the potential discounts are. We can supply blocks of properties or indiviudal properties for the investors. In these cases the investor pays a commission fee equivalent to 3% of purchase price to cover initial studies. They are also asked for their business plan and we can help them out with that. If it is disposal at market values then we arrange the sale through an exclusivity contract again at 3% on sale. If they wish to hold and rent out then we can come to an arrangement for property management too. (This can also be done for investors in option 2) Sometimes we are able to have a purchaser ready for purchase before taking on the property and in these cases the earnings are huge. If we do this then we take a percentage of net gain.

4) Purchasing off plan projects and excess capacity from developers.

Sometimes a developer runs out of money and needs to sell up. Sometimes they just want to get rid of the last few units and realise some sort of profit but there are always ops at the moment as the banks won't lend. Opportunities that come up require a good background knowledge as most developers are massively overexposed on their borrowings. Therefore we find developers who although in need of liquidity are not too endebted because then there are too many charges on the properties and they cannot sell at the prices we want to purchase. Here there is a simple commission payment structure and a disposal or business plan can be arranged post purchase too.

All investors will need a NIE number in Spain or a company through which they purchase the debts/properties. We can discuss this further down the line as there are many different ways to structure the investments to make the best returns.

Hopefully this helps you go through the ideas. If you have any questions feel free to ask of course.

Graham Hunt

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