# Buying commercial property??!!



## pauliebabes (Apr 13, 2011)

I'm in Marbella at the moment researching the low-end accommodation sector (ie:- 1* pensions/ hostals/ hotels) with regards to moving from Australia in the near future and getting into the business. I was wondering if the prices of such places (primarily the properties I mean, not the businesses) have dropped by much over the last year or two, and if so will they continue to drop? I know this is akin to asking about the length of the proverbial piece of string but I would still be interested to hear what people think.

With regards to buying a commercial property, I have also been told the following 'on the qt' by an apparently reputable source (a business broker operating here for a number of years):-what's important is the valuation of the property and not your income or indeed the income of the business. In assessing a commercial property for mortgage purposes the bank will take no more than a cursory look at the businesses trading history. Your finance broker or abogado is all important when it comes to applying for finance. The 'Spanish Way' is if you have the right contacts then they will use a 'tame' valuer to get the deal done. For example, on the face of it you aren't able to borrow more than about 60% to purchase the freehold of a commercial property- maybe 70% as an absolute maximum. However, if the property has, say, dropped in price by 50% over the last couple of years then there's every chance that the bank will still go off the older valuation (especially if it ties in with the valuation of the property that is listed in the Land Registry) and if they do then they will lend against that regardless of the price that you have agreed with the vendor. So effectively if a property is valued at one point two million euros but you agree a price with the vendor of 600,000, the bank will lend you 60% of 1.2 million- 720,000, which is more than enough to cover the purchase price plus costs! 

I have spent quite a bit of time on google etc researching this whole thing and I have to say there's not very much information around at all about buying commercial property in Spain, whether from the banks or anywhere else. From my experience that leads me to believe that what I'm being told isn't as far off the mark as it may sound (and perhaps not off the mark at all). I'm starting to believe that plenty goes on here that's 'under the radar' and things can be accomplished if you know how the system works.

I'd be very interested to hear any feedback from anybody with experience of such matters 'on the ground'.


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## mrypg9 (Apr 26, 2008)

pauliebabes said:


> I'm in Marbella at the moment researching the low-end accommodation sector (ie:- 1* pensions/ hostals/ hotels) with regards to moving from Australia in the near future and getting into the business. I was wondering if the prices of such places (primarily the properties I mean, not the businesses) have dropped by much over the last year or two, and if so will they continue to drop? I know this is akin to asking about the length of the proverbial piece of string but I would still be interested to hear what people think.
> 
> With regards to buying a commercial property, I have also been told the following 'on the qt' by an apparently reputable source (a business broker operating here for a number of years):-what's important is the valuation of the property and not your income or indeed the income of the business. In assessing a commercial property for mortgage purposes the bank will take no more than a cursory look at the businesses trading history. Your finance broker or abogado is all important when it comes to applying for finance. The 'Spanish Way' is if you have the right contacts then they will use a 'tame' valuer to get the deal done. For example, on the face of it you aren't able to borrow more than about 60% to purchase the freehold of a commercial property- maybe 70% as an absolute maximum. However, if the property has, say, dropped in price by 50% over the last couple of years then there's every chance that the bank will still go off the older valuation (especially if it ties in with the valuation of the property that is listed in the Land Registry) and if they do then they will lend against that regardless of the price that you have agreed with the vendor. So effectively if a property is valued at one point two million euros but you agree a price with the vendor of 600,000, the bank will lend you 60% of 1.2 million- 720,000, which is more than enough to cover the purchase price plus costs!
> 
> ...


What, if any, previous business experience do you have?


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## thrax (Nov 13, 2008)

I read your other thread re a B&B concept. I know of a few that have opened and been successful, away from the coast and looking at people who want a quiet retreat rather than the busy beach syndrome. However, all three were run down properties that were reformed into large B&B concepts. Yes there is a hell of a lot that goes on under the radar - the black economy. I´m not advocating it but the people we´ve met here who run their own business say that however hard you try and avoin the black economy, you just can´t. In every process here there are always a lot of people involved who are trying to get their bit of money from the deal.


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## pauliebabes (Apr 13, 2011)

thrax said:


> I read your other thread re a B&B concept. I know of a few that have opened and been successful, away from the coast and looking at people who want a quiet retreat rather than the busy beach syndrome. However, all three were run down properties that were reformed into large B&B concepts. Yes there is a hell of a lot that goes on under the radar - the black economy. I´m not advocating it but the people we´ve met here who run their own business say that however hard you try and avoin the black economy, you just can´t. In every process here there are always a lot of people involved who are trying to get their bit of money from the deal.


The B&B thread was actually started by someone else- I just dug it up as it's related to what I'm looking at myself now. Re the black economy, yes it can be a negative of course but what I'm trying to establish is if it can also work in your favour, especially in the current climate.


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## jojo (Sep 20, 2007)

pauliebabes said:


> The B&B thread was actually started by someone else- I just dug it up as it's related to what I'm looking at myself now. Re the black economy, yes it can be a negative of course but what I'm trying to establish is if it can also work in your favour, especially in the current climate.


It can only work in your favour if you really know and understand the system and are part of the scene. Otherwise you're opening yourself up to getting caught! Even those who will offer to help you work "on the black" will charge you handsomely. Its all about who you know, what they know and can trust. Sadly, as a new and "green" foreigner you're leaving yourself wide open to abuse and to prosecution, especially if they think you have the ready cash! When you move in those circles its very much "dog eats dog"

Jo xxx


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## pauliebabes (Apr 13, 2011)

mrypg9 said:


> What, if any, previous business experience do you have?


Well I've done a few things over the last twenty or so years, in business, property and life in general. 

For example:- 

I spent 18 months researching the standalone car wash business in Brisbane and, in late-2002, I eventually found the right site. The business was advertised for $190,000 and the property for $600,000 (separate owners). I subsequently bought the business for $6,000 and the property for $550,000. It took me two months to get the 50k discount on the property as the owner was a very tough negotiator (he was rich then but he's a billionaire now and listed on the Australian Rich 200). 

After a year I'd doubled the revenue so I sold the property for $1.1m and leased back the business. After two more years I'd doubled the revenue again, at which point I sold the business for $1,040,000.

I've bought and sold over twenty residential properties in the same period, in Australia, the UK and Ireland (for myself, not as an agent).

I've also written a business book and had it published, run a property buyers agency, been a partner in a financial services company and served in the French Foreign Legion, amongst other adventures!

I'm no Donald Trump or Mark Zuckerberg, however I've seen a lot of life and business in my 43 years and I believe that that's made me a reasonably competent businessman, one who operates impeccably but at the same time is not averse to trying to make the system work in his favour wherever possible.

Other than that I love Spain, it's my favourite country in the world (I've been coming here for thirty five years, ever since the mid-seventies when my folks used to spend the annual two weeks holidays in the Alay Apartments in Torremolinos!) and I'm determined to go into business here and- at the very least- be moderately successful.


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## thrax (Nov 13, 2008)

pauliebabes said:


> Well I've done a few things over the last twenty or so years, in business, property and life in general.
> 
> For example:-
> 
> ...


sounds pretty good to me :clap2:lane:


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## mrypg9 (Apr 26, 2008)

pauliebabes said:


> Well I've done a few things over the last twenty or so years, in business, property and life in general.
> 
> For example:-
> 
> ...


So my next question: why not do things legitimately, given your record?


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## jojo (Sep 20, 2007)

pauliebabes said:


> Well I've done a few things over the last twenty or so years, in business, property and life in general.
> 
> For example:-
> 
> ...


But from what you've said, all your successes were achieved in english speaking countries, with english type rules. You say your researched for 18 months (all in english again). Spain has some weird and wonderful ways of operating and to understand them you need to speak and read Spanish, you need to have spanish mentality. 

Heres a true story - if anyone knows who I'm talking about, they will know its true, but we dont mention names on the forum!

I had a friend who moved over here the same time as we did. He was a millionaire and had achieved apparent greatness in the UK. He bought a huge 1 million euro house here (cash) and a business - a cafe, he spent a small fortune doing it up! He tried to do everything by the book to start with, but those around him, even those in "Officialdom" ripped him off (200€ a week to the man from the ayuntamiento to have tables outside of his cafe??????????), simply cos he didnt understand and couldnt argue with them, he then tried using the "back door" by befriending some British and spanish people who knew how to play the system shall we say - they ripped him off too. The business didnt make anywhere near enough money (even with illegal deals being done) to even cover the overheads, let alone give him any income, luckily he didnt have any rent to pay and used savings to pay the household bills. The result??? His wife left him, taking the children with her back to the UK, he did a runner and followed her back to the UK. She now has a rented house in the UK and he is now living with his mum and has a court order banning him from contacting his wife or kids. I dont know what on earth has become of the house - the business now has a different name over the door!

Jo xxx


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## xabiaxica (Jun 23, 2009)

jojo said:


> But from what you've said, all your successes were achieved in english speaking countries, with english type rules. You say your researched for 18 months (all in english again). Spain has some weird and wonderful ways of operating and to understand them you need to speak and read Spanish, you need to have spanish mentality.
> 
> Heres a true story - if anyone knows who I'm talking about, they will know its true, but we dont mention names on the forum!
> 
> ...


yes - I remember you telling me all that 'as it happened' as it were!!

another point - by the time you've reaearched anything for 18 months- they've probably changed the rules anyway!!!


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## thrax (Nov 13, 2008)

xabiachica said:


> yes - I remember you telling me all that 'as it happened' as it were!!
> 
> another point - by the time you've reaearched anything for 18 months- they've probably changed the rules anyway!!!


a friend of ours has built his own motor cycle fire engine which are used extensively in Germany. He took it for the ITV and it failed because it didn´t have a third seat, ie a side car. They told him to replace the water pump and fire equipment with a sidecar and it would pass and then when he got it home he could swap it all over again and it would be fine. However, a few days agao a couple of official types turned up and told him they had to measure the decibel output from the engine, which is very loud. He was worried and asked what the limit was and they told him they didn´t know. The measured the decibel level from the bike and announced that it was 94 db and from now on that would be the limit for this type of engine. Make up the rules as you go is also pretty much the norm here, it seems...


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## pauliebabes (Apr 13, 2011)

jojo said:


> But from what you've said, all your successes were achieved in english speaking countries, with english type rules. You say your researched for 18 months (all in english again). Spain has some weird and wonderful ways of operating and to understand them you need to speak and read Spanish, you need to have spanish mentality.
> 
> Heres a true story - if anyone knows who I'm talking about, they will know its true, but we dont mention names on the forum!
> 
> ...


That's a cautionary tale alright. Clearly going into business in Spain is a different ballgame where you can't be too careful!


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## pauliebabes (Apr 13, 2011)

mrypg9 said:


> So my next question: why not do things legitimately, given your record?


Well if the bank offers you a mortgage based on their assessment criteria, and you accept, then there's nothing illegitimate about that. The fact that you may be borrowing 100% or more of the purchase price is just something that you have to be comfortable with and have decided you can afford. It's not about stretching yourself to the max (which is never a good idea), it's about protecting your capital. If the business can survive (as an absolute minimum) while fully financed then that's a pretty good scenario, and one that's not entirely impossible, at least as long as interest rates remain so low. To put it another way, if I have half a million euros to buy a business (for that price) but the bank is willing to lend me the money, if I know the business can afford it then I'd be a fool to put my own money down. As far as I'm concerned putting your own money down is the very last thing you should do, because when the s**t hits the fan you'll have it readily accessible as a back up, whereas if you have to go to the bank at that point with cap in hand they'll most likely show you the door. Most businesses go broke, not because they're not good businesses, but because they run out of money and consequently can't ride out the tough times. 

When I say I operate impeccably what I mean is that I seek to deliver as high a level of service as I can while still being competitive, treat my staff very well and in general be all over every aspect of the business to ensure an efficient operation. When I'm buying the business however- or financing it or selling it- I'll use everything at my disposal to gain an edge and minimise my personal exposure. I believe that even when you have money in the bank then you should still seek to put as little of it down as possible. God knows its hard enough to make in the first place!


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## mrypg9 (Apr 26, 2008)

pauliebabes said:


> Well if the bank offers you a mortgage based on their assessment criteria, and you accept, then there's nothing illegitimate about that. The fact that you may be borrowing 100% or more of the purchase price is just something that you have to be comfortable with and have decided you can afford. It's not about stretching yourself to the max (which is never a good idea), it's about protecting your capital. If the business can survive (as an absolute minimum) while fully financed then that's a pretty good scenario, and one that's not entirely impossible, at least as long as interest rates remain so low. To put it another way, if I have half a million euros to buy a business (for that price) but the bank is willing to lend me the money, if I know the business can afford it then I'd be a fool to put my own money down. As far as I'm concerned putting your own money down is the very last thing you should do, because when the s**t hits the fan you'll have it readily accessible as a back up, whereas if you have to go to the bank at that point with cap in hand they'll most likely show you the door. Most businesses go broke, not because they're not good businesses, but because they run out of money and consequently can't ride out the tough times.
> 
> When I say I operate impeccably what I mean is that I seek to deliver as high a level of service as I can while still being competitive, treat my staff very well and in general be all over every aspect of the business to ensure an efficient operation. When I'm buying the business however- or financing it or selling it- I'll use everything at my disposal to gain an edge and minimise my personal exposure. I believe that even when you have money in the bank then you should still seek to put as little of it down as possible. God knows its hard enough to make in the first place!


We owned businesses in the UK, operated 100% legitimately and profitably.
Of course you don't risk your own money if you can borrow at a good rate. That's what Directors' Accounts are for!!
The flaw in the scenario is that this is, currently, not a stable business environment. The ECB is thought to be more likely to raise its interest rates than the BoE and property prices, whether residential or commercial, have imo still further to fall, especially in the sector you are interested in. So....interest rates go up, the value of your property falls, your profitability takes a knock....you're in negative equity and the lender will look to you to make up the shortfall.
The rule of thumb round here is that the cheaper end of the market is the most pressurised. After all, if you are a multi-millionaire, the recession will have at the most only slightly cramped your style.
Round here, the pricier properties are selling. The apartments and town houses in the lower/middle price range remain 'se vende' , some for the couple of years we've been here and most likely for longer.
I'm curious as to why you ask for this kind of business advice on a site like this, rather than contacting a reputable consultant who specialises in these matters. We're all willing to advise where we can but I doubt if many of us have the kind of experience and expertise in such matters that is required before taking the plunge.
Although Shiny Andy, who owns a PR/Marketing company based in Marbella may be able to help. He has many contacts in the Marbella business world and is a thoroughly nice, reliable guy.


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## Guest (May 17, 2011)

One step ahead of you Mary, we met Paul yesterday!


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## pauliebabes (Apr 13, 2011)

mrypg9 said:


> We owned businesses in the UK, operated 100% legitimately and profitably.
> Of course you don't risk your own money if you can borrow at a good rate. That's what Directors' Accounts are for!!
> The flaw in the scenario is that this is, currently, not a stable business environment. The ECB is thought to be more likely to raise its interest rates than the BoE and property prices, whether residential or commercial, have imo still further to fall, especially in the sector you are interested in. So....interest rates go up, the value of your property falls, your profitability takes a knock....you're in negative equity and the lender will look to you to make up the shortfall.
> The rule of thumb round here is that the cheaper end of the market is the most pressurised. After all, if you are a multi-millionaire, the recession will have at the most only slightly cramped your style.
> ...


Based on what I've learnt so far I'd question if the business environment is EVER stable!!

Once you get into discussing the economy/ where property prices are headed etc then it just becomes a matter of opinion. I've spoken to people in business here who report a better year so far than last year and who believe that the worst is over and the only way is up. I don't know whether that's true or not any more than the next person. But what I do know is that the more people you talk to and the more questions you ask the better placed you are when it comes to making decisions (which, to answer your question, is why I posted the question on commercial property on this forum. I've also posted questions about things like schools, areas to live and quality of life. Yes I'm probably not going to find out what I'm trying to find out, but there's always the possibility that I will).

Regarding the budget accommodation sector, it's clearly very competitive but the demand is still there (because it's cheap, naturally) and the liklihood is that that will continue even if things get worse. If you can borrow at 100% (and that's still a big 'if') and still pay the mortgage and running costs then that's not a bad scenario. The business may not be making a profit but it's surviving and under such circumstances that's got to be considered an achievement (not to mention if you get a business for nothing then it's extremely unlikely to have been making a profit in the first place!). So you coast along for a couple of years while still getting enough business through the door to cover your costs. You've put nothing down and you're getting nothing back- yet. Property prices may continue to fall- that's a risk you take- but the bank won't come knocking unless you stop paying the mortgage. Interest rates may increase but you've factored a 2% increase into your figures from the start and decided that you can handle it. Meanwhile you work flat out to increase the revenue and exceed your own conservative forecasts. Then one day things start to improve and at that point your survival becomes progressively easier. 

It might not be everyones approach and, like most things in business, it has a risk element. But if you can minimise the downside while not putting any (or a lot of) money on the line then in my book that demands serious consideration.


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## mrypg9 (Apr 26, 2008)

pauliebabes said:


> Based on what I've learnt so far I'd question if the business environment is EVER stable!!
> 
> Once you get into discussing the economy/ where property prices are headed etc then it just becomes a matter of opinion. I've spoken to people in business here who report a better year so far than last year and who believe that the worst is over and the only way is up. I don't know whether that's true or not any more than the next person. But what I do know is that the more people you talk to and the more questions you ask the better placed you are when it comes to making decisions (which, to answer your question, is why I posted the question on commercial property on this forum. I've also posted questions about things like schools, areas to live and quality of life. Yes I'm probably not going to find out what I'm trying to find out, but there's always the possibility that I will).
> 
> ...



It all sounds very neat and tidy. But I'm sure you'll understand when I say that when we owned businesses we were approached with a lot of people with bright ideas, all carefully documented, so I have developed an extremely cautious approach
Of course some of these ideas came to fruition then, when things were comparatively stable but we've been out of the scrum for several years now as we were fortunate enough to be able to pack in it and sell up when we decided we'd had enough.
Anyway, I'm glad you've got in touch with Andy.


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