# Bank Guarantee - Reqrd for Rental



## dupree (Apr 15, 2008)

I am told that in order to sign a lease for a rental property in Madrid that I will have to come up with 1 months rent, 1 or 2 months deposit and 1 months rent for the real estate agent (which is all fine and expected) and, this is the kicker, a bank guarantee for 6 months of rent. 

According to the bank, being that I don't own any spanish assets nor have any credit history in Spain that we will have to deposit 110% of the value of the guarantee and pay 0.5% set-up fee and a fee of 1% each quarter (so I am paying them to guarantee a contract with my own money?). So roughly this comes out to about 20K USD (using an optimistic exchange rate of 1.50)that we have to come up with just to move into an apartment in Spain. 

Does this sound right to anyone? Surely there is another way to secure this guarantee...Understanding that I have excellent credit in the US but no collateral to speak of...I do have a car but technically the bank still owns that asset. One agent mentioned an insurance specifically for this but most of the "landlords" of the properties I have seen are unwilling to go this route.

Thanks for sharing your knowledge and experience.


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## Big Pete (Aug 7, 2007)

dupree said:


> I am told that in order to sign a lease for a rental property in Madrid that I will have to come up with 1 months rent, 1 or 2 months deposit and 1 months rent for the real estate agent (which is all fine and expected) and, this is the kicker, a bank guarantee for 6 months of rent.
> 
> According to the bank, being that I don't own any spanish assets nor have any credit history in Spain that we will have to deposit 110% of the value of the guarantee and pay 0.5% set-up fee and a fee of 1% each quarter (so I am paying them to guarantee a contract with my own money?). So roughly this comes out to about 20K USD (using an optimistic exchange rate of 1.50)that we have to come up with just to move into an apartment in Spain.
> 
> ...


I am no expert but !! it sounds to me like there taking the wee wee . I have heard of loads who have rented with just deposits and a months rent in advance . so look elsewhere 

maybe a expert can confirm that shortly for you


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## dupree (Apr 15, 2008)

Yes that is what I thought but this isn't just one agent that has mentioned this...an ERA agent and a "Look/Find" agent both wouldn't even show me flats without this paperwork...and other agents, though willing to show property, have all mentioned it as a requirement.

And the Bank (Citibank) rep. knew exactly what I was talking about like it was "business as usual" so all signs point to this being on the up and up...at least for the places we are looking for...most of which are fully furnished if that makes a difference though some have been un-furnished.


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## dupree (Apr 15, 2008)

Ok i found this...not sure how old the pages are... my contact here and all the leasing agents are telling me this is standard (albeit a new) practice in today's market: 

[well they will not let me post the link....]

"...For some properties, you may also be asked for a bank guarantee, which is essentially a sum of money (6 month's to a year's worth of rent) held in trust by your bank, which they will hand over to the Landlord if you break your side of the contract. They are best avoided."

Hoping to hear from others who have direct experience with this and how they managed to deal with it....seems like quite the hurdle for a renter...I mean if I had that kind of cash I would just buy a home...


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## Stravinsky (Aug 12, 2007)

dupree said:


> Ok i found this...not sure how old the pages are... my contact here and all the leasing agents are telling me this is standard (albeit a new) practice in today's market:
> 
> [well they will not let me post the link....]
> 
> ...


I can confirm that we have people on our books who will ask for bonds as deposit for their properties, generally for 3 or 6 months ... what you mention is not unusual although 12 months would be a little unworkable


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## Big Pete (Aug 7, 2007)

Stravinsky said:


> I can confirm that we have people on our books who will ask for bonds as deposit for their properties, generally for 3 or 6 months ... what you mention is not unusual although 12 months would be a little unworkable


But you must have normal Landlords as well surely ? If you going to pay all the money upfront place a deposit and put xxxx ammount of cash in a bank as a Guarantee then any rentor would be better off just buying the place on a Mortgage and it does somewhat defeat the object of Renting ,

Rentors should avoid them like the plague in my opinion as if they have a Guarantee can you imagine when you come out the rental the hassles on if that scratch on the sink was there before you took it or after etc..Specially when they have your open bank account to fleece .

bad news..


ps; How come in the Rugbymat forum , onlineamiga went over there and got a flat easy peasy with no bank accounts or anything ?


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## Stravinsky (Aug 12, 2007)

Big Pete said:


> But you must have normal Landlords as well surely ? If you going to pay all the money upfront place a deposit and put xxxx ammount of cash in a bank as a Guarantee then any rentor would be better off just buying the place on a Mortgage and it does somewhat defeat the object of Renting ,
> 
> Rentors should avoid them like the plague in my opinion as if they have a Guarantee can you imagine when you come out the rental the hassles on if that scratch on the sink was there before you took it or after etc..Specially when they have your open bank account to fleece .
> 
> ...


Yes there are landlords that just ask for a months deposit, it depends a lot on the value of the property.

Its not the Rugbymatt forum BP 
Yes he did, and I guess it was a small one and I also guess he paid a month up front, but he did get a job within 8 days of arriving there


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## dupree (Apr 15, 2008)

Couldn't agree more but...

this is turning out to be very much the norm here, as fact I haven't yet run into a place that didn't have this as a contigency and all of my dealings are with property agencies that are not fly by night shops/individuals. 

Also the guarantee in this case is not for damage (that is the 1 or 2 month deposit paid to the landlord) but rather protection if I up and walk away and/or refuse to pay rent...apparently here it is a 3-5 month legal process to get judgement so this is the landlords protection.

And, from what I have read, as in the US there is a document filled at at the time of move in where we would document all "existing" damages to the property. Though you raise a good point I will have to check with the bank/agents as to what the landlord must do in order to actually withdraw these monies...I am sure it is more than just calling the bank (at least I would hope).

and I do agree with you that this does defeat the purpose of renting for the average Spaniard and I find it a very peculiar practice... But there seems to be some "insurance" that you can get in place of this Aval where you pay some dollars per month but this is also new and not all landlords (so I am told) are accepting this in place of the Aval.

Luckily for me the company shipping me over here is going to take care of the Aval. But how does the young spanish couple just starting out afford to rent....


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## Big Pete (Aug 7, 2007)

dupree said:


> Couldn't agree more but...
> 
> this is turning out to be very much the norm here, as fact I haven't yet run into a place that didn't have this as a contigency and all of my dealings are with property agencies that are not fly by night shops/individuals.
> 
> ...


Well i agree on the young Couples nowdays , cant afford to buy cant afford to rent not easy  

Well good luck to you anyways and i would still look around , maybe look out the area could be different outside the town..


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## dupree (Apr 15, 2008)

Big Pete said:


> Well good luck to you anyways and i would still look around , maybe look out the area could be different outside the town..


thanks, hopefully in the near future I will be able to contribute instead of leach..this is a great forum..lots to read. Funny I just got back from a village to the north of Madrid and it was the same there as well 6 mo Aval though probably room for negotiations...seems they were willing to deal with the "insurance" type option which is like a monthly payment to an agency...anyway.. Thanks again to you both. I am sure I will have more Qs soon.

Buenos dias


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## Big Pete (Aug 7, 2007)

dupree said:


> thanks, hopefully in the near future I will be able to contribute instead of leach..this is a great forum..lots to read. Funny I just got back from a village to the north of Madrid and it was the same there as well 6 mo Aval though probably room for negotiations...seems they were willing to deal with the "insurance" type option which is like a monthly payment to an agency...anyway.. Thanks again to you both. I am sure I will have more Qs soon.
> 
> Buenos dias


Buenosio diasio to you also,

ask away and keep us informed how things go


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## chris(madrid) (Mar 23, 2008)

dupree said:


> I am told that in order to sign a lease for a rental property in Madrid that I will have to come up with 1 months rent, 1 or 2 months deposit and 1 months rent for the real estate agent (which is all fine and expected) and, this is the kicker, a bank guarantee for 6 months of rent.
> 
> According to the bank, being that I don't own any Spanish assets nor have any credit history in Spain that we will have to deposit 110% of the value of the guarantee and pay 0.5% set-up fee and a fee of 1% each quarter (so I am paying them to guarantee a contract with my own money?). So roughly this comes out to about 20K USD (using an optimistic exchange rate of 1.50)that we have to come up with just to move into an apartment in Spain.
> 
> ...


It sounds rough - but seems pretty much what I'd expect. 

It's the same way that a US operator wants your credit rating (which as a foreigner you wont have). A US bank will make sure you pay to get it fast! Folk here want their backs protected. Does your US bank have a Madrid branch? - if so have a bit of chat with them!

Depends WHERE in Madrid - if it's a highish demand area - then they wont budge. It can be tough to evict non-paying residents - would take about 6 months as things stand in the courts (maybe longer due to recent strikes). And Insurance companies may also take their own sweet time paying out.

Look outside the City. There are masses of unoccupied flats outside the centre. OK, most may not be in the better areas but the landlords are DESPERATE to fill them - There's been over speculation here and a fair few "smallish builders" who thought they'd backed a winner but got in too late. More availability SOUTH - but North to West is (imo - I live there) nicer.

If you'll be using public transport to get about - expect flats near rail stations to be a bit more hard to find.


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## libove (Feb 24, 2008)

Would someone please direct me to the insurance option in place of the traditional(?) aval bancario? I have the money, and I understand the legal challenges with eviction and the need of a property owner to protect himself (I am a landlord in the United States); I just do not want to lock up €10,000 in a low-interest account when it better serves me in my general pool of investments. If I can't convince the landlord of an apartment I want to rent here in Barcelona city to simply forego the aval, at least I want the option of paying the equivalent of a US mortgage Private Mortgage Insurance payment, instead of paying about the same in aval fees plus the loss of interest and control in that amount of money!
Thanks!
Jay


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## chris(madrid) (Mar 23, 2008)

Frankly It wont surprise me if they start getting insistent on the 6months thing - esp on higher end and rural rents. I've a mate whose ex's family own a fair amount of better property in Madrid and they've had few "runners and late payers" since November. 

They say they'd prefer to leave them empty than to risk another non payer. Runners are not as bad - except they often take stuff too.

The cheaper end it's my guess they'll be able to re-rent with more ease and may be more flexible. 

Read the Insurance type things well. I heard of some issues where folk who've legally left suddenly find they had a min "x" years policy.


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## SunnySpain (Jul 30, 2008)

Hi there and welcome to the forum,

I think you have a simple choice here, you either do what they want or move on to the next suitable property and see what they say.

At the end of the day, what they are asking for is pretty much the norm for major cities, so you cannot expect a much better deal if the property is of a good standard

Saying that, there are many empty properties in Sessena.

Good luck


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## libove (Feb 24, 2008)

*What about a "Private Mortgage Insurance"-like alternative?*

In the US, if a person buys a home and pays down less than 20% of the home's value, the bank lending the buyer the rest of the money (the mortgage) usually requires the buyer to pay for an insurance product called Privacy Mortgage Insurance (PMI).

PMI insures the bank, not the buyer. It will pay the bank the money owed to the bank by the buyer, if the buyer stops paying on the mortgage.

I have heard that there is a similar option now available to handle the Aval Bancario in Spain for renters - an insurance program that the renter can buy, which will pay the proprietor if the renter stops paying the rent. This would take the place of depositing a huge amount of money in to a break-even-at-best "investment" (the Aval bank account), and would probably cost only a similar amount to the (ridiculous) fees that the renter pays for the "privilege" of the bank operating the Aval (unless of course the renter is actually high risk).

So, what about it - does such an insurance option exist in place of the Aval?

Thanks,
Jay


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## Stravinsky (Aug 12, 2007)

libove said:


> In the US, if a person buys a home and pays down less than 20% of the home's value, the bank lending the buyer the rest of the money (the mortgage) usually requires the buyer to pay for an insurance product called Privacy Mortgage Insurance (PMI).
> 
> PMI insures the bank, not the buyer. It will pay the bank the money owed to the bank by the buyer, if the buyer stops paying on the mortgage.
> 
> ...


I was told the other day in a discussion about Spanish mortgages that every mortgage a bank makes it has to take out an insurance for. In that way they are not at risk in the same way UK banks (Bradford & Bingly) are, and if it all goes horribly wrong then they are covered


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## chris(madrid) (Mar 23, 2008)

Stravinsky said:


> I was told the other day in a discussion about Spanish mortgages that every mortgage a bank makes it has to take out an insurance for.


HAS TO? - Branch managers are possibly MADE TO. We were ASKED to when we took ours out - and did.

Also took out life insurance so that if one of us dies - that persons proportion is wiped off the slate too. 

iirc Mortgage Protection insurance was just as visible in the UK in the '80's. Though maybe because I then worked in banking - it was more visible to me.


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