Buying in Lisbon

Part 2 of my reply to Pierre about buying a ruin in Lisbon

“We want to move to Lisbon permanently early 2013 and found several nice rentals.
But we also found an old house in Lisbon, on the border with Alfama. It needs very serious renovation (practically RECONSTRUCTION). But once done, we would have a T2 for ourselves, and 2 T1 for daily/weekly rental with great views (including the river). Total costs aprx. 250K. Would you consider this a risky investment?”

In part 1 of my reply I looked at the general economic outlook in Portugal. It is not good. However, let’s now look at the particular deal.

If this deal was anywhere else in Portugal I would say it was way too expensive. I must admit I dont know what house prices or rentals go for in Alfama. It certainly would appear to be a great spot overlooking the estuary. You really do need to check other prices in that area. A quarter of a million just for a ruin sounds crazy. Let me put it like this. I have a three bed apartment in London. It is close to several tube stations, and there is a massive amount of work available for good pay within walking distance. It is worth about the same amount.

Lisbon wages are not as high as London wages, so why is a ruin worth so much money? Something sounds not right here. I can in that area find for sale a property split into two apartments ready to move into for €150,000 (that’s half the price of your project) so unless the one you have your eye on has spectacular views from the top of the hill with courtyard and garden I have no idea why it costs so much.

A capital city should have a proper rental market, but you really do need to tramp around the streets and see what deals you can find, then get back and get out the spreadsheet and do your homework. Down here in the Algarve you’d have to be a total idiot to buy anything with a view to renting it out. You can rent a 1 bed apartment for €50 a week. For twice that you get something really nice. Lisbon should be much better, and at least Alfama is a hip place to be.

On the other hand, to put things into perspective, in this week’s Unique Members’ Bulletin there is a hotel in Cumbria going for £35,000. That is the price in a well known beauty spot in a wealthy country. You have a home and a business for a pittance. You cant get that kind of value in Portugal. Wages here are about €1,000 a month. That’s less than half what they are in the UK. House prices have to fall considerably in Portugal. They are still extortionately high.

I have been asked to look at Turkey and Sicily next. Let’s see what turns up.


Spanish Repossessions

Spanish Repossessions

You will note that one reader has asked a very simple question. Bearing in mind my rather drastic remarks about property values he quite rightly wonders whether spending half a million on a dream home in Spain is a wise decision. Are repossessions the answer?

Various points are made as part of the question. He wants to own his own home. He wants to live there in a long and happy retirement. And why not? But the place costs half a million. Is it worth it?

The questions here dont really relate to whether one should rent or buy. Other questions, such as what happens if one’s partner gets ill, or dies, dont come into the discussion. These are private matters, and I trust the questioner has worked his way through them.

I cant write a book here about Spanish repossessions, so I have to skate over a lot of points, but my main point is a general one. It relates to values. It relates to the system governing house prices.

Let me show you something. My mother bought a detached three bedroomed house in 1949. She paid the vast sum of £750 for it. It was a cash purchase. It cost approximately the same money as a new car. Since then the value of money has plummeted. I reckon in terms of inflation, you would have to multiply that figure by about 50 to get a similar price today. In short it would cost about £37,500. Before the crash it would probably have sold for an extra nought, say, £375,000.

I can understand house values going up to counteract inflation, but why the extra nought? Where did that come from?

My mother had to pay cash. Any buyer in 2005 or thereabouts would have probably bought with a 95% mortgage. Having mortgage finance makes the process of house buying a totally different situation. You do not pay in one go, you now pay over a 25 year period. With interest rates on the floor the cost of the money is less than the march of inflation, which means you essentially get the loan for nothing. That makes it possible to pay a lot more for a house than before mortgages were widespread.

Now let’s see what happens when mortgages become difficult or even impossible to get. Have another read of my analysis of that friend’s flat near Albufeira in the Algarve. The actual cost of the flat with a mortgage allows a valuation of about €90,000. Without a mortgage the real cost of the money needed to buy gives a real value of about €35,000. The difference is vast. And this is not just an academic exercise. With a mortgage I could afford to pay the higher figure. Without it I would be hard pushed to pay even that lower price. That means the price at which the flat changes hands has to drop quite drastically to take into account the difficulty of obtaining useful mortgage facilities.

House prices rise with the advent of easy money. They fall when that easy money is removed.

House prices across Europe will continue to fall while the current monetary fiasco continues. And it is set to continue for the rest of this decade if the current political chicanery is anything to go by.

I am not telling people that they should not buy houses. I am not suggesting everyone moves into a hotel. I am merely pointing out the best use of money. If you want to spend ten million euros on a nice little Picasso, then spend it. If you want to make your money work for you to produce a good income, then do so. It’s your choice. All I’m doing is pointing out equivalences. And I am pointing out that the equations have changed due to the locked up banking system, and the demise of the easy money system we have been used to for the past fifty years.

Any house bought now will be worth less in a year’s time. It will probably be worth less in ten years’ time. If that does not concern you, then buy what you will. If you have adequate funds for a great lifestyle, then you have nothing to worry about. If, on the other hand, like most people, you need to watch the pennies, and need to make your pounds go as far as they can, then dont think real estate in Europe until easy money comes back into fashion.

I still say that the easiest way to value a house is to weigh up the difference between the cost of the money to buy, and the cost of the money to rent. Ideally there should be no difference. If the difference is more than 20% in either direction then one of the prices is way out of line.

I can get at least 10% return on capital. 10% return on half a million is about £1,000 a week. Would it really cost that much to rent that half a million pound house? How about offering to rent the house until the vendor considers a price reduction?

The way to find cheap Spanish repossessions is to avoid estate agents. Your first point of reference is the local newspaper. The second port of call would be the local bank. Ask them to put you in touch with their repossession centre. They will have thousands of properties they are desperate to get off their books at rock bottom prices. Let them know exactly what you want, and they will send you a list as long as the Nile. So long as you can cover the mortgage they will be happy. Cover 75% of the mortgage and they will probably still be happy.

As to the area, just outside Javea, I think it’s rather nice. I used to live there myself, and I was very happy there. If you do buy, invite me over for a couple of days, I can tell you some interesting stories. I will add a few Spanish repossessions in that area in the next members’ bulletin.

Best Places to Buy Property

Best Places to Buy Property

The folks at A Place in the Sun are still making guesses about the future. They are, of course, never right, but their predictions are at least entertaining.

Let’s have a look at their list of the best places to buy property:

1 Spain; 2 France; 3 Portugal; 4 Italy; 5 USA; 6 Turkey; 7 Greece; 8 Cyprus; 9 Caribbean; 10 Malta.

What a weird list. Spain, France, Portugal, Italy, USA property markets all have some way still to fall. Greece and Cyprus probably have a considerable way to fall. The Caribbean is already highly priced, and although there are pockets of interesting places to buy, there is the problem that one is buying into a mature market, and taking on a dollar risk. I know nothing about Malta, so no comment. Turkey is currently doing well, but long term readers of my writings will know I am frightened of the Middle East, and so would still not recommend that area.

Of course, it really does need for someone to decide what the word ‘best’ means.

Are we talking about ease of access? Health care? Weather? Value for Money? Cost of Living? Easy to start a business? For most people ease of access to the UK is important, probably the weather is next, and then one would look for an ambient way of life that was relatively cheap.

For weather I’d put the Caribbean high, the Canary Islands, followed by Malta, followed by Spain and Portugal, but then I’d top them all with any country in Central America, South-East Asia, and Ecuador.

For ease of access pretty well anywhere in Europe for Europeans, but then the whole world is easily available these days.

Health care would put France at the top of the original list, but then several Central American countries would come a close second, or even top France.

For cost of living not a single one of the original list is worth giving a second glance. That also goes for value for money.

For cheapness and an ambient way of life one could choose pretty well anywhere in Central America, and perhaps Ecuador as well. And what about all those expats who have relocated to Thailand. On the other hand, southern Italy is not bad, and certainly ranks way above France and Spain.

As for good value property deals, where is Brazil on the list? Beach plots for £20,000? Come on, you cant get that anywhere in Europe. Try that in France which is second on the list.

Oh well, it was good for a laugh, and brightened an otherwise boring day.

Lose Money in Brazil

Lose Money in Brazil

This is issued in the public interest. We have information on more sharks in the water, ready to bite off your wallet.

I have for some time been saying that Brazil is the place to buy property. I am invested there, and my investments are doing well. It would be difficult to go wrong in this country. It is coming along by leaps and bounds. It’s economy has come from nowhere just a decade ago to being just outside the top five biggest economies in the world.

Land prices in good locations in Brazil are cheap. They can only get more expensive. If you own some Brazilian land and sit on it for a while you will ultimately be able to sell for a nice fat profit.

Where there’s a profit there are thieves.

Your problem in investing in Brazil is not necessarily the investment but the sharks who sell it to you, or maybe even pretend to sell it.

There is a golden rule with all these investments. Get off your arse and go and look. If you dont you are likely to get stuffed.

I recently did a deal with a company called Cavendish Land & Property Investments (CLP). They purport to be selling land for development in Sunset Beach, Natal Province. I was initially not interested in the deal because I could not verify the company selling it was on the level, but I have a letter in my possession telling me they will buy back the property for a 10% uplift in price on 30 days notice.

Well, I sent in my request for them to do just that, and I have received no response and no sale-back. I sued them in the County Court. I now have a judgment against them.

So, here we go again. Dont have anything to do with a company selling plots of land at Sunset Beach.

CLP also run a nice line in ad-speak, telling customers that deals have been struck with Petrobras and the like. That is all codswallop. Steer well clear of this company.



France Loire

The Loire Valley is known as the Garden of France. But that’s not all. Let’s have a look at the plusses there are for this region.

1    It’s beautiful, with a very attractive river-scape, pretty villages, and ancient historical towns. This is la belle france at its best.

2    It’s famous for it’s chateaux. There seem to be hundreds of them, from the small and charming, to the massive and downright ostentatious.

3    There are masses of things to do, from walking holidays, fishing in the countless lakes in the region, visiting the major aquarium near Amboise, visiting the chateaux, and watching the various son et lumiere spectacles, and getting stuck into some excellent cuisine. All of this makes this part of France ideal not only for somewhere to live because there is so much to do, but as an ideal place to run a small guest house, as during the summer you will always be full.

4    Not only is this region beautiful and busy, but it is also close to Paris, Orleans, the amazing medieval glass in Bourges cathedral, the wines of Vouvray, Chinon, Saumur, and more, and also just a whisker away from the Vienne which is also an amazing place to stay.

5    The weather is similar to that of Southern England, only better, with hotter, longer summers.

6    From Southern England you can easily drive here in a day. The TGV goes to Tours, and there are flights to Poitiers using RyanAir.

If you fancy buying a genuine chateau there are several for sale. I list a few in the current members’ bulletin.

If that is too grand or too expensive, there are plenty of bourgeois homes for sale. But what is really interesting is that there are plenty of cheap ruins for renovation, or barns for conversion, with prices starting at about £15,000.

I’ve decided I’m going to have a fortnight’s holiday here next year in the spring. I really like it. I’m sure you will too. Just for the record, we stopped on spec at many places along the route and only managed to find one place to stay, and then one of us had to sleep on the floor.

I think this is a good place to be. I dont think you could go far wrong investing here. Check it out.

Loire Valley

I have just returned home from a short trip across western Europe. I have been saying that there are all sorts of places where buying property would be a disaster. Yet there are small pockets of interest which would repay a closer examination.

I am going to concentrate on France and Spain in the next few bulletins.

First, a warning. France is both politically and economically on the edge of a volcano. It is one of the top ten economies in the world, roughly on a par with the UK. It is a socialist country with massive government control and interference in all aspects of life. It is also becoming less and less able to juggle all the governmental aspects of life, and the financing of this great behemoth is becoming untenable. This means that over the next few decades it is likely that socialism will be dismantled in part as unsustainable.

There is also the problem of irresponsible bank lending. France is seriously at risk from the cross lending of banks and is likely to suffer as a result. The largest French bank is insolvent, and if the banking system was allowed to unwind in the normal way the whole system would collapse.

That is what ought to happen if the principles of capitalism were allowed to run their course, but that will not happen in a socialist country. The banks will be protected, and the tax payers will suffer for years as a result, and the economic life will be strangled. Those who made serious mistakes will be protected, and the whole country will be made to pay for the mistakes of a few. That’s the more unpleasant face of socialism: collective guilt, collective protection, but the suckers at the bottom all pay.

What this means is that France will not be a great place to do business over the next decade or so. However, life does go on, and I’m not sure that anywhere in Europe will be great for business in the near or medium term.

Having said that, there are still great places to live.

I am very impressed with the Loire Valley. There are several reasons why, and I have a few suggestions to make. I’ll list those reasons in the next bulletin.

Property Buying Advice

Hello Folks,

I have been asked to update my views on where to buy property in this incredibly awkward, and ridiculous world.

I’d like to suggest that nowhere would be the best idea. On the other hand, my friend Julie says “You’ve always made money out of property, go and buy some more.”

Not exactly. I have not made money in Portugal. That was a mistake. It’s the only mistake I’ve made, but, in all honesty, I did highlight the possibility of a Portuguese default in my book on property investment. I think that version originally came out in 2005. I said the possibility of default maybe remote but the possibility is there.

Let’s have a quick look round. Unfortunately the news is bad wherever you look.


Let’s start with the good old US of A which is a complete disaster zone. Dont touch it with a barge pole. Property prices are still falling. You should never buy a falling market. The dollar is also in a tail spin. It has lost value every year this century. Real unemployment in the US is still hovering just above 22%. That’s seriously bad. 45 million people are on food stamps. Yikes. There are street battles in several cities. Too many cities are no-go areas. On top of that the banks have been foreclosing on properties they no longer hold mortgages for. They sold the mortgages on in packages to investment groups, and there is a frightful muddle as to who owns what. That mess is going to haunt the property market for years. Dont buy bank repossessions in the US, you wont be sure you have good title.

I did cover this fiasco in an earlier blog: The US Mortgage Farce. Here is a link to the article, a copy of which is on the Unique Newsletters section:

Leave the US for at least the next decade. If you were thinking of buying in Florida, dont!

Euro Zone:

The euro is falling apart. Politics versus banks. It’s a right royal mess. The politicians are up to their usual tricks: supporting the unsupportable. Political Europe is a train wreck. Financial Europe is following fast. The ECB (European Central Bank) is a smidgeon this side of solvency. A 4% slide in its balance sheet will put it into bankruptcy. That is not allowed, so they will have to print money.

Greece: Greece is being supported. It represented 3% of the Euro economy. Political gerrymandering has made the whole of Europe unstable just to save that 3%. Half-witted! Not only that, but if the country cant pay back existing loans, how in heaven is it going to pay back even bigger loans? A child of five could work it out. Europe’s politicians cant.

Of course, this mess will also affect Cyprus. Prices will drop drastically in the Southern part of the island. Any sales pitch for properties here will be cries of desperation. Avoid buying in Cyprus at all costs.

Ireland: The last time I checked out house prices in Ireland (18 months ago) I reckoned they had a further 50% to fall. I’m not up to date, but heck, it’s obvious. House prices there are too high. They have to fall. Ireland’s banking system is totally up the spout. I’m sorry for those of you from Ireland who are trying to sell, but you simply have to face reality. The housing market is a disaster area. It wont recover in the foreseeable future.

Spain: Spain is still struggling along. The tourist market is just so large I think it may well win through. I dont know. It is sorely tempting to buy some of the cut-price deals. However, I am waiting. We have further to fall. Things are beginning to look interesting, but rules are there to save us from ourselves. Dont buy a falling market.

I still think there are areas worth looking at. I will do a follow-up article to this one, highlighting where I think you should buy in Spain, and it isn’t where the best deals supposedly are.

France: France is a fiercely socialist country. Socialism is about to get seriously demoted in the West. No apologies for quoting once again Mrs Thatcher. “Socialism is fine until you run out of other people’s money”. I dont know many countries that can afford socialism at the moment. Scandinavia perhaps. Singapore. Ummm….. cant think of anywhere else.

France also has a major tourist industry. It is still top of the tree by a very long way. It isn’t about to go bust. But, there is the euro mess.

What I haven’t mentioned is the bank cross lending. That is what is at the root of the problem. Italy’s banks (which are bust) owe 1.8 trillion. Every banking system in western Europe is tied into a web of cross lending and no-one can afford to pay off the debts. It’s a mess of epic proportions. The only way out is a concatenation of defaults. The politicians are trying to avoid that at all costs. That is what may make this slow motion train wreck take years to collapse.

I recently read Charles Hugh Smith’s blog on the subject. This is a rather neat analysis of the current situation:


I shall be writing an article specifically on Portugal which I will load probably within the next ten days.

The rest of Europe:

There is a shadow hanging over Europe, it is the euro. As a currency it isn’t working. It is secured on nothing, and 90% of those using it have no control over it. That is a stupid situation. I cant see how it can survive in its current format.

However, any country leaving the monetary union is likely to see an immediate devaluation of its currency. In Greece expect a 60% devaluation. In Portugal and Ireland expect a 50% devaluation. That will hit any house value like a bomb. And what does that mean in real terms for today? It means houses in those countries are over-valued by that percentage. Beware!

I dont expect fierce inflation any time soon in Europe as any money printing will be to fill holes in balance sheets, rather than flooding into the market place. But the whole economic scenario is surreal.

The problem here is what the US does. The Feds are keen on pumping money into the banking system there, and that money is being used to hedge commodities. That is causing the price of basic materials to ramp up artificially. The banks borrow from the Fed at 0% and instead of lending to businesses, they invest in commodities, and boost their reserves.

China is also in the midst of a housing bubble which is likely to burst any time. When that happens there will be more trouble, and we may well have a lurch down in commodity prices which will hit the Australian market. I wouldn’t buy there either.

As you can see we have forces pushing one way, and counter forces pushing the other way. Place your bets now on which side wins. Either way it is going to be a mess.

Many people have invested in Argentina. Sorry; my mother was a history buff and she gave me chapter and verse of all their political idiocies which managed to turn a wealthy country into a basket case time and time again. Argentina has been a political mess for 100 years. It is still a political mess. They have a wonderful knack of turning success into monumental failure. Argentina can be summed up in three simple words: Invest and lose!

Egypt, and the Gulf? I have long avoided the middle east. It is a tinder box. It will blow sky high one of these days. Once again, I dont know when, but I like to sleep at nights.

Sunni -v- Shia? That’s the stuff of civil war. Count me out.

Islam -v- Israel? That’s another fight that has quite a few more chapters to run. Again, leave me out of it.

That means I dont rate Turkey that much. You will probably make money there. It is a big economy and it’s doing well, but it is just too close for comfort to the powder keg just to the south. Just look at that frontier with Iraq. Not for me. If you fancy the place, stick to Istanbul. It’s a prosperous city and it’s a long way from any possible conflict.

That does leave a few places. Let me talk about them next week.


What’s Next?

I’ve just deleted this week’s blog on the housing market. It’s a waste of time.

The strongest currency in the world appears to be the Norwegian Krone. The weakest? God knows. The euro? The yen? The US dollar? Sterling?

It’s all become a joke. The US is bankrupt, half of Europe is bankrupt, and yet life goes on. The euro isn’t worth a lot, so they print some more. Greece cant pay its debts, so Greece just takes on more debt. It’s just surreal.

I still think that somewhere along the line common sense has to poke it’s head up through the idiocy. Perhaps not. I still think interest rates in Europe are going to have to go sky-high or several countries are going to have to go bust, which will bring down half the continent’s banking system. Perhaps not.

It is quite possible that sometime soon those holding properties with a high level of debt are going to be squeezed. It is also quite possible that those buying any property in the eurozone with foreign currency are going to see a big loss. Anyone buying in Greece now has to be a lunatic. Probably the same is true of Ireland and maybe Portugal.

Italy’s largest bank is bust. Things will probably get worse in Italy, and maybe in five or six years time, maybe in ten years, then will be a great time to buy. I can wait.

I have always said that now is not the time to make investments in Europe. If you have euros, by all means put them in property, but dont convert into euros and then buy. As Shakespeare once said: “Something nasty this way comes.”

Real estate: what to do with it? Live in it, that’s all.


Buying Abroad-2

Ten Golden Rules when Buying Real Estate Abroad – Part 2

Okay, so you’ve digested the first five rules, now let’s look at the next five.

6    You need to understand the important points about location. Very often what appears to be the best location is the very worst when it comes to selling. When you come to sell you have to compete with hundreds of thousands of other apartments for sale all across tourist-land. You’ve got a problem. Tourists come and go. They can choose to buy anywhere. It is much better for selling purposes to buy in a normal town where there are normal people living, working, sending their kids to school, and living within a normal community. A tourist ghetto is not like that. There simply are not normal buyers and sellers. You can only sell to tourists. You are excluded from what I call the normal market. That’s why I prefer to buy in, or close to, normal business towns.

For example, I would never buy anything in Torremolinos, or a similar type of location. It’s a ghetto. You might like it, but it is not a good place to try and re-sell a property. You can only sell it to a tourist who can choose to buy anywhere on Spain’s coast, or in Morocco, Turkey, Egypt, or wherever. On the other hand, if I had bought in, for instance, Malaga or Istambul, then I could sell to a tourist, but I could also sell to someone who works locally in a bank, or for the local newspaper, or as a teacher, in other words, a normal resident. That gives me a better exit strategy because there is a wider and more stable market.

There is one other very important aspect to the problem of location, and that is political risk.

I have been advising my clients to avoid the Middle East for years. I avoided Dubai. I have always been skeptical about Turkey with its long border with Iraq. I have advised against Egypt as it is so close to strategically sensitive areas, and other unstable countries. I am still against all those zones. There are safer areas to buy in. Why buy risk?

There is also another aspect of political risk that you should consider. I advised people against buying in Santa Margarita because of the currency risk. I would now suggest there is a serious risk in buying countries that are having trouble in the Eurozone, including Ireland, Spain, Portugal and Greece. For most of these the risk is not great, but Greece is particularly vulnerable to being ejected from the eurozone. That would lead to instant heavy devaluation, and serious loss of value in any real estate.

7    Never never never buy off-plan in a mature market. Most off-plan deals that have been advertised in Spain and Portugal over the past six or seven years have been grossly over-priced. I have come across some deals that have been as much as three times the resale price of similar second hand properties. That’s another reason for looking for resale prices in the local newspapers before you turn to any estate agent. It is also why you never buy off-plan without visiting the area and checking the second hand market for real prices.

But, you are buying a new home, you say. Yes, but a new home, once bought, immediately becomes second hand when you want to sell, and that is the real market. You will always find that as a market matures the off-plan deals become increasingly dislocated from the re-sale market. When you sell, it is that resale market that will determine the price you get.

The only time you should consider off-plan is in a very fast moving market where prices are rising in the double figures year on year. Reckon on a seven year run in such prices. Reckon on at most a three year turn round on your deal, and make sure you get out before the seven years are up. That gives you only the first four years of a boom market to profit from an off-plan deal. After that you are into risk time.

8    Remember there is no such thing as Below Market Value. Whatever the sale price is in the public domain, that is the current market value. And remember you are buying real estate for the longer term, so the current market value is not a good guide to real value. Market value is subject to so many pressures. Price is not the same as value. You need to buy value. Go back and read Rule 5.

9    Instant equity has no value. You cant spend it. You cant remortgage with it, and in a static or falling market it will whither away. In a rising market no-one with half a brain will sell something under market value. Instant equity is a marketing concept, nothing more. It is another way of pretending you have bought into a good deal. In reality you will have bought at the market price because no-one else will bid higher. The seller has had to drop his price. That means the value has dropped, and that is why the seller is forced to face reality. It is also, like the concept of BMV, indicative of a falling market. You should never buy a falling market. Buy either in a static market or a rising market. A falling market will by very definition bring you losses, and of course, erode that supposed instant equity.

10    Never accept a bank valuation of any property that is being marketed by any kind of consortium. If the bank valuation is claimed to be above market value then you know without any doubt that the consortium is in financial trouble. The bank wants to shift the debt from one shaky developer to a myriad of individual borrowers. They are simply trying to shift a dodgy loan. Come on guys, why would a bank want to over-value a security for a loan? When was the last time you heard of a bank doing you a favour? Wise up. Leave such deals well alone. The valuations are fraudulent and wont stand comparison with general market prices. Re-read Rules 1, 2, and 5.

Pretty well everything else is down to personal preference, but at least you now have some solid rules to guide you to a sensible and prudent purchase.


Buying Abroad -1

Ten Golden Rules for Buying Real Estate Abroad – Part I

This article was prompted by me reading a similar article in another newsletter which consisted of two pages of complete waffle. Never mind the waffle, this is what you really need to know.

1    You should never buy anything you haven’t seen. Get off your backside and get out there and have a look. If you want to rely on others, good luck. You will surely need it. If you want to rely on luck then all I can say is: A fool and his money are soon parted.

2    When you are out there rent a property. Do not live in a hotel. Stay for as long as you can, preferably at least a month. Buy all the local newspapers and check re-sale prices and rental prices. Do not look in a single estate agent’s window. That is a very important point. You get your prices from the market place, not from a salesman.

3    You need to find out if you like the place. That includes not just visiting the beach and a restaurant or two. It includes doing some shopping to get an idea of prices. It means testing out the infrastructure. Do the buses function efficiently? How about the phones and broadband? Can you get replacement cameras if yours gets stolen or broken? What about medicine? Check out how the health centres and hospitals work. Are there frequent, easily accessible flights back to the UK that don’t cost a fortune? And are you less than an hour’s drive from the airport?

4    You also need to check whether there are facilities for carrying on your hobbies, and whether you can survive without speaking the language. Do they cater for English speaking residents, or is everything done in the local language? Is that language easy to learn? Do you want to learn? If not, are there ex-pat groups who will help you survive?

5    You need to check out whether prices are reasonable. This is where it pays not to have visited the estate agents first. If you go to the local agencies you will have your brain cluttered up with their prices, which may or may not be reasonable. You need to realise that there is price, and there is value. They are rarely the same. Prices relate to fashion, availability, hard sell, all kinds of extraneous reasons which shouldn’t concern you, and also interest rates (you’ll see why later). Value remains constant, and you can work it out yourself without help from any smooth talking agent.

How do you work out value? Easy. You find out from the newspapers how much it really costs for a long term rental. For example, in an average area in Southern Spain or the Algarve you can rent a 1 or 2 bed apartment for anything from €75 to €150 a week. Let’s take a figure bang in the middle. Multiply that by fifty-two and you now know how much it costs to live in your own pad for a year (52 * 100 = €5,200).

Now work out how much it would cost to buy a similar property if you had to borrow the money. Say the apartment was advertised for €150,000. Interest on borrowed money currently would cost you 3.8%, call it a round 4%. 4% of €150,000 = €6,000. The apartment appears to be a trifle over-valued. It’s marginally cheaper to rent than to buy. So why would you want to buy? Prices may be going up? Not if the place is already over-valued.

There is one other thing to bear in mind. Interest rates are at the lowest they have been in recorded history. They wont stay there. You would do better to use a more realistic interest rate in your calculations. Suppose you really do need a mortgage. If you do then you would be well advised to remember that the average mortgage interest rate is about 7%. How much would your apartment cost if rates went back up to that figure? The answer is €10,500. Your apartment would then turn out to be rather expensive. In short, it would cost you twice as much to buy than to rent. That’s stupid. If interest rates rise, and they will, sale prices will have to come down. That also means that now is not a good time to buy for investment purposes.

I see advertisements all the time for places that cost only £5,000 or £10,000 down, with “nothing more to pay”. That of course is simply not true as you have the mortgage interest to pay. And you will be paying that for ten or fifteen years, maybe longer. When the rate goes up remember how much that interest is going to be. Even at a relatively mild 7% it could turn out to be quite a burden.

The long term outlook for interest rates is for them to rise. Bear that in mind. That is why I always buy when interest rates are high but falling. Things then get better as time goes on, rather than getting worse. I always find that when interest rates are high, house prices are low. The reason is obvious. The higher the interest rate, the more expensive is the loan and therefore the house. That also means that as interest rates fall, house prices tend to rise (which is a nice bonus) as people can afford bigger mortgages.

There is one point here which most people tend to overlook, and that is the opportunity cost of the money. If you have the money from the sale of another house and you dont need a mortgage, that means you dont have mortgage costs to think about. That is true, but it does mean that once you have bought the house you no longer have the money. What could that money have bought you? There are literally dozens of ultra-safe investment deals around paying more than 10%. I’m looking right now at one guaranteed by the British Government that pays 14%. 14% of €150,000 is €21,000 a year in income. Use the capital to buy your apartment and that apartment is effectively costing you that lost €21,000 a year.

What was the rent again? Ah yes, €5,200. Hmm….. doesn’t sound like a sensible purchase to me. Think about it!

(Rules 6 – 10 next week.)