Scouting a Historic Gem in Spain

March 10, 2025

Transcript

SPEAKER_00 0:16

Welcome to your notes from the field. This is where I bring you my latest boots on the ground research, research we can profit from. It is Friday morning, Friday morning at 9:30 a.m. I'm talking to you from my home in Caminha on the top northwest tip of Portugal. It's absolutely gorgeous morning here. I'm looking out over the town of Sexus to the river Minho. There's fog rolling in from the ocean. The sun has just started to pierce through the rolling fog. I can see the the waves crashing on the beaches of Spain and the beaches of Portugal to my left. So it's going to be interesting to be here for October to see how the weather is. But so far, yesterday on arrival it was gorgeous, bright, warm sunshine. Low 70s, just a little bit inland around Orense, and even just around Vigo, which is north in Spain, just a bit inland, and temperatures were still in the in the low 80s. So still beautiful, warm sunshine, cool evening. So we'll see how the weather plays out through October. But this musing, so to backtrack yesterday, I traveled by fast train from Madrid to Orense in Galicia. That trip took two hours and ten minutes in, just glided at near 200 miles an hour, 185 miles an hour. We zipped through the Spanish countryside, extremely inexpensive, incredibly comfortable, and from Orense, I got a ride to my home in here here in Camilla. And um, you know, trains and train travel and train infrastructure is it's an interesting jumping-off point for this notes from the field. So I have had a proven strategy of finding areas in major cities ripe for transformation, ripe for rental income, ripe for significant gains near major train stations. But this is particularly a European phenomenon. So back in 2013, I scoted around Germany, Rome's major train station, found incredible deals in a neighborhood that subsequently was transformed. Back in 2009, around East Berlin's major train station, likewise, and now Madrid. So I chose my base for my Madrid scouting trip, and in part based on proximity to the major train station. Again, there's a recurring theme, these train stations are in very, very central locations, and frequently they're surrounded by gritty neighborhoods. And as transformations have ripped through these major cities, central locations that have been gritty and are ripe for transformation, ripe for significant investment upside, and also ripe for Airbnb because you've got two things. You're extremely convenient, short walk to the major transport infrastructure that gets people there, and you're also totally central, so you're very, very convenient to all the amenities associated with the city. So in Madrid, I found in that neighborhood, I found the potential for incredibly high rental income. I saw real estate values that are high, that are not low, that are high, but relative to other major world cities are relatively low. I saw the opportunity to generate potentially very, very strong rental yields, in particular from ground floor units that are priced at a significant discount because they don't have the same levels of natural light as higher units and are less desirable for the local market. And I also saw deep, deep value at the highest end of the market. So in the most luxurious neighborhoods, a budget of let's say 1.4 million euros gets you over 3,000 square feet of absolute luxury um condo living. So I mean prime prime, think 3,000 square feet overlooking Central Park in New York. You know, you've got the the equivalent in Madrid is possible for you know 1.4 1.4 million euros. Um jumping down to let's call it the near-the-train station ground floors that will rent extremely well, generate really strong rental income. You're looking at a budget of the low 300s, and then for a kind of grander apartment, one that's going to take in more of the natural light, views to parks and that sort of thing, comfortably spacious, two-bed, two-bat, you know, you're going to be looking more in the region of five or six hundred thousand euros. Remember, buying in Spain, you can get a mortgage, you can get a euro-denominated mortgage at rates sub um sub three percent. So again, you know, in in all of this, you have the angle that you can buy this real estate, this real estate that cannot be replicated, and 70 to 80 percent of the purchase price can be funded from someone else at a rate that is below, you know, what what I think is the true inflation rate, and I think what many of us do know. So essentially it's it's an a negative real interest rate, are there or thereabouts. Um so in terms of Madrid and these neighborhoods, again to remind you, I had a very strong sense of London and Paris pre-gentrification, grand, walkable, but still neighborhoods that are somewhat gritty. Again, I want to use the word gritty very carefully because what I'm comparing it to is the totally kind of sanitized what's gentrification that that's happened in in London and Paris, where you're left with cities where you know you only have rich old people hobbling around because for the young and the vibrant and the creative types, they're they're they're all pushed out. So Madrid is still at the point where you've got that luxurious component side by side with the more, again, I'm using gritty in a very in a very loose way, totally safe, totally comfortable, just not polished and and sand. And it's a very, very nice and vibrant space to be, and it's happening at a time when Spain is extremely well positioned to do well, it's the fastest growing of Europe's major economies, it's plugged into Latin America, which is which is which is growing. So compared to Europe's other major economies, which admittedly I don't know how good being the best of a bad bunch is, but it's certainly good enough to to warrant our attention. So I'm gonna be drilling more on Madrid and specific neighborhoods and specific um listings in the coming weeks and months. I'm gonna be back there at the end of the month, and I guess task one of the macro research. Is this a place that has my attention and merits a deeper dive? Absolutely, yes. We're moving forward to the to the the next step, and that next step will happen at the end of this month when I have some more time there at the the tail end of of this trip. So watch your alerts for for that. Now, again, back to the train station idea and back to to trains. Um Toledo, you know, I mean, I'm captive, I've been captivated all my life by by travel. And you know, in recent years, air travel has become a drag. It's it's it's heavy going, you know, we've airport security, we've busy airport, all these things that you all know about. But when it comes to train travel, you know, I I still look up at the train schedules in a major European train station and just look at all the places I can go and and want to go. And you know, from Madrid's main train station, within 30 minutes, within an hour, within 90 minutes, there is just myriad places you can get to fast, comfortably, convenient. It's just all incredibly civilized. But the one that stood out to me was Toledo. So on Wednesday, I yeah, um, so on Wednesday I jumped on the train, armed with my iPhone and my Idea Lista app, jumped on the train, got to Toledo, opened my Idea Lista app, and and started walking. So just a bit of backstory about Toledo. It's 34 minutes from from Madrid. Again, you know, I don't want to sound like a this is 34 minutes of almost like spa like luxury. It's just you get on the train and it's smooth and it's comfortable and everything is civilized. It's really, really, really lovely. It's I'm not talking about a 30-minute subway ride or you know where you're battling people and battling this. The fare was I think it was 10 euros each way. Um bought tickets last minute. I'm sure there's a there's a cheaper way of doing it. And Toledo is a UNESCO World Heritage site, it's absolutely steeped in steeped in history, and is just stunningly beautiful. And you know, along with this, I'll I'll include some some photos that um that that that we took. So it's stunningly beautiful. You know, you just arrive, walk off the train to this incredibly historic train station. I took a taxi up to the old town, and again, just a beautifully historic old town. The weather was just gorgeous. This the the air as I walked off the train, the warm sunshine. It was up in the the high 70s, warm sunshine, um a crispness to the air that reminded me of Granada. Granada, another one of Spain's historic city that that's at some altitude. I I need to double check this, but I presume Toledo is at higher altitude than than Madrid. So winters up there I hear can be can be they're described in Spain as as harsh. Um I don't know what that means to someone like me from from from Ireland, but certainly into November the weather is bright, warm sunshine, beautiful days. I'm sure summers or high summer is probably pretty pretty brutal from a heat perspective. But to cut to the chase, I found real estate prices that absolutely blew my mind. So blew my mind in that they were incredibly inexpensive. So I found historic apartments, fully renovated, great shape, from as little as a hundred and fifty euros per per square foot. So um so incredibly inexpensive. I mean, I'm talking about a quarter of what you would pay in Madrid, just 34 minutes away by train. So this sent me in a rabbit hole of so, and again, in the alert that goes with this, you know, I'm talking about 2,000 square foot apartments for the low, low mid 300s, um thousand square foot apartments from under 200,000. So then the the next step for me is to see how how these stack up as as as rentals, because you know, while of course I'm always on the lookout for incredible lifestyle deals for us here here at Rita, you know, there's a fundamental investment case under pinning everything. So my next step was to dig on Airbnb and look at rental rates and occupancy. And oh my god, boom, hit or hit what I thought, you know, I the the closest that three-bed that you'll see linked to below in in your alerts, the the closest short-term rental I could find to that has a near totally full calendar for October at nightly rates of 600 euros or about 700 per night. So I mean that's an insane like potential twenty thousand dollars in gross rental income alone just from October. Um, you know, I can see there's a smattering of of bookings from from November, and then the the the calendar is shut into the new year, but I can see really, really strong, um, really, really strong occupancy at really really high rates. And this is a UNESCO World Heritage site, you have proximity to Madrid, the on-paper yield potential is kind of mind-blowing as a first step. And again, you know, a big part of what I'm doing here is bringing you behind the curtain in terms of our research process and just how how these ideas develop and how we run the rule over them because then you can just take this process, take this playbook, and you know, use it wherever you wherever you want to go. So all of this research happens happens real time. You know, we have internal research team, um, WhatsApp and Slack groups. So, I mean, this is a real-time process. I'm on the ground with Idealista Open, pounding the pavements of Toledo, real-time feeding what I'm seeing into the research team, we're crunching numbers, figuring out what what it all means. And then, as this conversation progresses, a curveball. And the curve ball seems to be that our preliminary research indicates that short-term rentals in Toledo are very, very heavily regulated. So that means that there are limits on the number of there, there are limits on the percentage of homes in the old town that can be made available for short-term rental. Preliminary research indicates that's capped at about 12%, and also that it's limited to the first and second floors. So now we've got an additional data point to run the rule over. So, first of all, we need to double-check that this research is fully correct and fully complete. We need to understand the route to getting a short-term rental license because now we've got the question. There's two ways you can go. You can buy an existing condo that has a short-term rental license, but the value of that short-term rental license then will be will be priced into it, or we can figure out, well, we we're gonna figure out both, and then we can make a decision on what's the best way to go, but figure out buying a property that meets the criteria but doesn't yet have a short-term rental license, and then get the short-term rental license, ergo add add value to the property. So this is this is interesting, this is extremely exciting. That's what we do, that's what we're here for. And that can create big value. So you have a situation where an apartment here, again, you can buy wood. With sub 3% finance. It's in a UNESCO World Heritage site, historic Old Town. Now, also, another really interesting quirk of this historic Old Town thing is that the young locals just don't want to live in there. And why would they? You've kids, you've school runs, you've grocery shopping, you know, parking is tricky. All these things make these historic old towns with beautiful narrow streets, you know, just not it's just not convenient for young family living. But for you know, for uh an international base for short-term rentals for all these things we're interested in and the people we'll be renting to, it's it's highly convenient. You know, I mean you literally walk out your front door and you're you've cafes everywhere, you've you've vibrancy, all the things are renters and who we're going to resell to to care about. So this is another cool quirk our angle because demand is suppressed, pushing prices down, but the utility to our market still holds. So it's very a thing that very much plays plays into our favor. We're not competing with young families when when we go to buy, and that's a that's a that's a big advantage. So a condo here or an apartment here, you know, we're gonna dig on the hacks and the route to getting to getting the short-term term rental license. And again, you know, this this regulation of short-term rentals in Spain, you know, the the last big experience I had with it was in the context of reforms brought in in Andalusia in probably five years ago, and there was a big crackdown, um increased regulation, and what that really did was up the yields, up the income for good landlords with good properties, because you had a whole um section of let's call it casual and informal short-term rentals. So, you know, many of them didn't have air conditioning, they weren't paying their taxes, yaddy, yaddy, yaddy, and it was flooding the market and depressing prices. Regulation took all that off the table, and the good landlords and the ones who have a strong, reliable, compliant product, they saw their yields go up. So, you know, if you think regulation of this sort is always going to be bad for those of us with the view to becoming landlords in these places, it's not necessarily. In fact, more more frequently, it's the case that the the regulations suppress supply, um, creating a bigger opportunity for us. Um, but the big takeaways are a condo here could stack up as an incredible short-term rental income maker, positive cash flowing, something that could just stack up on its own as a pure investment. It could be an incredible piece of a multi-base life, you make a relatively modest down payment, um, get a mortgage, the tenants pay the mortgage plus generate positive cash flow, you use it as a foothold in the heart of Spain, foothold in the heart of Europe, you use it as a leg of an international life, and then you rent it when when you're not using it. And then the final route or where this could have value or make sense is just a place to live or a home to have for part or or all of the year. You know, it's again you're outside of Madrid, you can literally be in the walking in the heart of Madrid in 34 minutes, you're in a charming UNESCO World Heritage site, you have fast train access right through into all of Spain, connects well with France's TGV, so that train travel is a dream. Then of course you've got Madrid's international airports which will cheaply connect you with you know everywhere pretty much in Europe. So as a home and as a base, it's it's got a lot going for it. So um, so you know, it's again, it just never ceases to amaze me how the the role of the chance discovery, you know. I went to Madrid um to explore the opportunity there. I was impressed, my expectations were exceeded, I'll be drilling on the opportunity there, but Toledo is the chance discovery, and I walked away from my time in Madrid most excited about Toledo. So there you have it. Um have a great weekend, and just in the 28 minutes I've been talking to you, the the sun has pierced through the fog here in Camina. Um again, it's it's it's very, very interesting and beautiful just to see the the varied weather roll in to feel the the cool fogs in the morning and the the bright sunshine in the afternoon and then the the cool evenings. And you know, one of my biggest takeaways from over 20 years doing this, you know, aside from all the technical stuff, the running the numbers, the the licensing, the regulatory environments, is that just life is just a lot brighter for me when I'm in my perfect weather. And when I move between Cabo in the winter, northern Portugal in the spring and fall, and Ireland in the summer, um, I'm always putting myself in that sweet spot for weather, and I sleep better, I'm more active, I feel mentally sharper, um, I feel healthier, I feel happier. Um so again, it's a kind of a random but important takeaway because as I left Ireland, it was, you know, the evenings were starting to close in, you know, the light was a bit faded. So I've got a new burst, a new spring in my step by arriving to Madrid, Toledo, and now Camilla, and just feeling that bright warm sunshine and bright light. So there you go. Have a great weekend. See you soon!