A ‘built-for-rental’ option

Let’s buy a house in Istria (part 5)

Because of the problems of getting tourist rental classifications for new houses, we had decided to look at old properties only and our last hunting session threw up a good possibility in Fabci. But there was another possible option: how about a finished, built-for-rental development, which came with all the necessary paperwork?

 

What’s gone beforeThe hunt begins | Mugeba revisited | Property developers extraordinaire | What else is out there?

 

Baredine – a turn-key solution …

One of two terraces of house in Baredine development in IstriaDuring some discussions about other houses, Karlo suddenly threw in something totally different, which he was sure was exactly what we were looking for. While sipping our coffee (all business here involves coffee) he produced a magnificent prospectus covering a finished, three-bedroom, terraced house up in the hills near Buje, with an enormous (12m x 10m) swimming pool shared with five other houses. On paper it looked gorgeous, but had a huge price tag. “Why is he showing us this?” I wondered, “It’s new and way outside our budget.”

“It may be new,” said Karlo, “but it was specifically built for tourism, and it already has a classification.”

Panoramic view from house over vineyards at Baredine in Istria“But the price…,” I said, “… is negotiable,” replied Karlo. “The developer recently accepted an offer far lower than the asking price for one of the other houses and is desperate to sell. I think if you make an offer, it could be yours.” “We would have to go really low – would they accept?” we asked. “Maybe,” replied Karlo.

So of course, off we went to have a look.

 

… in a stunning location…

Up in the hills, away from the coast, this small tourist housing development was set in a fantastic location. Lying on the edge of a beautiful, ramshackle village, it looked across rolling, unspoiled countryside. Istria is sometimes called the second Tuscany and, looking across the vineyards, for the first time I could see why. The view was spectacular.

Kitchen space in Bardeine house in IstriaNewly built in a traditional style, the development was designed and built by Damir (Karlo’s friend who I’d met at Fabci), to a very high standard. The houses blended perfectly with the landscape, looking as if they’d been there forever. The house in question was the end of a terrace of three and inside, it was spacious and thoughtfully laid out. It already had a tourist classification, so we just needed to buy the furniture – we could even get it up and renting this year. Everything looked perfect. 

Outside was a small garden and the huge, shared swimming pool … and it was here doubts began to set in. It was late January and the swimming pool was open. That might not sound important, but unless you have money to burn, you close your pool as soon as the swimming season’s over – usually by late October. You don’t leave it open during the winter.

“I know,” said Karlo, when we pointed this out, “but the developers think the properties will sell better with an attractive open pool. None of the other owners mind, so the pool’s kept open.”

 

… isn’t perfect

Huge shared pool with houses at Baredine in IstriaThat sounded a loud warning bell. While we would own the house and could control the costs there, the pool and surrounding terrace was shared. Digging a little bit, we found the other houses had mainly been bought purely for investment by owners wealthy enough to be unconcerned about such costs. Also, clearly the management company looking after the shared areas didn’t seem to see cost-control as a priority. 

As these shared expenses would be a significant part of the overall running costs, our very next step was to have Karlo ask the management company for a rough estimate. That took a while and when we finally got the figures, Phil quickly realised they were nonsense. Some amounts were huge, others suspiciously low, others missing altogether. “Where’s the estimate for insurance?” Phil asked. “How come the water bill’s so huge? And why is the sinking fund contribution so low?” From a company whose business was management, this was a real shock.

Once again, we re-learned that, especially in Croatia, never assume anything! We thought any property management company would have a properly worked out, budgeted plan, as we would have done –  they’re the professionals after all. But no, they were simply paying bills as they came up and had no idea about future costs. For example, the quoted water cost was based on bills from the previous year, which included water for building the whole six-house development! 

Phil tried explaining about the differences between short-term cash flow and budget forecasting (I told you, he speaks accountant half the time), but it didn’t take. Instead the developpers simply made an offer to pay a part of the central costs themselves for a while, but still no actual estimated figure was forthcoming. And that made us uncomfortable: we didn’t like the idea that a part of our running costs would be in the hands of apparently financial innocents.

Another important consideration was that Baredine was too far away for me to look after the property when it was being rented, so we’d need to arrange a rental property manager. I approached Solis, a Porec-based agency which looks after our other house in Brnobici, but it was also too far for them. So once again, my only alternative was the property management company which came with the development … the same one looking after the shared areas. That didn’t give us any confidence and indeed, when we got their quote, once again their inexperience showed – the estimate was incomplete and prices unrealistic.

So should Baredine go on the shortlist? The property was lovely and we were sure it would rent well. We thought long and hard and eventually, Mr. Spreadsheet did his own analysis of the likely shared costs – and despite all our reservations about the property management situation, we decided we could live with it. Baredine was option three.

 

Decision time

We now had three, very different houses on our shortlist. All had huge potential – and each had their own potential issues. 

Deciding which of these to buy, if any, was going to be difficult. But the decision had to be financial – it was a business purchase. Phil locked himself away with yet more spreadsheets and a calculator to see which would offer the best profitability and yields, and if any would outperform ‘standard’ investments.

After a week’s umming, erring and playing with figures, we ruled out Fabci (too expensive) and Mugeba (too small), leaving Baredine the front runner. But those shared expenses were still a concern. So we didn’t make an offer. Instead, we put everything on hold and went to the UK for Phil’s Mum’s 80th birthday.

Taking a step back clarified things. In the end, we are control freaks – especially about money – and the inexperience of the property management company, the lack of control over costs, and the sharing of financial decisions with six other people (who clearly worried less about money than we did!), were just too scary. Which, with Fabci simply too expensive, put Mugeba back on top of the pile … the house we’d started with!

But before we could make an offer, as so often happens in Croatia, ‘something came up’ while visiting Solis….

 

Baredine photos

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