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What to do About Europe - Part Two

Okay, Part two of Mikeís questions. Here it is again:

ďDo you have any recommendations in regard to 'affordable' coastline properties. We don't need a popular beach but we love the sea and walking on the shoreline [grew up on Guernsey!].Ē

The first question has to be: Why do you want to buy a home? Buying a home is the same as making an investment. Would you invest in a bankrupt company? I canít imagine anyone would answer ĎYesí. Okay, so why invest in a bankrupt country? Buying a home in Portugal is the same as investing in Portugal. If we are talking bankrupt countries then the list is getting longer by the month. Greece, Portugal, Italy, Spain. Whoís next? Common sense would dictate you dont buy in any of those countries.

If you dont believe me, remember that Portugal has never within living memory been a profitable place to put your money. When I first visited in the sixties there were 65 escudos to the £. When the country converted to the euro there were 315. Thatís some fall. If youíd invested in real estate there in the sixties you would be sitting on a vast deficit calculated in sterling. And thatís where it counts. What currency is your base currency? If itís sterling then beware of currency fluctuations. At present, a drop in the value of sterling is the preferred projection, so moving into euros might be a good idea. But if the EU then collapses three or four years down the line, the euro will collapse. That would mean you'd lose twice on the currency alone.

Sadly, a lot of this is guesswork, but if you are over fifty then the most important decision will be based on the currency of your income. If its in euros then by all means invest in the eurozone. If it is in sterling then maybe you should sell a UK home and invest in eurozone securities and rent in the eurozone.

Iíve done the maths many times before, but here we go again. A house: what the heck is it all about? For me, it is not about ownership. It is about use and value, or it is about income. I bought a house when I was twenty-three years old. It is still in the family. It was bought and developed as a family home. We wanted a place for the family to live, grow, and keep as a bolt hole later on, and it was also to be an investment which grew as we grew. I shanít ever sell it, in fact I have just deeded it to my daughter.

I own property in London. Itís rented out. Those properties are an income-producing business.

I live in rented accommodation. As I get older I want freedom, both the freedom to do as I please, when I please, and freedom from hassle and work and responsibility.

Fungibility is important for anything you own. If you buy a house in London, you can probably sell it within a couple of months, and if you want to rent it out you will probably find a client within days. If you buy in a village in Croatia, or a tourist zone in Spain or Portugal you will be lucky to sell within four or five years, and rentals come and go with patches of emptiness which may last a very long time. And as one gets older does one want to manage a large garden, or worry about the drains or the electrics?

Then there is the math. Okay, Mike has Ä750,000 available. Invested in an income producing property in Berlin he would be able to get an income of Ä75,000 a year. That sounds very nice, especially if that tops up an existing pension. If you use that money to buy a house you lose that income. So the financial question is: would the house you would like to live in cost more than Ä75,000 a year to rent? And would the increased cost be worth what other benefits youíd get from owning?

Iím not sure what other benefits you would get. All I can see are problems: Rates bills, repairs and maintenance costs, insurance, maintenance responsibilities (as a renter I get staff to do the garden and the repairs). All I do is make one telephone call to get them in, and it costs me nothing. I have the ability to come and go as I please. If I get fed up with my home, I can move at a momentís notice.

The only downside is if the landlord dies and the place gets sold I would have to move anyway, which might be an inconvenience.

Where I live a worst case rental cost would be Ä12,000 a year for an average property (Iím actually paying Ä4,800 for a two bed apartment on 13 hectares of land adjoining an estuary with its own landing stage, pool, etc). Renting for Ä12,000 a year would leave someone like Mike with an income of Ä63,000 a year to live on. So my first question has to be, why on earth would you want to waste money on a purchase?

Your investment can be sold to recoup your cash. Your house will probably take years to sell. Fungibility: itís important.

Moving on, where would I go?

This is where it gets personal, so letís run through a few options. My first choice would be somewhere in the province of Cadiz, but I speak Spanish and have lived in Spain for much of my life. The province is pretty, rural, old fashioned, warm, civilised and also folksy. If you prefer a warmer sea, then check out the area around the Mar Menor, which is on the South-Eastern coast. I have been swimming there on Christmas Day. If you prefer being close to a thriving city, then try Catalonia, within striking distance of Barcelona.

Mike is keen on the Med, but for those of you who like the countryside, a more temperate climate, and a slower way of life, try a holiday along Spainís northern coast. Anywhere from San Sebastian right the way round to Vigo is utterly charming, and relatively cheap. And the seafood in Galicia is to die for. But do learn some Spanish before you settle in. And dont forget that San Sebastian has more Michelin starred restaurants than you can shake a stick at.

Italian coastal areas in the north are expensive, but some of the scenery is spectacular. Similar scenery is to be had on the north shore of Sicily, with easy flights in and out, but language is often a problem down south. And do remember that Italyís banking system is on the verge of collapse. One bank alone has a Ä48 billion bad loan book, and itís share price has lost 80% of its value this year alone. And that is just the tip of the iceberg. This is not a country to put money in.

I have no experience of Corsica or Sardinia.

The old coast line of Yugoslavia is very pretty. The living is cheap, and the weather comfortable. But if you want something a little different, check out Kotor in Montenegro. This is an old walled city, set at the end of a fjord. The country is charming, mountainous, with a pretty coastline, lousy food unless you like pizza, and friendly people, and the living is relatively cheap.

I spent last winter in Malta. It is not really my cup of tea, but weather-wise itís good, although there is a water shortage on the islands, everyone speaks English, you are never far from the sea, but both Malta and Gozo are very built-up. I am told the islands have the most concentrated number of people per square mile of anywhere in Europe, and the traffic is something else. Flights out there are cheap. Try the place for a month or two and see what you think.

If you like culture, you would be hard put to beat northern and central Italy, or Catalonia. Barcelona has to be one of the most vibrant cities on the planet. You could stick with France, and move down to French Catalonia. We have spent some wonderful times around the town of Ceret.

The bottom line here is to get out of the armchair and have a look for yourself. So hereís this yearís homework. Check out all these areas and have a good time while youíre about it. Then you tell me where you want to live. You might find you like the travel better than staying put. Six months here, six months thereÖ  Which reminds meÖ

There is one more option. If you have the money, buy into the hotel rooms business. You need twelve investments. You buy a share in a hotel room or suite that gives you 30 days free use of your room and its facilities as part of the deal, and you float around the world a month at a time, and your 'home' brings you in an income for the rest of the year. Iím tempted to join you.


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