Bulgarian Apartment=Millstone around neck?

Fozzie Bear

Right, first off I'm not interested in the usual replies from some people rubbing these persons nose in it, pointing out how great some are, that they did not buy, don't have negative equity, could see it coming, knew not to buy, taking delight in others misfortune etc etc. If you don't have a suggestion or useful advise then keep it to yourself thanks.

I was chatting a friend over a few pints at the weekend and naturally the state of the country/world came up. He was telling me his fiancee attended a exhibition with her Mum and bought a one bed apartment in Sunny beach Bulgaria two years ago from Platinum developements. She paid around E100,000 for it (forget exact amount) and had a guaranteed rental income of 5,000 a year. Her parents acted as guarantors for the mortgage and she had to take it over 12 years as her dad would retire at that stage. So she is repaying E900 a month. She planned to sell it on in a few years as it was to act as her deposit on an Irish home when the time came.

Since then Platinum have closed the Irish office and she now has to deal with the Bulgarian office which are very lax at returning calls or e-mails. On top of this the guaranteed E5000 she was promised in her contract is now in doubt. They are trying to reduce it to E2500. Obviously she and her fellow purchasers are not happy with this and have taken legal action en-mass with 70 of them paying for a Bulgarian solicitor.

On top of all this my mate and herself are hoping to at buy their own first home here in Ireland before they get married. He rents currently while she still lives at home and they were looking at a E250,000 mortgage, combined salaries of 70,000-75,000 (depending on bonuses/overtime). The problem is the Bulgarian apartment. They cannot get/afford another Mortgage while she has the current one with it's E900 a month repayments. She cannot reduce the payments or extend the mortgage past 12 years because of her father. She has told Platinum to sell her apartment but there is feck all chance of that happening any time soon as there are already 30 hardship cases ahead of her trying to sell too. Platinum told her they were doing exhibitions in Russia currently selling apartments but Russia is in the same boat at the rest of the planet.

Her parents have offered to give her 40/50,000 towards paying off a chunk of the mortgage. This would leave them needing to raise another 20/30,000 then for a deposit as well as another loan to furnish the new house (if they could get a mortgage).

My mate was wondering what can they do? I think they are screwed (did not tell him that obviously) as they need to sell the Bulgarian apartment before they can do anything IMO. Should they take the parents money and pay off a lump of the mortgage. Should they use some of it for a deposit and the rest toward the mortgage? Is there anyway they can flog the apartment? They are willing at this stage to take a hit if they cannot break even on it.

Anyone in a similar situation or have any helpful advise I can pass on? Yes they now realise the folly of buying in Bulgaria, hindsight is a wonderful thing:rolleyes:

EKRIUQ

Fozzie Bear wrote: »

Right, first off I'm not interested in the usual replies from some people rubbing these persons nose in it, pointing out how great some are, that they did not buy, don't have negative equity, could see it coming, knew not to buy, taking delight in others misfortune etc etc. If you don't have a suggestion or useful advise then keep it to yourself thanks.

^^^^ Thanks I wish that was put into a sticky here, an awful lot of people seemingly enjoying preaching from there high horses.

Now to the question, unfortunately you have most of the answer worked for your self and dealing with a property in another country is a pain but doesn't have to be as difficult as you may seem. From my experience forget about dealing with "Platinum" or there agents as your just one of many, employ an independent agent I'm sure there's many over there and they'll work harder and this should be able to be done over the phone.

This guaranteed rent is normally swallowed up by management costs and people rarely ever see any money it's just a selling gimmick and people who don't want it just get the value off the asking price price.

This property is a big stone around their neck and getting rid of it would solve many problems but if this isn't possible, then trying to make it as little a factor as possible would be the next best thing it would help paying off the some of the mortgage from the €40,000 loan. €60,000 over 20 years could be financed for €400 a month, and a bank could be told that rental would easily cover this, so your friend would be free to apply for a mortgage on their own earnings.Banks will still give loans but they need as much assurances as possible.

johnnyskeleton

Fozzie Bear wrote: »

Right, first off I'm not interested in the usual replies from some people rubbing these persons nose in it

Why do you say the usual replies rubbing their nose in it - SMC runs a very tight ship and would stop that if it ever arose (not like that freewheeling Victor). The only instance I can think of where there were, shall we say unpleasantness, was where someone was looking for a taxpayer's bailout and refused to accept responsibility for their actions. From your post however, your friend sounds like she is prepared to accept the reality of the situation.

A couple of practical steps:

1) contact the Bulgarian solicitor and find out the status of the court case. Is there any reality to it being successful, or is it just a waste of time? how long will it take for the case to be resolved?

2) she could contact an Irish solicitor who might be of assistance, although she shouldn't get her hopes up as I understand that these rental guarantees are not very solid.

3) did she borrow from an Irish or Bulgarian bank? has she tried to contact the bank and explain her situation? They might be able to accomodate her somehow

4) "as they need to sell the Bulgarian apartment before they can do anything IMO.... Is there anyway they can flog the apartment? They are willing at this stage to take a hit if they cannot break even on it." - this is perhaps the nub of the issue, and she should contact an estate agent in Bulgaria to find out. They can provide a valuation, and she can say that she needs a quick sale at a lower price. I would imagine that she should be prepared for a significant drop in the price, but on the plus side a 50% reduction on €100k is much more manageable than a 50% reduction on a property bought for several million in Dublin.

5) above all, without knowing her exact circumstances it is impossible to say what she should do. if she looks into all options she will be better informed.

Fozzie Bear wrote: »

Anyone in a similar situation or have any helpful advise I can pass on? Yes they now realise the folly of buying in Bulgaria, hindsight is a wonderful thing:rolleyes:

No doubt EKRIUQ will jump up and down and say that I'm not being helpful but I really should say it - if your friend got burned in one property transaction, she should think twice about entering into another one and not do so unless she 1) has researched it throroughly wrt current market trends; 2) can easily afford the property, which from what you say doesn't sound like the case and 3) has an exit strategy should things go wrong for her.

I'm not trying to rub her nose in it, I'm just portraying the reality as I see it.

Eglinton

As she has already bought a property is she still entitled to be considered a 'first time buyer' and not pay stamp duty on an Irish home?

I don't know the answer but if she's not now a 'first time buyer', then that's another major headache in the pipeline.

Also I assume she has to pay the new tax on foreign properties?

Fozzie Bear

Thanks for the replies lads. I'll pass them on and let the two of them decide if there is anything in there they can use.

Eglinton wrote: »

As she has already bought a property is she still entitled to be considered a 'first time buyer' and not pay stamp duty on an Irish home?

I don't know the answer but if she's not now a 'first time buyer', then that's another major headache in the pipeline.

Also I assume she has to pay the new tax on foreign properties?

I don't know the exact details of their position re tax and first time buyers status. Did not get into all the details plus the few pints have blurred it a bit:o From what my mate said she had approached a few lenders and her family solicitor just to sound them out and get some advise and some of them told her she could still apply as a first time buyer. I have no idea how this would work though. I think the mortgage is in both her father and her name? Solicitor said they could apply in his name and sign a contract afterwards stating the house is 50-50 between them until they get married. Again no idea exactly how this would work.

As was said above I think they need to sell before they can buy.

The_Conductor

Legally she is not a first time buyer and is not entitled to claim first time buyer status from the Revenue Commissioners. This affects 1. Stamp Duty but also 2. Mortgage Interest Relief (TRS). She needs to accept this and factor it into her equation for purchasing property here.

If her parents are in a position of having a lumpsum to 'gift' to her- from the perspective of an Irish lending institution- they will look a lot more favourably on her putting it towards the Irish property that she is planning on purchasing, and thus lowering the LTV ratio on her Irish mortgage.

I am not going to go into the Bulgarian property and its mortgage- suffice to say she is quite correct- it is a millstone around her neck that she needs to get rid of. The saleability of the property is dependent entirely on its location and its target rental market. If its a property with the potential to be rented to locals, as opposed to tourists, there will be a far better inherent value associated with the property. At very least its Sunny Beach, and not Bankso etc- but she unfortunately is going to have to factor a large depreciation into the property.

I am unsure of Bulgarian law- but if it is a local mortgage, secured on a local property- where does she stand were she to default on the mortgage, and would this affect her Irish credit status? Its the sort of question I'd be asking- not that I would advocate anyone walk away from their debts. US law entitles people to simply walk away from their debts- Irish law does not. Where do the Bulgarians stand?

Finally- when factoring their Irish borrowing capacity- overtime, bonuses and any income other than guaranteed income will not count towards their notional income towards figuring the amount they can borrow, and lending multiples have fallen significantly (4.5 times joint should still be possible- though they won't advertise this).

It is a mess- your friend needs to engage the services of someone familiar with Bulgarian law and get them on her case asap.

jackal

The reality of the situation is that your friend has made a big mistake and is not going to get out of it without losing something. To minimise that loss, my suggestion is this:

1. Forget about platinum etc. Find a good independent agent.
2. Price the apartment to undercut other apartments significantly. i.e. if the going rate is 100,000 price it at 80,000 and take any offers remotely close to it.
3. The parents have offered a substantial sum. Use the parents money to make up the loss, pay the mortgage off in full and if there is money left, fund the deposit for the new house that they will actually live in.

Forget every other hare brained scheme. The apartment was never worth what they paid, it is only going to lose value until it eventually bottoms out. This could take many years. The key is to take the medicine now and get on with your life. Its an expensive lesson, but its better than spending the next 12 years servicing a mortgage for a property worth nothing close to the mortgage owed.

Nobody likes admitting they made a mistake and lost themselves a fistload of cash. It makes them look stupid. Because of that, many people are wasting their time trying to sell these apartments at break-even or even a small premium to what they paid. They are the people that will ultimately end up looking the most foolish.

Get out now and move on.

One thing to note is that even if they are successful in getting rid of the apartment, they are not owed a house. They have lost a huge amount of money, and going straight out and buying a home simply might not be possible. Bad decisions have consequences, they don't just disappear overnight. They might be looking at saving hard for a good few years to get a deposit together to overcome the loss.

Fozzie Bear

OverseasCafe wrote: »

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Thats really interesting Overseas. Cheers for that I will pass it onto them.

Thanks too for everyone else's help and advise. They had no idea where to even start with selling it. I think she is coming around to the idea of having to take a big hit on the Bulgarian apartment just to get rid of the damned thing. I think it is a beach view apartment so it might help with selling it. If memory serves I think she has already paid off 20 or so odd grand on it so the mortgage should be down around the 80,000 mark. Might help lessen the pain if they do manage to shift it for much less then was paid....