The Unfortunate Tale of Mumbles
Whilst investing in Greece has its risks it’s also pretty straightforward provided you follow some basic rules and employ some common sense.
That brings us to today’s case study.
An investor from the UK that we’ve known for some time came over to Athens to shadow us for a while and start buying in Greece. We’ll call him Mumbles.
This was a guy with a long history of investing in property in the UK but perhaps not that worldly wise when it came to other cultures. He expected everything to be exactly the same process as it was back home.
On paper, it is.
Creative contracts are pretty much the same wherever you are in the world.
But the nuance, the local info, the things that are totally market specific, if you don’t get a handle on those you will come unstuck. This is what happened to Mumbles.
He was working with our outsourcing team on the ground. He came over with express reason of buying some pre-packaged deals to get started. But Mumbles was an experienced guy back home, so when our local guy presented him with deals that were ready packaged, with legals and ready to go, and at ‘mates rates’ entry costs, Mumbles tried to haggle with these ready made deals.
Our local guys value their reputation. Like us, they haggle hard to start with but once the deal is agreed, that’s the deal. We’re the same way because if you don’t stick to deals the word soon gets out. But Mumbles knew better. ‘Ask them if they’ll take 50% of that figure upfront’, he’d say.
Our local guys got pretty pissed off. On one hand they had told the sellers they had found a foreign buyer on the terms agreed and on the other Mumbles kept trying to move the goalposts. He’d been introduced to a lawyer in Athens by our local guys. We’d told Mumbles ‘only use this guy for high level stuff cos he’s €1000 an hour and he’s the guy to get your templates done with, but never use him for stuff a cheap lawyer could do’.
Mumbles thinks he knows best
Mumbles knew better.
He’d marketed online for Greek sellers and he’d found a bunch of them. But he didn’t know his market, he didn’t understand the local situation and he had no idea whether properties were either in a good or bad area or what price he should be paying.
He had a bunch of leads he was working through and he decided that he didn’t need the help of our local guys. That was simply a cost he could avoid.
(You can see where this is going to end up, can’t you?)
So Mumbles started negotiating directly with the sellers. They spoke English well enough so how hard could it be?
He negotiated three deals. Two were properties where the (same) seller wanted €15k and €20k for each flat. The seller wanted all cash for the both of them and Mumbles kept asking ‘how can I go wrong at that price’.
But Mumbles didn’t listen when we repeated told him just how many ways he could be wrong.
We asked him where they were located at that price. He told us. They were both in the furthest outer suburbs of the north of the city. Grade Z stuff.
The third deal he thought was a cracker and was going to make his fortune. It was a penthouse apartment in what is perhaps the best location in Athens, near to the Acropolis. Recession proof and an area that any investor from around the world would know and understand.
Could it go up a million euros in 2 or 3 years?
We asked him what the deal was. ‘Well the seller wants €3m but she’s happy to take payments over five years.’
€3m? Ok. He showed us photos. But they weren’t photos of the apartment but of some fancy building you could see from the balcony. The apartment itself was ordinary, not very big but did had the most amazing view. But €3m?
I reckon it could go to €4m or even €5m in five years, said Mumbles.
Mumbles then did something extraordinary. In order to not lose this deal of a lifetime he decided he had to get a lawyer on the case immediately. So rather than find another more reasonably priced lawyers he chose Mr €1000 an hour.
This lawyer then left his own office, went to meet the sellers at the property, went to meet the sellers’ lawyers at his office, chatting and coffees with everyone and then finally with Mumbles and eventually a deal was agreed.
€2.7m with payments over 5 years.
Mumbles was going to Airbnb the place to cover the costs. If the market moved in the next five years he’d make millions.
Fast forward two months. Mumbles is back in Athens to do the deal with this seller.
The lawyer has everything prepared (including his billing by the hour for all that running around) except that the lawyer drops a bombshell on Mumbles. So, Mumbles, just check the terms of the deal before we sign and get it notarised.
The devil in the detail
Mumbles read through the deal (he later told us how this went, our jaws were on the ground).
Buyer pays €2.7m
Term 60 months
Sounds great, right? Buying a multi million dollar prime real estate with no money down over 5 years.
Wait a minute said Mumbles, what’s this monthly payment figure?
That’s what you have to pay each month for the flat for 60 months.
€45,000 a month?
Yes. €2.7m divided by 60 is €45,000 a month.
Mumbles had committed one of the worst sins in creative real estate. We make our money on the terms. He thought he knew the terms he agreed but he wasn’t specific. His plan was to pay something each month and then a balloon payment at the end of 60 months. Something that was manageable more or less and that could be recovered by the profits from Airbnb.
Well to be honest even if he was paying €5,000 a month there’s no way Airbnb income would cover that. But at €45,000 every single month? No wonder the seller agreed to five years.
There’s another point in the end of this tale. The same week Mumbles discovered that was what his deal was and that he was in hock to the lawyer for thousands of euros on a useless deal we were offered another property two blocks from that one. OK it wasn’t a penthouse, it was on the third floor but it was rented out on Booking.com for around 90% occupancy and was in the same prime location, same type of apartment building.
When the seller told us his price and that we could pay a deposit and the balance in 12 months we jumped at it.
The price? €320,000. (that’s right – there is no missing extra zero).
No wonder the seller wanted Mumbles’ deal. She saw him coming a mile away.
What’s the moral of this story?
Not to bring all your fixed ideas about how things are done back home. To pay the right kind of local partners to guide and even handhold through the process. And for the sake of a few hundred euros of due diligence Mumbles nearly bankrupted himself agreeing to buy an apartment that was priced at least €2m above market.