Great job!

One more post before we jump into the meat of auction participation. It feels like forever since I first intended to write this series. I really want to share clear concise information, so if you notice an improvement feel free to write it in the comments and I will take it into consideration. I do intend to update this series as I discover potential improvements.

Today I’d like to share some nuggets of wisdom that I’ve collected from experience and various sources that will finally open up a dialogue about real Italian properties. I know many of you are perhaps much more advanced than myself and I’d like to say to you, thank you for your support thus far and I hope you can reach out and really share your expertise with our community here. Each post gives the opportunity to comment and if you have a moment, pop on down and say ‘Hi!’ as well as share a bit about your experience in real estate.

Now that you’ve established what kind of investor you are, as well as gained some invaluable information on the Italian market, It is time to talk about criteria. Criteria can be otherwise defined as your ‘needs and wants’ as pertains to your future investment. To start this off, I’d like to present you with a personal story.

My story

When I started looking for my first property, my wife and I were in a small apartment just outside of Milan. She worked for a bank in Milan and commuted daily. We enjoy attending church each Sunday where we can share in fellowship and take part in various responsibilities. We were looking to start our family with talk of kids in the range of 5 or 6, which has since then reduced. We knew our apartment would not be sufficient in the unknown yet foreseeable future. The year was late 2013 when we first started our search.

Coming from a construction background, I have always had real estate on my mind. It has been a lifelong pursuit of mine to hold my assets in real estate. To this point in my life I had acquired a single property in the U.S. town I grew up in. It was set up as a rental before coming to Italy. I had purchased it at the beginning of the 2008 recession after which I transitioned from working in construction to personal finance coaching, which is where I learned about the impact time holds over intelligent investing. AKA compounding interest. With family in mind,  it was time to start investing as soon as possible.

My wife’s mother worked for years and had left my wife a small sum. In her mind it would be enough for a deposit on her future home. Traditional financing meant we could only afford a fraction of a home within regular market standards. I was only about 5 months in Italy and had no job. I spoke “POCO ITALIANO” (very little) you can ask anybody. Most days I still do speak very little ‘correct’ Italian. This was our situation. Young and on the hunt for our future home with limitations.

Ok, put yourself in my position and ask yourself… ‘What would I do?’ With more time and money, the answer is easy. You, being smart, would probably find an answer with ease. For us the answer came within a secondary real estate market. Property auctions. I’ll explain why.

The concept was not new to me. I had experience hunting properties in US bankruptcy auctions, but it never panned out due to financing since I was locked into a 30 year mortgage on a property which immediately after purchasing it experienced a severe reduction in value. I mean tanked! Good thing I bought the one with all the upgrades! *sarcasm intended*

The difference with the auctions this time is summed up with a few words: supply and demand. The quantity of properties sold on auction greatly outnumbered the number of participants willing to invest in said properties. Here in Italy, the properties range in property use. Parking spots, garages, rustic factories, condos and villas with an comparable range of pricing.

Avoid Emotional Decision Making

I began inspecting property after property and noticed a pattern that these auction prices are based on tiers to a certain degree. A property that was ready to move in, naturally cost more than one that was in need of some TLC. Don’t get me wrong, a house on auction was a house on auction. The price was good to begin with, but there was a noticeable difference in the number and quality of bidders in attendance to a property with a higher value than that of the contrary.

I saw countless auctions go deserted for simple things such as needing a kitchen remodel or perhaps updating the heating system. Many people simply didn’t want to put in the extra effort or sacrifice that could have changed their future.

Human nature leads us to get so concentrated on what’s new and trendy that we lose track of what we need to be happy. Here in Italy for example old construction, even if remodeled, is frowned upon and will never be on par with new construction. As true as that may be, there can be gold nuggets hidden where least expected. The motivating factor behind this way of thinking is out of concern for the opinion of others more than the needs of the family.

Soap box moment

This brings us to the main point of today’s post. In Italy as well as in global culture there is a deep-seated desire to have the best of everything. I’m not saying you don’t deserve it. My argument is based on timing. In the last post, I mentioned ‘the general public is convinced that their desire for the newest Iphone, or BMW, outweighs their need to sustain themselves in the future.’  We tend to be believe we merit the things our parents had in our childhood homes while forgetting how much time and energy our parents invested to obtain these things.

Since many potential investors put so much attention on outward appearance they lose on potential gains due to personal entitlements. The difference is in one’s frame of mind. Buying a home emotionally produces lackluster results.

I look at it this way. Like many of you when I buy a new phone, I look at it and ask myself, ‘do I need it?’ The same should apply to property specifications. In the US buying a home is often a one-time ordeal. Many people say to themselves, ‘If I am going to spend ‘X’ thousands of dollars, You can be sure I’m getting an in home theater!’ If that’s your way of thinking, it will be your one and only home since you most likely will be buying a property that only fits YOUR wants and will be difficult to resell. Not to mention the mortgage that will be paid off at retirement. If that’s your life goal. Carry on! If not, keep reading.

So what should we do?

We should shift our paradigm and move forward with a ‘needs’ focus. To illustrate, I will show two examples that we faced when buying our first home.

Property #1

This property was a little closer to my wife’s work and therefore closer to Milan. We found it through a real estate agent that really knew how to sell. The quality was nice, new construction and had all of the things we were looking for. It even had three bedrooms for a growing family. The catch is that in order to buy it, we’d need to get a mortgage loan which meant we’d pay nearly €900 per month for the next 30 years. We were drawn to this property since it had great curb appeal and it was move-in ready. We imagined all of the dinner parties we could throw as we introduced our friends to our new home. Can you see the emotional draw?

Property #2

Looking in the auctions, I stumbled across a similar property to the one previously described, but there were no photos. I decided to pass by and found a quaint townhome that was on a private drive in the center of a village. It would add about 20 minutes to my wife’s commute every day.

The floorplan was ok but was missing the third bedroom we were hoping for due to poor use of space. It needed a kitchen makeover, all new electrical fixtures, and a new toilet tank. These were the necessities to make it habitable. It had older floor tile and a stairway to the attic that would need to be removed. I decided that if it was remodeled, we’d also move the gas line and for a period we would not finish the second bathroom. This would put our remodel budget around €10,000. We had cheap furniture and kitchen cabinets that could be transferred to the property as well. It wasn’t perfect, but it had potential.

Looking at the statistics and financials of each house….

Which one do you think we chose?

Happily, the remodel, many times over! As you can see, if we chose to follow our emotions, we may have seen some gains assuming a 3% annual growth, but we would have missed out on the growth of compounding our monthly savings which is evident from the number of properties we have been able to invest in.

I’m not suggesting we should abandon all civilization in order to avoid falling into wants based thinking. All it takes is a little sacrifice now. My wife sacrificed 40 minutes per day to achieve it. Our family sacrificed having a perfect home. Our kids have to share a room for now, but who knows what opportunities a little sacrifice now can open for us in the future.  

Today’s Takeaways

Not every investment deal is so straightforward. Potentially we could have found another property that would net us even more for our future. The point is to avoid becoming victims to the vanity that surrounds us and instead focus on how we can improve our lives, even if it takes a bit of hard work. As you move ahead with your Italian investment, really consider your needs. Remove as many wants as you can justify and even sacrifice a bit if it adds to your family’s happiness. With the right thinking, anything is possible! As Napoleon Hill states, ‘Think and Grow Rich!’

See you in the next post where we talk specifics about your future investment.