What if I told you that you could earn millions without actually ever doing anything for just a smallish investment? What if I told you that the victims would be banks and nobody else? (well maybe just the odd foreigner)? What if I told you that you could live happily ever after with no consequences?
You would probably tell me to ‘pull the other one’ wouldn’t you – or words to that effect? However, this may well have been the World of the Spanish developer during the boom years.
Let me tell you more.
1) You come up with a plan to build a development of (say) 100 homes maybe on rustic non-buildable land. To this effect, you set up a limited company, an SL, with 3000 Euros in the bank and 500 Euros in notary costs (this is important because limited companies have limited liabilities)
2) You ingratiate yourself with the local Mayor (I will leave you to imagine how, but let’s just say, for example, you offered him a cut of your profit)
3) You get your planning permission and, so far, your only cost is for your brother in law, an out of work architect perhaps, to come up with some basic drawings and urbanization plans. You cut him into the deal along with a lawyer to draw up contracts.
4) You go to a bank and ask them to fund the development with possibly a 100% upside for you.
5) Your bank agrees and you get money from them to fund 70% of the cost of the development (having overestimated the cost of course) with 30% of the money up front to start work, 30% when the land is prepared and the foundations in and 40% when the roofs are placed on the properties to finish off the development.
6) Out of your first 30% you take your commission ie. your profit and you start selling the properties off-plan to buyers desperate to get into the hugely profitable real estate boom. Your profit works out as follows: ....
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