Dear friends,
If somebody put a gun on your head and asked you who Samuel Langhorne Clemens was, would you be able to reply? Even if this person told you that you have heard about him before or maybe read his books? Most likely not. But if the same person asked you who Mark Twain was, then surely you would let a sigh of relief. Most people have heard of Mark Twain and very likely have read “The Adventures of Tom Sawyer”, “Adventures of Huckleberry Finn”, or “A Connecticut Yankee in King Arthur’s Court”. Actually these two are the same person.
Mark Twain was Clemens’ pen name. He famously picked it up when he was working for a riverboat shipping company. In shipping lingo “Mark Twain” meant a depth larger than two fathoms (3.7m) and hence safe to navigate. Apart from his novels, Twain was also very famous for his humorous and sarcastic quotes. This is what he said about banks: “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”
The irony is clear. When the economy is doing well the banks are happy to lend money. The investment outlook is positive, there is plenty of growth, and they see the opportunity to increase profits by making new loans. There is nothing wrong with that, apart from that in such an environment the lending standards gradually become looser. Some people or companies that normally wouldn’t qualify for a loan, are given one. Or more than one. Then when the investment climate sours, some of these borrowers default on their payments. Then the banks have to step in and repossess the assets for which the loans are not serviced. Usually that happens exactly when the borrower needs the most help. This is exactly the paradox to which Mark Twain refers. That’s all understood, but does that mean we should stop taking loans from the banks?
Absolutely not. At Artemis Assets we carefully select only the properties that are futureproof. This means that these properties will perform well whatever the future may hold. These properties will make money for you under any economic environment and you will be able to repay your loan always on time. To prove this, we run our models with very conservative criteria and we always examine the results together with our clients. We test for different Loan-to-Value ratios or even buying 100% cash, for a range of refurbishments costs, for a range of rental income between short-and long-term tenancies, we factor inflation for maintenance fees and damages, and the list goes on. Only when a property is projected to yield more than the 10-15% range with minimal risks, then we will recommend it to our clients.
Contrary to Mark Twain we think it’s OK to take an umbrella from a banker when it’s sunny. Maybe he didn’t know that umbrellas were initially invented as parasols to provide shade from the sun. Talk to us to understand how you can optimize your lending from Spanish banks.
Until the next one!
