Renting out your apartment

  (View of Santa Claus parade from balcony)

This a short little post, that goes the other way, our experience with renting out our apartment.

We moved from our Rambla apartment a few months ago to a house.. because I needed more space…  Having lived in a house for the past 20+ years, I just couldn’t adapt to an apartment.  Sorry.  We kept the apartment because my wife is letting me have my way temporarily.  But make no mistake about it, she will go back, if she had to drag me behind her.  Maybe I’ll be mentally feeble by that time and wont notice it. 

We would have put the apartment up for rent when we moved out.  But it’s a penthouse and the day after we moved out, the roof sprang a leak.  Cant be renting out your apartment to someone with it raining on their head.  So we stirred up trouble with the building management.  When we found out the roof was 3 years past the time the roof should have been redone, we insisted.  Unfortunately, just after they removed the waterproof cover, it poured rain.  Our kitchen got soaked.  By the time the roof was done and our kitchen dried out, a month had passed.  We had to get it cleaned up and repaired.  The wood cabinets had to dry out and then go into the shop to be repaired.  Anyway, when that was done, we put an ad in the paper and hung a sign on the balcony.  Over the next few weeks, we got a half dozen serious inquiries and last week, the right couple found our place and wanted it. 

Being on the rambla, it’s not unusual to get a diplomatic customer.  In this case, the husband works for an embassy.  In these cases, the embassy, not the person, enters into the rental agreement with the owner.  If the country is a member of the EC (european common market), they wont sign your contract.  They provide you with their own.  Some clauses are unique to them.  For instance, normally a rental agreement here is for a specific term, like a year or two or three.  If you break it, you still have to pay rent.  Their contract has a provision that if the person is recalled, the contract is null and void.  In normal agreements (as described before), property is put up as collateral or a large deposit is made.  Not so with embassies.  No deposit is paid.  Their signature is collateral enough.  Because of the slow devaluation of the US dollar, it’s common for people to put in devaluation clauses in the lease agreement, usually reviewed and adjusted at the end of each year.  No such thing in the diplomatic community’s contract. 

On the positive side, most owners prefer a diplomatic contract because the embassy is a straight customer.. no tricks. 

One other interesting thing about embassy renters.  Before the agreement is made, they send a team of experts to the property to check it out–to make sure their employee isn’t being taken advantage of –or put at risk.  In our case, they were satisfied that it was a good value for the $, but they wanted a security system to protect their staff.  It had to be installed at our expense.  We’ve been meaning to put one in since we renovated it but never got around to it.  So it was OK with us. 

They’re really nice people.   We hope they like living there as much as we did. 

Income tax reform…

 

I was going to start this with a snappy title, but I dont think that’s appropriate considering the mood of the content. 

 Yesterday was the first day I saw pain in the eyes of a Uruguayan–a friend of ours for many years.  About a week ago, she told us she found the taxes in the paper that she would have to pay on her property rentals.  She said it was a flat 12% on rental income.  She said she could deduct taxes (real estate, primaria, etc.)  She didn’t say anything about repairs.  She knew it was coming and she’d already resigned herself to it.  Keep in mind that many Uruguyans live right on the edge.  A lot of people will suffer under this new law.  I could never figure out why there wasn’t an outrcry months ago when it was announced.  From what I see going on this week, it looks like it’s a delayed reaction. 

Yesterday, she was totally depressed.  I guess she either didn’t know or didn’t put 2 and 2 together, but the tax on profits on the sale of real estate and cars, kicks in.  I had never much concerned myself with those because the few properties we own, we either use or get income from.  We have no intention of selling them.  But this lady has had her apartment up for sale since December.  Because she didn’t sell it before, she says she’s now subject to tax on the difference between what she bought it for 10 years ago and what she’ll sell it for.   The apartment appreciated 30%, so she has to pay taxes on about USD$25K.  I dont know if she’s right, but that’s what she thinks.  I’m going to meet with my acocuntant some time this week and go over all this stuff with him and get it straight.   It’s good for me to know and at the same time, I’ll post the details here with some examples of how it would apply to expats buying property… residents and non-residents.   

The truth is, based on the average Uruguayan’s ability to avoid taxation, I expect we’ll see a large drop in the price of the average property sale, as officially reported.  

Today, a doctor from downstairs was visiting at our friends place.  She was also depressed.  On July 1st, her salary drops $7K overnight.  Since she was just making ends meet before, ( no car, no vacations, modest lifestyle), she was trying to figure out what she could cut to make up for the instant loss.  I asked the question ’so what are you getting in return?’.  The sober answer was ‘nothing’.  Then I asked what is the government going to do with this ‘mountain’ of money it will be getting.   I’m sure her answer was the typical Uruguayan’s…  these new government people will get very rich, very quickly. 

I’m still trying to figure out how the government can tax the profit on the sale of a car.  I’ve never personally met anyone who made money selling a used car.  But maybe it targets car dealers.  It’s very common here for a car dealer, new or used, to sell you the car personally.  I always assumed they did this to get around the taxes a car dealer company would have to pay.  Maybe the government figures the same thing?