Real estate is currently the most fashionable investment asset thanks to the recent growth of the Spanish economy, the increase in rental prices, the progressive revaluation of properties and the boom in tourism in Spain.
According to the IV Casaktua Study, 10% of Spaniards who are currently looking for a new property do so in order to invest in the real estate sector. The profile of these buyers is that of an employee aged between 45 and 54 and with investment savings of between 100,000 and 150,000 euro. In terms of options, all Spanish respondents to the survey said it is best to buy a property in order to rent (33%), vacation rental (14%) or refurbish and sell on (12%).
If you’re going to invest in the real estate sector in Spain, it helps to have prior knowledge of the market and advice from experts in the sector. To help during the process, Casaktua outlines six key things to know to get it right and obtain greater profits:
Weigh up the pros and cons: should you buy to rent or buy to sell? Acquiring a property to rent has the benefit of giving you a fixed monthly income and a property in progressive revaluation. There is also the option of a holiday rental, the advantages of which are a higher income than a traditional rental, guaranteed payment in advance and greater availability of the property for your own enjoyment. On the other hand, buying a property to sell on later carries a lower financial risk if it is sold at a higher price than you bought it for, and can give you a nice, hefty lump sum.
Choose your property based on the investment objective: the type of property you buy will change according to the investment option. Furnished properties with one or two bedrooms are ideal for short-term rentals, such as vacation rentals and those aimed at a more executive target and with labour mobility. With a view to long-term leasing or sale, the most appropriate housing option for you to buy is a well-distributed, 2- or 3-bedroom, exterior apartment with an elevator and a parking space.
Go for large cities and tourist enclaves: if you prefer to buy with the intention of selling, it is best to opt for Spanish cities such as Madrid and Barcelona where the market is more dynamic. It is also advisable to buy in provincial capitals such as Santa Cruz de Tenerife, Palma de Mallorca, Valencia, Malaga, Alicante, Pamplona, Gipuzkoa or Murcia, areas that are seeing more revaluation of housing prices. The location is also important when investing to rent. Madrid, Barcelona and San Sebastian are the most expensive cities. The most touristic regions, such as the Costa del Sol, are also an excellent option worth considering for both types of investment. The reason lies in the growing demand for second homes in beach areas and the proliferation of holiday rentals.
Prioritise well-established areas: the best place to look for homes is in already consolidated neighbourhoods with affordable prices, high demand for rent, good transport links and services nearby. In Madrid, for example, the neighbourhoods bordering the M30 ring road are proving to be an interesting choice. It is also a good idea to invest in large business centres and university areas as they will always be in demand. The best option, of course, is to buy a property in the city centre, but the initial investment will always be much higher.
Properties in good condition: in the case of rental, it is important to keep in mind you’re your property must be in good condition to attract tenants. If you want to renovate the place after you purchase, you must ensure that the purchase price is low enough and that the property does not present any complicating factors. This is the only way to make the remodelling work more affordable. The average cost of a complete home makeover can be around 450-500 euro/m2.
How to calculate the profitability: in order to estimate the initial investment, you have to consider more than just the initial purchase price. You also have to add the taxes, the expenses of the operation and paying out to do up the house (painting, electrical appliances, furniture, etc.). Only once all you take all these costs into account can you calculate the profitability of your potential real estate investment in Spain.