The article below was taken from issue four of the Spanish Property magazine. It's this sort of analysis that you may be missing so if you have an iPad get over to iTunes and download the magazines. Well worth some of your time if you are interested in Spain and/or property. (Issue five should be out very very soon)
As I said in the last magazine, most people buy in Spain for one of two reasons: lifestyle or investment. However the investment part you need to look at carefully. Many people bought for both lifestyle and investment and most of them crashed and burnt.
Why is this?
If you are buying for investment you need to run the numbers very carefully. Most people don't bother to do this and they confuse an investment with a property they would like to live in. I have some clients who have been running the numbers very successfully in the last few months.
So what do those numbers entail?
Here is a good example. One of my clients bought an investment flat in Valencia for €63,000. It was a four bedroom flat of which nothing needed to be changed. You could just walk in and live there. The average rental in Valencia is somewhere between 400 and €600 pcm. The vast majority of rental prices on properties in Valencia are around those prices. This property has been immediately rented out for €450 PCM.
After all the costs the actual purchase price will be around €70,000. Earning €450 per month means that over here there is a return of €5400. That is a gross return of almost 8%. Equally the property is now saleable at a higher price than it was bought for because it is now a business and not just a property.
A second client has bought a place for €41,700. This property needs some work, we estimate around €8-€10,000. After doing all the work and the purchase, the full price will come to around €56-€57,000. However this particular property will be able to be flipped after doing all the work at around €75,000. And in the meantime it will be turning around €450 per month. This of course means that the gross ROI is about 9%. The bank will provide a 50% mortgage on this particular property so the actual investment is around €35,000. On sale a profit of around €18,000 will be gained.
There are plenty of deals like this around right now. However you need to be careful to make sure that the deal stacks up from her return on investment point of view. Is it a good location? Have you got potential tenants? Have you got a potential purchaser further down the line? All of these questions and many more will need to be looked at seriously.
It may be that what may interest you is the short-term rental and the holiday markets. Both of these type of rentals can provide spectacular returns but they depend on one thing, your marketing.
If you are a good marketer you have a much better chance of getting a return than if you really hate sales. A place that you rent out in the summer may make a lot of money for a two or three month period but do not expect it to be full in the winter too. Equally a ski chalet may make money fantastically well for three or four months in the winter. But what happens if we have a year without snow?
Run the numbers and check the facts before you do anything. Investing in property is not a sure thing but it can be a lot of fun. Let's face it returns like those above are much, much better than anything you are going to get through a bank in the near future. You may find that before long you have 2, 3 or 4 places which are all making you a nice little amount of money every month. And that is not to be sniffed at.
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