When prices have fallen so far as they have in Spain and they finally reach the bottom as many sources are now saying they have, then there are property investment options in Spain that you may not be aware of. Today we are going to look at what investment possibilities are available for people in the Spanish property market. Some may suit you, some may not but recently we have seen many different types of investment that suit all pockets. Take a look.
The truth is that fractional ownership has a bad reputation and quite rightly. The days of the hard sell to poor tourists, on the Canary Islands especially, are not easily forgotten as families were effectively kidnapped for a day until, tired and angry, they signed documents tying them into buying a week in November of a development that was still just a dream in the eye of the developer. Lots of money was lost and lots of people bought absolute rubbish on developments that were not maintained and quickly fell into disrepair or had huge maintenance fees hidden in the fine print.
Fractional ownership was effectively the business of timeshare changing its name from Windscale to Sellafield to clean the image.
However there are some interesting fractional ownership properties that can give good investment returns for people. Recently I know of a purchase of an apartment in the Canary Islands for the princely sum of 1 Euro as the owners just wanted to get rid of it. (The buyer took on the costs of the transaction.) That week can be easily rented out for 800-1000 Euros or it could be used as a house swap on the fractional ownership forums and in social media. That is a good return on investment. The yearly costs are around 100 Euros too so not a bad deal. There are many fractional ownership deals of this type that come up, maybe not at 1 euro but cheap deals, and they can give large percentage returns. Buying up a few of them can be a good residential investment without having large upfront costs
If you are willing to put in the work, organise a set of builders, maybe do a hands off job and can identify and buy good below market value properties in an in demand area then you might be ready to put some money into an investment apartment and become a property developer. (If not then see below for crowdfunding initiatives) There is so much property for sale in Spain due to the overbuilding between 1997 and 2007 that evidently there are some absolute bargains that come up.
However, I would go further and say that there are even better deals to be had in older, maybe better positioned properties that requires anything from a lick of paint to some TLC to a major refurbishment. In the major cities there are many many opportunities to put value into a property by refurbishing but make sure to read out guide here and also take into consideration the costs you have both on purchase and sale and what you can offset in terms of your development costs. If you are going to do this then it is almost always better to form a limited company so all costs can be offset.
Key Ready Apartments
If you are simply looking for a return on investment and a monthly income, maybe you should be looking at a finished property with the hard yards of refurbishment and development already done for you. In certain parts of Spain you can easily get up to an 8% annual return on rental and with good marketing and a large network you can also beat this mark. 5% is simple and should be considered a good return for rentals bearing in mind that banks and bonds are paying very little.
With the upside of potential future increases in value of the property because, as stated previously, the market is bottoming out then buying a key ready apartment to rent out long term, medium term or in the competitive short term market is a good option.
Some companies are offering the chance to buy hotel rooms and the company with the hotel lease will lease it out for you. You are allowed to block times that you wish to be there or for when you want to use it for friends and family and the rest of the time the hotel operator does the job for you.
Things you should watch out for in this type of investment are that the operator has a good track record, that returns are guaranteed minimums possibly with an upside and that you have an out point if you should wish to cash in your investment. Returns will generally be lower than certain other forms of investment but if guaranteed and bought at a decent price there is a good potential upside and the investment is quite solid
Aparthotels are similar to the hotel rooms investment, so similar that there is no need to expand on the above except to say that aparthotels are growing in popularity currently whereas hotel rooms are decreasing in popularity, therefore aparthotels are often a safer option currently and you have an option to buy in a hands off aparthotel too which doesn’t have the same staffing costs as a hotel but can also be rented medium and long term which is unlikely in a hotel room.
Buying a whole building if you have the funds available can be a very exciting investment currently as so many buildings are for sale at very good prices for redevelopment or for change of use. For individual property developers this can be very good because economies of scale can be made on the development costs. A building with ten units can easily be 25% below the costs of developing an individual unit because of the power of bulk purchasing deals and more useful worktime from the builders. However this is a large investment of course and requires a plan in order for it to work.
Remember that in the majority of redevelopments or new builds, the developer makes their money on the last few units so it is best to contract a sales team during the process of development to start the ball rolling as soon as possible on the eventual sale of either the individual units or the refurbished building as a whole.
Commercial property took a big hit during the property crash post 2007. As companies and shops closed down the demand for commercial premises nosedived meaning there were lots of commercial premises lying empty for a very long time falling into various states of disrepair.
Commercial property comes into various categories from office space, shop fronts, storage, industrial units and technology hubs among others. It wouldn’t be a good suggestion to get into any of these without the requisite expertise in the market however the real estate mantra of location, location location rings true more than ever in commercial property. Despite Amazon, people still go shopping on high streets and in malls and that is even more true in Spain as customers like to touch and feel goods before buying. Therefore there is always a demand in high footfall areas as customer spend goes up due to the economic recovery. Equally most owners of these places maintained their prices for rental high during the slump which helped to keep those places empty, go figure. If you can buy at a relatively cheap price from somebody who needs to sell you can often find that the annualised percentage returns can be very good.
There are certain things to look out for though. Can you get a reliable tenant? Is there already a sitting tenant paying a decent amount? How long is the contract for and is it obligatory to pay even if the business owner wants to close it. There are very good deals available in warehousing for larger investors as distribution and logistics becomes more important but expect to pay a high price for the best returns.
You can now buy a part of a property development, whether that be for a return on individual houses or a timed return for funding a developer’s purchases. Returns are generally in the 8-12.5% area on crowdfunding for property development in Spain and you can get a part of it from as little as 500 Euros in some cases.
Here we will give an example of a three year investment in property development in Valencia. The company is offering a guaranteed return of 10% annually but by compounding the returns over the three year period of the investment the investment pays just over 11%. The money funds individual property development units currently which are being flipped in a time period between two and six months for returns averaging 25% meaning the development company can easily guarantee the returns that they offer investors. For more information contact us here.
A real estate investment trust is a tax dodge. Currently it is totally legal so a lot of the major players in the Spanish property market are using REIT’s as a package for their property redevelopment. They are known as SOCIMI’s and they qualify for 0% tax on them and only 10% tax on dividends taken from them.
You can buy shares in SOCIMI’s if you believe they are going to be successful. The two best known are LAR España and Hispania which are both listed on the stock exchange. Their shares have not moved much since they started operating but they are expected to start paying dividends shortly on their disposals and rental income.
For the small investor shares in a Spanish REIT may be a good long term option. For a large investor opening up a SOCIMI is a bit of a no brainer due to the tax efficiency. However they are not our preferred vehicles for smaller investors.
What Should You Be Looking To Invest In?
Obviously the answer to this question is different for everyone as each person has their own goals and investment levels. However if you are looking for a good percentage return on your investments without the hard work of getting your hands dirty then a crowdfunding platform, key ready apartments or even fractional ownership can give good returns.
It is also a good time to become a property developer although proposing a joint venture with a current developer might well be a way forward to avoid having to set up a company and run it which is time and money consuming in Spain. There are crowdfunding options which allow this type of joint venture development. We can put you in touch with developers in different parts of Spain willing to do JV’s.
If you are a larger institutional investor, and many hedge funds have chosen this route too, then the REIT’s or SOCIMI’s are the way forward. They benefit from favourable tax status and can invest freely in residential and commercial units to rent and then dispose of.
If you want more information on any of the above then just contact us at the Spanish Property network and we will put you in touch with people who can make it happen for you and get you a good return