If you are considering an investment property in Southern Spain, you are probably wondering what return you can expect. In this article, the experts of Terra Sur Homes explain
Introduction
After the financial backside fell off our planet in 2008, the property market in southern Spain landed flat on its face and lay there sweltering in the heat of the Costa del Sol sun.
The coast emptied of all its estate agents. They disappeared quicker than sandwiches at a funeral, and seemingly overnight...the glorious coast from Malaga to Gibraltar was left eerily quiet.
All the realtors who made a killing in the full swing of property sales, were heard running for the hills and trying to figure out how to get a visa for Bulgaria or Turkey. The whole world suffered but our small and cosmopolitan corner of Spain was left wondering 'where has everyone gone?'
The countryside was littered with half finished developments, the banks came swooping in and with an audible smirk, gathered up as many keys from as many mortgage defaulters as they could manage. It was, like for many, quite a gloomy time!
However, for every family that got the dirty end of the stick, there were others that seemed to ride the recession wave and were ideally positioned to take advantage of a market. It made sense when they were told that they could buy property for half price and 'make some money'. Providing they bought the right property and did the right research, (you can find out how to prepare by reading this here), then they were surely on to a winner!
Well none of us have a crystal ball that can reliably predict the future but it is a safe bet to say that the price of buying property here on the Costa del Sol, is as low as it will ever be, and for the foreseeable future, the prices will only go one way...up!
There are two ways of making money from property, capital growth and rental income
Sure there are other ways of juggling property finances around to make a better profit, all sorts of tax dodges and tips and tricks that can add the extra Euro on to the bottom line, but as I am completely unqualified to tell you how to do this, I am going to stick to the basics.
Capital Growth
Recently, during a bit of a spring clean in an office, I unearthed a price list from a golf resort in Estepona dated 2005, that happily announced that you could confidently part with 320,000 Euro and buy an off plan, 2 bed 2 bath apartment with all the modern finishes. What a bargain I thought. Until I remembered that you can buy that exact same apartment (that is now finished and ready for occupation) for less than 150,000 Euro. Now I do not know if the market will ever be able to stand prices like those in 2005, but its good to know that someone was willing to pay that kind of money. If the prices increase (which they are), then buying at today's prices makes it sort of impossible to lose out!
One point of interest that will help you understand the reality of this, is that the property market here, like most places, works on a cycle. Seven years of growth, followed by a slump. Hopefully not as bad as the last one we had, but a slump nonetheless. We are effectively more or less at the beginning of the growth cycle. If life was simple, which in essence it is, you buy today, and sell in 6 years time. Take the cash, wait for the slump to hit, and then re-enter the market at the beginning of the next cycle.
Obviously this is subject to many things that are out of everyone's control. Alien invasions, another ice-age, or the more unlikely ones such as Europe wobbling or some rogue bankers playing reality monopoly, but for all intents and purposes, and with history normally repeating itself with reasonable precision, the seven year cycle is real.
Rental Income
Which property you buy, can and will, have an effect on how successful you are at having it rented. You might have a look here, so you are forearmed with at least an educated opinion (don't worry, I asked someone else)
The tax man will get his hands on some of your rental income, unless you know more about accountancy than most. Your accountant here in Spain will do all your returns etc., but you can expect between 21-24% of your net profits (after running costs) to be whisked away and spent on something important like the much-needed and long asked for statue of Antonio Banderas...
The local government will be less painful by charging you two annual fees called IBI & Basura (annual council tax & rubbish collection. Dependent on the property, the fees are calculated. The more expensive the property, the more the fees will be.
The rules which affect your rental investment on a ground level, can be found here http://terrasurhomes.com/new-holiday-rental-law/
If you own a townhouse, apartment or villa in an urbanization or complex, then you will be expected to pay a monthly community charge. Again, depending on the amenities that you share with the other owners, will determine the monthly cost. To give you a quick idea, a 2 bed apartment costing less than 200,000 Euro is around 100 Euro per month...give or take.
If you own a private detached villa, then the running costs will be an awful lot higher but how much you spend is really down to you. No one will come knocking asking you for the money, but then again, no one will rent it out and it will stop being an investment
Then we arrive at the Property Management Company. If you want to sit back, relax, and not worry about a thing, then one of these companies is vital. They do everything from holding a set of keys, cleaning, laundry, mowing the lawn, regular visits for inspection and so on, all the way through to booking golf times for your guests. There are dozens to choose from but you can save your time and money, by simply asking us who we recommend.
We get nothing but just being safe in the knowledge that they are the best the coast has to offer. Drop us a line here, and we will get you some quotes and some ideas.
So how much can I expect, after all these costs?
Fair enough question I suppose. If you have the right property, pay the lawyer, accountants, annual taxes, community fees, property management charges and the tax man, you could end up with 3-5% net in your Spanish bank account.
If your property costs 150,000, you will net around 6,000 Euro. It might take 2 to 3 years to get to this, with a steady year on year 'bums on seats' improvement or you may be lucky and hit the ground running. The numbers above all urge on the conservative, and are all a damn sight better than the paltry sum your bank will offer.
If you compile this rental income along with the mystery capital growth, then pound for pound, its probably one of the soundest places to invest your cash into.
If you need any free advice, and it is free, we may try and woo you with our charm, but we will tell you what you need to know at no cost, then hit the button directly below and we will contact you as soon as we can.
