Investment in property in Spain normally appeals to the following;

• Property Speculators looking for a quick return on their investment by buying off-plan and selling just before completion taking their profit and moving on to the next investment;
  
• Buy to Rent Investors looking for both capital appreciation and rental income over a period of time;
  
• Future Retirees and Holiday Home Buyers who are looking to rent out their property until such time as they occupy it full time or are looking to offset mortgage or running costs.

PROPERTY SPECULATORS

Both large and small investors often buy property directly ‘off plan’ before any building work has commenced. Their intention is then to sell the property some 12-18 months later as building work approaches completion taking advantage of the increase in price during that time. Property developers promote this activity as a way of covering their building costs and to allow them to increase the number of projects they carry out.

Deposits vary throughout the Costas but the highest requires the Investor to fund 50% of the capital cost of the property. So, for example, on a €150,000 apartment, there is a need to fund €75,000 for the build period. The sale price increase of the property, based on the last few years’ typical growth values, is likely to be around +17%. Hence the return on investment would typically be;

€150,000 x 117% = €175,500 - €150,000 = €25,500.
€25,500 / €75,000 x 100 = 34%

The investor will be able to take the profit upon completion of the house and sale to the new buyer.

BUY TO RENT INVESTORS

Many investors who have been active in this market in the UK are looking to spread their portfolio by buying in Spain. It is worth remembering that short term holiday makers will provide the best return, typically six months rental in a year. Property on, or close to, golf courses can significantly increase occupancy rates. Furthermore, it is easier to rent property at the lower end of the price scale as there are more potential clients. Typical rental agencies who will look after and manage a client’s property will charge around 12% -15%, a worthwhile investment to avoid any potential problems. It is possible to cover mortgage repayments and costs while the investment purchase grows in capital value.

An example, based upon a €120,000 apartment (circa £84,000), on 50% occupancy with 19 weeks high season rental during school holidays, Christmas/New Year and Easter (at €400 per week) plus 7 weeks during mid/low season (at €250 per week) would yield;

(19 weeks x €400) + (7 weeks x €250) = €9350
€9350/ €120,000 = 7.8% plus capital growth on the property.

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