The purchase of a house to rent could offer a return of 11% if you take into account the rent and the revaluation of the property.
The utopia between the Spanish real estate sector and the big investors is a fact. The question is whether the small investor who has managed to save around 150,000 Euros can enter into the game. The average mortgage contracted is 144,346 euros, according to the Notarial Council with the latest data for the month of December. Because, when the value of shares and investment funds continues to decline and the bank offers a 0.10% interest deposit, it is the turn for the brick and mortar to come to the rescue. The saver can buy a financial product, such as shares of real estate listed companies (socimi), a minority option although it is gaining supporters. Or you can do what most: acquire your good self a property to rent.
If you opt to invest directly in the purchase to let, housing is not the only option, although it provides more profitability than parking spaces and better expectation of rising prices. The advantage is that with the starting budget, 150,000 euros, you can choose several places in good locations.
As for commercial premises, they require advice because the economic activities are subject to municipal controls. Although the Bank of Spain detects higher revaluation in commercial properties than in housing, they are not cheap: a well-positioned store exceeds 150,000 euros. And buying at lower prices means facing higher risks of not being able to let it.
Better being orthodox
The traditional and usual way is to buy a house to rent, as some four million small savers do. In this case, a study must be made of the rental price in the area and compare the expected profitability with the cost of the asset. It is not bad to hire a non-payment insurance to avoid possible setbacks in the payment of the monthly rent.
As for the profit, it depends on the location of the property. The Bank of Spain calculates the gross profitability in 4%. And it offers a second data: if it is added to the rents that are charged for the revaluation of the house itself, the profitability could rise up to 11% or more depending on the zone you buy.
Good and bad news
The bad news first: according to a study of one of the largest managers of houses for rent, housing is the real estate asset with the greatest difference between gross and net profitability, given that costs such as community fees are not passed over to the tenant, IBI or municipal taxes, among others. These concepts reduce profitability to 2% or 2.5%. This is the figure that the saver should take into account because, according to these managers, what he is looking for are long-term rents rather than the surplus value to be obtained from the sale.
Other sources handle higher amounts. According to urbanData Analytics (uDA), gross profitability exceeded 8% in 2018. The data varies by province. The Valencia region can report an 11% profitability, or 9% in the case of Seville.
The big question…. Where to buy?
I would always direct people to the locality in which he or she resides, both for the greater knowledge of the area and to facilitate direct management, thereby improving profitability by not having to pay a third party.
The best areas are without doubt a home in the surroundings of Barcelona or Madrid, or in a good beach town, or almost in any Spanish town of between 150,000 and 800,000 inhabitants, can be the best zones where you can invest.
You can expect from an apartment value at 150,000 Euros a rent of 500 euros, to 600€ depending on the demand and the actual conditions of the flat.
The great disadvantage of investing directly in the property is the lack of liquidity. If you are one of those who expects a new crisis, you should consider being able to recover the money at short notice, so I would recommend distributing the 150,000 euros between two or three large property funds to be able to sell the stock the next day if need it.