Property investment in Spain is currently a good opportunity to generate cash flow from buy-to-let, but only in an area with a solid rental market.
We believe that in the current property market climate, the only effective strategy for a first-time investor is to buy well below the market value from motivated sellers. Furthermore, investors must buy in cities where the rental demand is permanent and solid, in order to rent their properties as soon as possible.
Buying below market value will guarantee you low prices in the current market. However, if the market falls further before beginning to rise, your property investment is protected from negative equity. To assure this in a falling Market, as Spain is now, seek a margin of 25%-40% below market value.
We want to draw a line between a property investment in Spain and a second residence with investment aims. These are two entirely different investment strategies with differing goals. A property investment is there to make money; a second residence is there as a holiday home. While it may be possible to recoup some financial outlay in high season rental income, a holiday home will not turn a profit.
Properties on the coasts and in tourist towns sound very attractive, with their location, weather and proximity to the beach. Nevertheless there is a major oversupply problem on the Spanish coasts: there is insufficient demand to meet the rental and sale oversupply.
As a result, while coastal holiday homes are an appealing second residence, it will be very difficult to produce a profit from one. This will become more serious as price and demand continue to fall.
If you are planning to invest to generate short term wealth, Spain will not do this for you. Average prices are falling and will take several months to pick up in certain areas. A return on your investment will come, but only with time.
What can be achieved now in Spain is to buy at very low prices in locations with secure rental demand, generating a cash flow immediately and offering equity on the property when prices do begin to rise. Prices will rise in urban locations but this will take some time: until then, buy-to-let is the most reliable option.
On the coast and in tourist towns, it will be possible to rent for a few weeks in high season, but your property is likely to stand empty most of the year. Buy, by all means, but don’t base your calculations on rental income. Most of the year there will be none. If you are very lucky ad your property extremely well-sited, it might be possible to generate 10-15 weeks’ rental income per year, but this is a maximum figure most won’t achieve.
In major cities like Madrid and Valencia rental demand is strong and it will guarantee you a cash flow. A survey carried out in Valencia and Madrid by thespanishbrick.com indicated that the average time take to secure a long-term tenant in these cities was 2-3 weeks. In some specific boroughs the process may take longer, but the rental market is performing very well here in terms off demand and rental income.
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