Buy to Let in Spain, madness or not?
Discussion
I have a good friend and he and his wife have just sold there house and will be left with around £350K. They want to rent in the uk and buy a property in Spain in the Alicante area. They have been seduced by the agents out there and promised a return of circa 20% on the investment, with them spending a few weeks out there each year.
Sounds like an accident waiting to happen with Brexit effect unknown and lying, scamming agents everywhere out there.
Anyone have property in Spain that can give an idea of the pitfalls and the real world returns?
Sounds like an accident waiting to happen with Brexit effect unknown and lying, scamming agents everywhere out there.
Anyone have property in Spain that can give an idea of the pitfalls and the real world returns?
I don't have personal experience of owning such a property but in my professional life we have for several years analysed residential investments in the south of Spain. The key thing to bear in mind is that there is huge oversupply of 2007-era construction in all but the most popular locations (Marbella, Malaga and Sotogrande really) and that the country has a shrinking population due to reversing migration flows.
Alicante is at best a secondary location (like Manilva, Benahavis, etc etc). I don't see how you can get to 20% returns without assuming significant house price inflation, and I don't think the fundamentals are in place for that inflation. As well as oversupply of finished construction there is a lot of work in progress and land owned by developers. When you couple that with low construction costs, any increase in prices will stimulate more construction, creating a natural ceiling on prices.
Another point to bear in mind is that fears of terrorist action in many North African resorts has significantly increased travel to Spain in recent years, flattering the operating metrics of all hotels, AirBnBs and so on. It's really a macro call as to whether these levels of performance are sustainable.
Personally I would not buy such a property unless I was comfortable that I would get enough pleasure from my own use to justify the purchase price. I certainly wouldn't buy a timeshare for fear of the conmen you have described, and I probably would only consider buying something already constructed rather than 'off-plan'.
Alicante is at best a secondary location (like Manilva, Benahavis, etc etc). I don't see how you can get to 20% returns without assuming significant house price inflation, and I don't think the fundamentals are in place for that inflation. As well as oversupply of finished construction there is a lot of work in progress and land owned by developers. When you couple that with low construction costs, any increase in prices will stimulate more construction, creating a natural ceiling on prices.
Another point to bear in mind is that fears of terrorist action in many North African resorts has significantly increased travel to Spain in recent years, flattering the operating metrics of all hotels, AirBnBs and so on. It's really a macro call as to whether these levels of performance are sustainable.
Personally I would not buy such a property unless I was comfortable that I would get enough pleasure from my own use to justify the purchase price. I certainly wouldn't buy a timeshare for fear of the conmen you have described, and I probably would only consider buying something already constructed rather than 'off-plan'.
My parents have a part share in a two-bed apartment at the La Manga club.
It's all very nice there, but when I was out there in June I couldn't get over the staggering amount of really good property on the market at absolute bargain money. Nothing seemed to be shifting however, and I didn't see a single punter in any estate agent in the 12 days we were there, I went out of my way to look!
It strikes me that Brexit uncertainty is having a massive effect on the market, I personally think anyone would be mad to get into Spanish property now, until we know the terms of the Brexit deal.
It's all very nice there, but when I was out there in June I couldn't get over the staggering amount of really good property on the market at absolute bargain money. Nothing seemed to be shifting however, and I didn't see a single punter in any estate agent in the 12 days we were there, I went out of my way to look!
It strikes me that Brexit uncertainty is having a massive effect on the market, I personally think anyone would be mad to get into Spanish property now, until we know the terms of the Brexit deal.
Maxf said:
They are taking a pretty decent currency risk too... so that, plus Brexit would mean I'd want a double digit return. I'm not sure you'll get it though unless you assume near 100% occupancy.
Good point. Unless you are in the Canaries, the season is too short to get decent rental yields, especially if you want some of the prime summer weeks for yourself.DELETED: Comment made by a member who's account has been deleted.
Bear in mind that many of the asking prices aren't set with reference to local market conditions but by the banks that own the properties having foreclosed on the developers that built the estates.Basically the bank holds the asset on its books at value of the original amount that it loaned. They don't have to recognise any loss until they sell it, so they hold out for a very high price, meaning this stuff just sits.
We rent in Marbella for 3-months in winter, we reckon that no more than 10% of properties are ever occupied and, if they are, it is by permanent residents.
As the second poster said there is a massive oversupply, particularly of 2-bed apartments, I do not believe that a 20% return is remotely possible, perhaps a net 5%, which is better than money in the bank, but is it worth the risk compared to a balanced portfolio of investments.
The exchange rate is not really favourable either. I would be inclined to buy in the UK and rent in Spain - €1000/month can get you are pretty smart long-term rental. Their leases usually allow you to sub-let.
As the second poster said there is a massive oversupply, particularly of 2-bed apartments, I do not believe that a 20% return is remotely possible, perhaps a net 5%, which is better than money in the bank, but is it worth the risk compared to a balanced portfolio of investments.
The exchange rate is not really favourable either. I would be inclined to buy in the UK and rent in Spain - €1000/month can get you are pretty smart long-term rental. Their leases usually allow you to sub-let.
Edited by rdjohn on Friday 8th September 08:34
PurpleTurtle said:
My parents have a part share in a two-bed apartment at the La Manga club.
It's all very nice there, but when I was out there in June I couldn't get over the staggering amount of really good property on the market at absolute bargain money. Nothing seemed to be shifting however, and I didn't see a single punter in any estate agent in the 12 days we were there, I went out of my way to look!
It strikes me that Brexit uncertainty is having a massive effect on the market, I personally think anyone would be mad to get into Spanish property now, until we know the terms of the Brexit deal.
My in laws have just moved back from Spain. It has taken them well over 12 months to sell their house and then they had to take a huge loss just to get rid of it. From what they were saying, the housing market is pretty dead anyway, but not being helped by all the older ex-pats looking at moving back to the UK with all the Brexit fears over healthcare, pensions etc.It's all very nice there, but when I was out there in June I couldn't get over the staggering amount of really good property on the market at absolute bargain money. Nothing seemed to be shifting however, and I didn't see a single punter in any estate agent in the 12 days we were there, I went out of my way to look!
It strikes me that Brexit uncertainty is having a massive effect on the market, I personally think anyone would be mad to get into Spanish property now, until we know the terms of the Brexit deal.
cashmax said:
I have a good friend and he and his wife have just sold there house and will be left with around £350K. They want to rent in the uk and buy a property in Spain in the Alicante area. They have been seduced by the agents out there and promised a return of circa 20% on the investment, with them spending a few weeks out there each year.
It's not "madness", but the chances of it succeeding as mooted are roughly the same as Scotland's chances of winning the next World Cup. I would guess that within 3 years of commencement, the plan would come to an end with a 75% loss of capital.
Well...ok. It's madness.
drainbrain said:
It's not "madness", but the chances of it succeeding as mooted are roughly the same as Scotland's chances of winning the next World Cup.
I would guess that within 3 years of commencement, the plan would come to an end with a 75% loss of capital.
Well...ok. It's madness.
So they'll return with 25% of their capital... probably what the agent's meant!I would guess that within 3 years of commencement, the plan would come to an end with a 75% loss of capital.
Well...ok. It's madness.
Joscal said:
My folks had a place in Mallorca (I know not Spain) and it was a complete pain in the ass. Far better to rent off some other mug in my opinion.
Spain may be different but there is a real undercurrent bubbling they really are fed up with tourists, airbnb etc etc.
I heard that too. We used to get the same problem in Cyprus. Bit odd really with the amount of money they make from the tourism industry.Spain may be different but there is a real undercurrent bubbling they really are fed up with tourists, airbnb etc etc.
marky1 said:
They will never make 20%. You buy to let in spain to help cover your operating costs when you really want to have a property in the sun to use sometimes yourself.
I used to think I wanted a holiday home in the sun. My current thinking is that unless I can afford to leave it empty when I am not there (and I can't), it's not a lot different from renting an apartment, except I am responsible for all the hassle that comes with the property. Instead I hope to go and stay abroad in other people's properties increasingly over the coming years, which has the added advantage that I am not tied to one location.Just to hi jack this a bit (but maybe try to put a different slant on it)...
My wife has just retired early on sick grounds and wants a place in the sun while she can still walk. We've not got any debts in the UK and have the cash now to buy a decent holiday home in northern Majorca but with the exchange rates as they are it would be financial madness.
Plan is to buy a decent place and only use it from september to june (too hot for me in the summer, I'm a northener). We'd put up a decent deposit and mortgage it locally and rent it to friends and family to help offset the running costs. I could pay the mortgage as I still work but I'm not minted so it would be a bit of a pinch unless I started paying the mortgage interest from our savings. One day when/if the Euro exchange rate pops back above €1.3/£ we'll push the rest of the cash over the wall and own it outright.
The house would be in an old traditional town and I was wondering about renting it back to spanish seasonal workers who no doubt come to work in hotels nearby on the coast in peak season?
Long term it would be a keeper and we'd pass it on to our boys (14 and 17 now) and they'd always remember their mum in connection to this place. It's taken a while to get to this point and I think I'm happy with it but I've never been that financially savvy and I'm fairly risk averse so just wondered if this sounded sensible?
My wife has just retired early on sick grounds and wants a place in the sun while she can still walk. We've not got any debts in the UK and have the cash now to buy a decent holiday home in northern Majorca but with the exchange rates as they are it would be financial madness.
Plan is to buy a decent place and only use it from september to june (too hot for me in the summer, I'm a northener). We'd put up a decent deposit and mortgage it locally and rent it to friends and family to help offset the running costs. I could pay the mortgage as I still work but I'm not minted so it would be a bit of a pinch unless I started paying the mortgage interest from our savings. One day when/if the Euro exchange rate pops back above €1.3/£ we'll push the rest of the cash over the wall and own it outright.
The house would be in an old traditional town and I was wondering about renting it back to spanish seasonal workers who no doubt come to work in hotels nearby on the coast in peak season?
Long term it would be a keeper and we'd pass it on to our boys (14 and 17 now) and they'd always remember their mum in connection to this place. It's taken a while to get to this point and I think I'm happy with it but I've never been that financially savvy and I'm fairly risk averse so just wondered if this sounded sensible?
Well it's more sensible than the OP, but you should do a few things. One is to go rent a place for a few months before you buy anything. Two is familiarise yourself with the differences in the Spanish legal system of crucial stuff like conveyancing and inheritance.
Three is learn some basic Spanish keywords.
Here's some to start you off:
Abogado
Notario
Impuestos
Ayuntamiento
Residencia y permanencia de extranjeros
Seguros de salud
Three is learn some basic Spanish keywords.
Here's some to start you off:
Abogado
Notario
Impuestos
Ayuntamiento
Residencia y permanencia de extranjeros
Seguros de salud
Edited by drainbrain on Saturday 9th September 00:20
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