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Are you considering investing in housing? Then, you are on the right track. Real estate is one of the safest investments and, if it is managed well, it can be very profitable.
In fact, according to El Mundo Financiero, real estate represents between 80% and 98% of the household’s assets in Spain. Moreover, the coronavirus crisis has reinforced the perception of housing as a safe asset to secure the future of our families.
We will explain the advantages, the types of investment you can choose from and give you some tips. As you know, the good life is also about making decisions. 😉
Real estate investment: advantages
Investing in real estate offers certain advantages that other types of investments lack, therefore making it more attractive. These are the main advantages:
- Stability of liquidity. Real estate can provide consistent and constant income. Particularly on the Spanish coast, where thousands of tourists come every year to rent holiday homes.
Investing in real estate is also an excellent option for retirement, because it helps supplement pension benefits and other retirement funds you may have. 💶
- Affordable financing. The financing conditions given by Spanish banks when granting mortgages are very good in historical terms. Thus, financing the purchase of a home will not be as expensive as it was years ago, since you can find mortgages with an interest rate of 3%, 4%… ✅
- Diversify your investments. If you are already an investor in stocks, bonds or any other financial product, real estate is a good way to diversify your investment portfolio and mitigate risks.
This way, you can offset losses more effectively, should they occur. In the long run, you will be able to weather market fluctuations more safely and, in many cases, get more cash as a result. 👌
- Real estate assets drive your net worth higher over time. In other words, if you choose the property well, its market value will increase. Moreover, by renovating the property you can increase its value even more for a possible sale at a later date. On top of that, real estate always has an intrinsic value, because it is a tangible asset that will always have the value of the land on which it is located.
- If you are a foreigner who wants to invest in a property in Spain, you can obtain a Golden Visa. By investing at least 500,000 euros in real estate, you can obtain a residence permit and Spanish nationality. Read this article in our blog to find out more.
- It is not an abstract asset. This means that your home is there, it is a tangible asset, unlike shares or other investment products. It is always a good thing to have a home that you can enjoy. 🏠
Real estate investment: drawbacks
Like everything else in life, real estate investment also has its downsides. We hope that they will not discourage you, because with good information and professional advice, these minor issues should not affect you:
- The initial investment is high. Obviously, buying a home does not happen overnight and you will need savings to be able to cover the initial costs. If you apply for a mortgage loan, these expenses correspond to taxes and incorporation costs (notary, agency, appraisal…).
If you do not apply for a loan, clearly you will have to pay the full price of the property when you sign the deed of sale. What is the solution? Simple: make sure you have the necessary capital and you can forget about problems and unpleasant surprises.
- Home values vary. A property in the centre of a big city or on the coast is not the same as, say, one in a remote outback town. The profitability may also be higher at certain times of the year, for example if you rent out your property for holiday rentals. 🌅
Same thing: make an investment recovery plan and buy accordingly. Sonneil’s homes, in particular, are located in places on the coast that are active all year round, close to urban areas that remain busy even in the winter season.
- If you buy a property in order to rent it out, bear in mind that it will take a few years for you to recoup the investment. This is a very long-term investment. On the bright side, The revenue will be constant and will provide you with liquidity with each monthly payment you collect.
Tips for investing in real estate
Even though there are many advantages, and even though it may seem easy, you need to be clear about many things before investing in real estate. Do not let yourself get carried away by an impulse and think carefully about what is involved. Here are our tips:
- Is the location good? There are homes in areas that might not look great today, but if there are plans to improve these areas (metro, parks, schools, new services…), their value will surely increase over time, so you can (if you wish) resell your home and make a profit from the transaction. 📍
Then, if you want to resell the property immediately, or rent it out, bear in mind that even if properties in unpopular areas are cheaper, you may find it more difficult to find buyers or tenants.
- How is your bank account? Before you dive in, take a look at your financial situation. You need to be prepared not only for the purchase, but also for the associated expenses. That way, you will know if it is the right time or if it is better to wait.
Take a look at your savings and make sure you can afford the investment and possible unforeseen costs. Examine your expenses. What do you spend the most on? Are there any expenses you need to cut back on? That way you can see what percentage of your income can be used to buy a home. 🔎
- Stick to your budget. Establish a price range within which you can move, and avoid going over it. Sometimes you may feel pressured to get ahead of other buyers. But be very aware of what you can afford and stick to it.
- What type of property are you looking for and what do you want it for? It seems self-evident, but there are people who invest in housing without having fully answered these questions.
First of all, ask yourself: “Do I want a single-family home? A flat? A duplex? Do I want it to be close to work? And furnished? Do I need a large kitchen?”. Assess the life project that you have ahead and the type of home that best suits you.
If you want to rent it, you will have to go through the same process: What kind of tenants are you looking for? What monthly rent do you want to ask for? You will then be able to decide whether you prefer a loft, a family home, higher or lower quality finishes…
- Seek advice and read the fine print. Buying a home involves a lot of paperwork and, unless you are a professional, you will need help. Mortgages, interests, notarial instruments, deeds… 🧐
Before buying, look for professionals who can advise you on each step and who will inform you, among other things, of the associated taxes, the different steps in the buying and selling process, your rights and obligations, etc.
At Sonneil, we offer you advise on everything you need when it comes to investing. In this article, for example, we tell you why it is a good idea to get a notary public.
Types of property investment
There are different types of investment in real estate that are worth evaluating. These are the main ones:
Investing in newly built homes
After the halt in construction caused by the 2008 crisis, new construction has been reactivated and there are already developments recently built or in the process of being built in many Spanish cities.
Firstly, according to El Economista, new-build homes meet the requirements that covid has created: large energy efficient houses with balconies and outdoor areas… And they give a piece of advice: invest in peripheral areas, which will increase in value due to the rise of home working. 👩💻
Secondly, buying a new build property as an investment is very attractive if you intend to rent it out, especially in cities, where rental prices are rising due to the increase in demand.
Moreover, the high quality of newly built properties is a bonus compared to pre-owned properties.
At Sonneil, we sell new-build homes in the most privileged areas of the Spanish coast.
Investing in pre-owned homes
This is a good option if the house is acquired at a low price and renovations are carried out. For those who are looking for properties in central areas of the city, you can find properties at a very good price, invest in renovations and then put it up for sale or rent.
As a result, returns are guaranteed! The city centre and other well-valued areas will always be high in demand.
However, it is a good idea to have some skills (or know people who do) in renovations, so as not to pay too much and to achieve a higher profitability when you put the property up for sale. 🔨
And assesses certain aspects before making the investment, such as the state of the property, the energy rating of the house, the condition of the supply installations… just to avoid any surprises.
Real estate investment funds
Do you want to invest in housing without being tied to a property? Then real estate mutual funds are the answer. These private funds are used for buying properties to sell or rent out, and they are listed on the stock exchange with shares that you can buy in order to get your share of the profits. This way, you do not have to worry about finding a property, managing it, etc.
On the other hand, if at any given time you need liquidity, it is as easy as selling your shares, without having to look for buyers for the home or anything like that. A manager and a team of specialised analysts will take care of that.
As you can see, the options for investing in real estate are many and can be tailored to each investor’s situation. If you are interested in making this move, do not hesitate to contact the Sonneil team, who will assist you with their experience and professionalism.
