Buy to Rent.
The return on the purchase intended for rental
These last few months have been busy weeks for me. Fluctuating with the sector is a technique that I consider essential to be able to read the present and understand the future of Real Estate. In my case, it is not only about holding business meetings and study trips to other countries and cities to be able to analyze diverse markets, but also about having a continuous presence in conferences related to the most effective techniques for investors who trust me and WITHYOU. Now that we are reaching the end of 2021, I have been encouraged to write this article to share with you one of those techniques that has acquired more relevance during this year: the 'Buy to rent' or, what is the same: the purchase of real estate in order to allocate them to rent.
Although the exchanges of impression with other colleagues have been very varied in this respect, the main headline that I can draw from my most recent conversations and conferences is that, in the field of investment possibilities, buying a property to rent now stands as one of the best opportunities to increase the capital of investors. . The possibility of a constant return and an increase in the underlying value of the property are first level parameters for those who decide to invest betting on a technique such as 'Buy to rent'.
But how does 'Buy to rent' work?
Let's approach the simplification of this technique as an investment with the aim of turning a property into an asset capable of offering a continuous return to those who acquire it. To do this, however, we will always have to take into account the opportunities offered by the market or the specific needs of each investor.
In principle, the purchase to rent follows a fairly simple line, which involves the purchase of a property, its eventual remodeling and then the provision of income through a lease.
At that time, once the investment has been "rehabilitated", that is, we have done the necessary work to make the property "marketable", the next step is to look for the right parties for the lease that will begin to generate the rental income.
To take into account: the underlying value
Of all the highlights that appeared recurrently in these conferences, I would like to give special relevance to the underlying value of the property. Let's see if I can define it with a simple mathematical formula that is easily understandable to any reader of this article:
· We understand as underlying value of the property the sum of the potential value of the property with the return on investment, calculated on the difference between the capital invested and the annual net income per rental.
Well, I think in the end I found it easier than I thought to summarize it, right?
But is it profitable to apply this technique in the Real Estate sector in Spain?
I am aware that you have been able to arrive at this point in the article with that question in your head, hoping to find an answer to it before the conclusion of it; and I hope I can offer you a resolution to that doubt in the following lines.
The shortest and most direct answer would be: yes, indeed, Spain is a country where the technique of 'Buy to Rent' is a magnificent investment opportunity within Real Estate. But let's move on now to a slightly more specific answer. Spain, and especially the Spanish coasts, are proving increasingly attractive to buy properties for rent. At the level of numbers, let's think that the average profitability in Spain is 6.7%, with peaks that reach almost 8% along the Spanish coast.
In some coastal towns in Spain, the profitability of housing rentals was much higher than the national average of 6.7%, according to data from El Economista, extracted from its most recent report on the profitability of real estate in coastal municipalities in the summer of 2021, where they compare the purchase prices of homes with the income from rentals made.
Data that I had the recent opportunity to contrast in one of the conferences attended where, a spokesman for Fotocasa explained that: "There are few financial products that offer as much profitability as real estate for rent. Precisely for this reason, Spain is one of the favorite markets of investors. Especially since the pandemic, the demand to buy properties for rent has increased, both among large investors and among people landing new in this market."
Undoubtedly, among all the knowledge acquired and shared during the conferences, conversations and networking meetings related to the 'Buy to Rent', what has been most installed in my brain is that, by buying a property to rent, investors can generate attractive returns and benefit from the property as a valuable asset in the real estate market. But how will it develop in the future from there? My prediction is that this trend will skyrocket even more because all the parties involved in its sale, occupation and exploitation are betting on this type of development. The past 18 months have witnessed large-scale changes and uncertainty in the sector; now, it is more important than ever to be prepared for market progress and trends, and not to settle for reactive actions.
David Granell Moreno