Spain is one of the countries where most people invest in real estate, also known as real estate. The size of the real estate sector in this country has not diminished over the years and therefore attracts a wide variety of investors, but it is also… What do we mean by “real estate” and how can we invest in it?
In this short guide, we will explain what real estate is, what types exist and how to invest in it.
Table of Contents
The real estate market
According to data published by the General Council of Notaries, in the fourth quarter of 2019, the sale and purchase of flats increased in 10 of Spain’s 17 autonomous communities. Although the situation has changed since then, based on this data, real estate investment in Spain can be considered good if we ignore the current crisis.
What is real estate?
Real estate is what we would call real estate, what in the Anglo-Saxon world is called “Real Estate”, a word that is increasingly used here in the real estate sector in its English meaning.
Real estate is included in article 334 of the Civil Code, which establishes that they are, among others, land, buildings, communication routes and structures of any kind linked to the land. They are therefore referred to as “roots”.
They are immovable property:
1.º Land, buildings, roads, and constructions of all kinds attached to the ground.
2.º Trees and plants and outstanding fruit, as long as they are attached to the land or form an integral part of a property.
3.º Anything that is permanently attached to the immovable property cannot be separated from it without damaging the material or deteriorating the object.
4.º statues, reliefs, paintings, or other objects of use or ornamentation, placed on buildings or estates by the property owner in such a way as to reveal the intention to attach them to the property permanently.
5.º Machines, vessels, instruments, or utensils intended by the property owner for the industry or operation carried out in a building or estate, and which directly meet the needs of the process itself.
6.º Animal nurseries, dovecotes, beehives, fish ponds or similar breeding grounds, when the owner has placed them or keeps them attached to the property and form a permanent part of it.
7.º Fertilizers intended for the cultivation of an estate on the land where they are to be used.
8.º Mines, quarries, and slag heaps, while their material remains attached to the deposit, and living or stagnant water.
9.º Dikes and constructions which, even if they are floating, are intended by their purpose and conditions to remain at a fixed point on a river, lake, or coast.
10.º Administrative concessions for public works, easements, and other rights in rem over immovable property.Royal Decree of 24 July 1889 publishing the Civil Code.
In contrast, movable objects are those that can be transported from one place to another without damaging the immovable object to which they are attached.
It follows from the above that immovable property includes, among other things, a house, a plot of land, an industrial building, a building, or business premises. On the other hand, movable assets are, for example, a car, a desk, a refrigerator, or a computer.
Many investors choose real estate as part of their investment portfolio because it is an asset that has historically performed well. However, in real estate investment choices, we need to know which type of property is the most suitable for our strategy.
What are the types of ownership?
In general, there are three main types of property, depending on their use:
- Residential development: land classified as residential, buildings, villas, or flats.
- Commercial: Land classified as commercial, office buildings, commercial premises, shopping centres, or warehouses.
- Industrial: land classified as industrial, warehouses, factories, mines, farms, etc.
How can I get value for money from real estate?
If we imagine buying commercial property on a busy street in a big city or a house in a central area, how can we make it profitable? How can it be a “good business”?
This is usually the most common form:
Buying and selling
This involves buying a property and selling it after a certain period of time in anticipation of a revaluation. In this case, the return is not immediate because if we decide to sell, the sale may not take place for several months or even at all due to market conditions.
Buying depreciated premises or flats, carrying out a reform to sell with a higher margin. Buying and selling, but with added value. It is necessary to choose a good location and property or place where it is possible to obtain this type of profit even after the reform. The work will revalue the property, but it will be necessary to quantify the amount of the total investment (purchase, expenses, and refurbishment) and also the resale price to which we want to aspire in order to achieve the expected profitability.
Medium/long-term rental of premises or real estate to generate income.
In this case, it is important to take into account the total investment, i.e. both the money to be spent on the purchase and all the expenses and taxes to be paid, as well as the return that is calculated on the rent.
In the housing sphere in particular, it is also important to remember that every time there is a change of tenants, it is necessary to invest in maintenance.
In the case of premises that need to be adapted to the tenant’s activities, it is usually the tenant who carries out the work, which in many cases can even increase the value of the rented property.
Renting out the property as tourist accommodation. In the case of real estate, this is another common way of earning income. In recent years, we have seen a boom in this form of accommodation thanks to the introduction of platforms such as Airbnb or HomeAway that facilitate these processes. However, it should be borne in mind that it requires management and, above all, increased maintenance, as it is likely to wear out due to repeated use.
Renting space and selling it on a permanent lease.
If you own a property that is let on a leasehold basis, this can add value to the sale, as the buyer will get value for money from the outset. Of course, this would not be the case if the premises were empty.
Real estate crowdfunding. Technology and real estate have long since come together to make it easier for investors of all sizes to invest in real estate through real estate crowdfunding. Through these platforms, it is possible to participate in a variety of investment methods, the most common in crowdfunding being crowdlending and crowdequity, where an individual does not have to bear the full costs of the investment. A platform such as StockCrowd IN allows hundreds of investors to participate, for example, in the renovation and subsequent sale of a property, starting from as little as €50.
Each form of investment is different and has a different level of risk, a different return and a different time frame for achieving that return. We need to carefully assess which options are best within our investment strategy.
Why is investing in real estate a good option for the future?
Real estate investment in Europe is strong, reaching a record €85.5 billion in the first quarter of this year. Although the current outlook is very uncertain, experts believe that real estate investment will remain a profitable and stable investment.
In terms of prices, as we have already explained, a slight decline is expected in the first half of 2021, but especially at the end of the year they may stabilise again. In the Prime segment, according to the Prime Global Forecast 2021 analysis, the differences, although significant, are still interesting from an international perspective.
Of the nine markets analysed in this study, there will be price declines by the end of this year, but three major groups of markets will emerge in 2022:
Those with low interest rates and strong demand: where prices are expected to rise, such as Madrid, London or Paris.
Where the pandemic will have a moderate impact: e.g. in cities such as Buenos Aires, Shanghai or Lisbon.
Markets where price increases are expected to be evident: e.g. Los Angeles, Geneva or Miami.
What should you consider before investing in real estate?
Investing in real estate requires a number of precautions, including the following:
Analyse your situation. You need to know what goals you want to achieve with the purchase of the property and what your budget is.
Thoroughly study the operation from a financial, legal and fiscal point of view. Mitigate as much as possible the risks that could jeopardise the investment. For example, if you invest in a commercial property with a tenant, but with a lease that expires in six months. If this is not taken into account, the expected return would not be sufficiently extended over time.
To avoid surprises, before any investment is made, due diligence on the project should be carried out, a detailed study of the investment to be made, at technical, financial and legal level.
Knowing the real estate market and its evolution. Official bodies and prestigious consultants issue numerous reports on the real estate market. Thanks to this data, you will know how the sector is behaving, what types of properties are the most advantageous, where it is best to buy, how prices are evolving, etc.
In conclusion, real estate investment has existed for many years as a reliable way to generate returns, and has traditionally been considered a safe asset (even in crisis situations), although we must always take into account the risks we are willing to take.
Steps to follow when investing in real estate
Investing in real estate, like any other type of investment, is a complex decision. Experts recommend a series of steps or questions to take into account when considering a major investment such as real estate. We analyse them below:
Set a clear objective
First and foremost, it is important to consider the reason for this investment compared to other options. An important aspect to evaluate is the usefulness of the property to you and the amount it will mean to your cash flow.
Setting a long-term horizon
The return on your investment should be geared to the long term and it can be a big mistake to think otherwise. Real estate is a value that can increase over time, but it should also be taken into account that in a context of uncertainty such as the current one, the time of profitability may be longer.
An important step in analysing the future of your investment is intensive market analysis. Considering the location, possible infrastructure development in the area, information research and documentation of many different types is the ideal way to make the right decision.
Waiting for the right moment
If you are thinking of investing in office space, for example, it is interesting to note that major changes are currently taking place in office design. As for the more industrial segment, the impact of digitalisation will be huge in the coming years. State of alarm was a clear example of a change in consumer preferences that needs to be paid attention to in the following years.
10 tips for investing in real estate and not dying in the attempt
Investing in real estate is one of the best ways to secure your future and your money. However, there are certain factors that need to be taken into account when buying a property in order to make the investment profitable.
Connections, location and surrounding urbanisations are key elements, but not the only ones to consider if you are thinking of buying a property.
Even investing where everyone else is investing will not guarantee you a safe investment, and that is why many people shy away from real estate investment: they are afraid of not making the right decision.
Don’t worry. If you’re thinking about investing, but don’t know where to start, we have put together 10 tips for investing in real estate and not dying in the attempt, so that you can clear your doubts and feel confident when buying.
10 tips for investing in real estate
Think about the purpose of your investment.
Although it may seem obvious, one of the first steps you should take is to define the purpose of your investment. This does not only refer to the amount you want to invest, but also to the use of the property and the type of property you intend to acquire.
Why do you want to buy a property, rent it, resell it, live in it with your family? It is important that you know for what purpose you intend to invest, so that you have a clear idea of the area in which it is most advantageous for you to buy.
Buying a house to live in is not the same as buying a house to rent. It may be more convenient for you to buy a house in a residential area with the best amenities for your family, but if you are thinking of renting, it may be more advantageous to look for a house in a tourist destination such as Tulum or Playa del Carmen, or in an area close to universities or hospitals.
Real estate agency
Buying a property should not be a worry or a hassle, on the contrary, it is an investment that secures your money and your future. For this reason, one of our first pieces of advice is that you should pay attention to the real estate agent with whom you are going to contract or who is advising you in the process.
The ideal is to work with a solid company that has experience in the real estate market, as it ensures that they are well informed and know in which areas you should invest, the direction of urban development and what type of property is best for you. Even more so if you do not live in the city you want to invest in.
As we mentioned in our article Everything you need to know before buying a property in Mexico, an experienced real estate agent already knows the legal steps you need to take to close the deal, which will make your job easier, as they will guide you through the process so that you feel more confident.
Another element to pay attention to is the relationship between the real estate agent and the construction company promoting the property. We recommend looking for companies that not only sell properties, but also build them, as this ensures that the properties are created and designed from scratch, with amenities that fit the needs based on their experience with buyers.
One of the mistakes many people make when investing in real estate is thinking that the return on investment will be immediate. We are not saying that this is impossible, in fact, there are people who buy properties to rent them out and start generating income.
However, when investing in real estate, remember that rather than investing because “everyone else is doing it” or “because it’s trendy”, you need to invest wisely and strategically to make your money grow. And that takes time.
You have probably heard that real estate is an excellent investment because it appreciates in value over time. This is due to the increase in appreciation (more on this later). Which, as we have said, does not happen overnight.
The capital gain does not really depend on you, but on the location of the area and all the surrounding development, which makes the difference between the price you bought it for and the price you sell it for increase in your favour. In other words, you get more for something that costs you less.
As you can imagine, a good investor is one who seizes an opportunity when no one else sees it, for example, by acquiring a property in an area that will attract people with a long-term need to acquire a product they already own: a house, land, etc.
Therefore, a long-term view will allow you to get better returns because it will help you to better select an area with respect to the opportunities that can develop there. As a result, you will not be disappointed that you did not see the money right away.
Market analysis and overview
Talk about long-term thinking and the possibilities of the area: what is being developed around it, what is going to be built there, how the market is moving in the area where you want to invest, etc.
Of course, you can invest in real estate even in times of crisis because you know that it is one of the safest investments, but that does not mean that you should not analyse the situation and see what your best options are.
As we said in the previous point, in order to take advantage of a good purchase opportunity, one must learn to look beyond the current situation of the area and focus on the services that are going to be built there: schools, hospitals, squares, etc.
And not only development, you have to analyse the market: who is coming, from where, what is the rate of growth, etc.
The Riviera Maya is a perfect example of this. Tulum and Playa del Carmen have become popular holiday destinations for foreigners in our countries.
And not only that, did you know that Mérida is becoming a destination for foreign retirees?
A market analysis will also help you think about the type of property you want to buy and its use, for example, buying a house in an area close to schools will make it easier to rent or sell to the family. Buying a flat in an area close to the beach will allow you to rent it out when you are not using it.
When analysing the market, you should also consider the target group you want to reach: who will be your buyer, what interests them most about the property and why would they want to buy it?
This will also help you to better understand the investment you are making, for example, if you are buying a flat in an exclusive area of the city close to business centres, you will know that it is very likely that executives in that area will be interested in the property because it is close to their work. Or if you decide to buy a house near universities, it is very likely that international students will be interested in renting it.
Seek capital gains
Capital gain is probably one of the most emphasised things in this topic, but do you know what it is?
Simply put, capital appreciation is the increase in the value of a property, i.e. the monetary difference between the purchase price and the selling price that increases due to the area in which the property is located.
Shopping centres, housing developments, schools, hospitals, connectivity, etc. There are many factors that influence the increase in capital gains that are beyond our control. And as we mentioned in the previous point, the key to a good investment is the ability to look beyond the current state of the area.
Especially when it comes to Mexico. Factors such as security have a great impact on the increase of capital gains, often because we want to make a good purchase or take advantage of a very cheap opportunity, we let ourselves be guided by the price of the property and do not look at the opportunities (or lack of them in the area) and security.
Would you live in a very nice house but in an unsafe area? Of course you wouldn’t.
One of our tips when buying a house or property is to think about how difficult it will be to sell later. Ask yourself how much it will cost me to sell this property. It is probably not a good investment if the answer is a lot. On the other hand, if you think that the proximity to commercial areas, location, and zoning will make your efforts to sell minimal because it will sell itself, take advantage of it.
Investing in lots
Another common misconception is that you have to be an expert or have a lot of money to invest in real estate, which is false.
If you want to invest little and get a lot, lottery tickets are the best for you.
Why? A lot is a plot of land with lower purchasing power located in an area with great potential. So, whether you decide to build a house there or sell the ground, you will get a higher profit due to the added value of the area.
These plots are an excellent purchase if you want to invest in real estate for the first time but do not have the budget to buy a house or are not interested in purchasing a home.
Of course, it is essential to keep in mind our tips 4 and 5: analyse the market and watch for revaluation. To invest well, you have to look beyond what is happening at the moment.
Do you want to invest inland? Our residential land in Merida is an excellent option for your first investment.
Buy on pre-sale
Buying houses and flats in pre-sales has many advantages that you should take advantage of depending on what you want to buy. For example, suppose you’re going to buy a residential property. In that case, a pre-sale will guarantee that you will be able to choose the property you like the most before anyone else, depending on your needs, such as access to privacy or urbanisation.
However, one of the significant advantages of buying pre-sale is that it will ensure a higher return on your investment, as house or property prices rise as the construction period progresses or becomes more popular.
As we explained with capital gains, buying at a pre-sale can be crucial in making a good investment. You can buy a property at a lower price than you would otherwise pay (e.g. when the properties or developments planned in the area are already completed).
Consider access and connectivity
Access and connectivity of the property are two of the most frequently mentioned elements that interact in capital gain growth and should be considered in detail.
It’s not just about what’s nearby, but how you can access them and where else they can take you, and they can also give you clues on how to increase your return on investment.
For example, if you buy a property near a hospital, which market do you think will be interesting? Doctors, people are coming from other places for consultations, even medical product offices, people who will be more interested in the property’s proximity to their work.
Consider the amenities
Amenities also contribute to the added value of a property. Residents’ need to improve their well-being and quality of life has led developers to focus on providing spaces that they can use comfortably according to their priorities.
Gyms, swimming pools, pet-friendly areas, parks and private security are some of the amenities that have become more attractive to those who choose to buy property because they allow them to enjoy a quiet life without having to travel long distances or worry about purchasing them on their own (e.g. by paying for memberships or building them).
Try to invest in properties with amenities that increase their value—of course, taking into account the above points, such as the property’s location and value-added areas. Extras will add more value to a property if they are in line with market needs, e.g. a gym in a block of flats is more attractive to its residents.
Development projects with amenities such as a swimming pool or a restaurant and bar increase in value because of the quality of life they offer their residents. Anah La Quinta is an excellent opportunity to invest in Playa del Carmen and expand your investment portfolio.
Think with your head, not your heart.
As mentioned in the first point, you should be clear about your objectives before investing, but just because you will buy a house to live in with your family, you should not let your emotions guide you..
It often happens that we fall in love with a property, but it is not located in an area that provides added value, which will end up affecting our investment and its profitability..
Cualquiera que sea la propiedad que pretenda comprar, siempre debe pensar en ella como un negocio. Investiga, infórmate, escucha a los que tienen más experiencia en el sector y, sobre todo, no tengas miedo de hacer a tu agente las preguntas necesarias para ayudarte a tomar la mejor decisión en función de lo que buscas.
If you have decided to become an expert investor, you must consider the possibility of expanding your investment portfolio. Acquire properties in different areas for different purposes.
Avoid thinking about a property for life. Although it is a long-term investment, you mustn’t become so attached to it that it prevents you from seeing the return on investment that you can achieve. Real estate is a business, and you should think of your property in the same way.
When is the best time to invest?
Now that you have read our ten tips for investing in property, you probably wonder what the best age to invest in property is.
The answer is simple: If you want to secure your future and guarantee your investment, you must start now.
Why? Firstly, because you will likely be able to find a property at a better price, and if you remember, pre-sales are key.
The longer it takes, the more difficult it will be to invest in a property, either because of affordability issues or because of rising property prices, especially if it is an area that is becoming popular for its opportunities.
So don’t waste time and start applying our advice, go to a real estate agent and start investing in property for a better future, either for you or for your family.