Retirement is around the corner, and you’ve thought of property as a way to maximise your income potential. Yet, how do you make the right investment? Here’s how to evaluate the value of a property.
You’ve decided that Spain, your favourite holiday destination, is the perfect spot for your property investment because it will attract many holidaymakers and with it, the likelihood of a profitable rental. The only problem you foresee is that there is just so much property for sale on the Costa Blanca, and you don’t know where to start, let alone how to evaluate a property and its value, to make an informed purchasing decision.
As you purchase an investment property, you should think about your immediate needs, as well as future financial obligations and potential, such as the possible resale value for the dwelling and how much you can charge in rent. Learning how best to evaluate a property’s resale/rental value is crucial to making a good return on your real estate investment.
The Property Evaluation Checklist
What factors should you consider as you evaluate a property at your next viewing? Here’s what we recommend:
1. Think long-term
Buying in Spain means you have to take the long-view when it comes to your investment. That’s because Spain’s capital gains tax is more than 20 per cent, waiving any short-term benefits you could have. If you want less than three-to-five years to recoup your investment, that may not be the best way to think about purchasing your home to let to holidaymakers.
2. Know your numbers
When viewing a property as part of your rental property evaluation, you should make a quick assessment of your financial obligations to serve as the first step for how to evaluate a property as an investment potential. This work will give you an idea of the price range that makes sense for you and what other costs and obligations come with leasing out the property. In Spain, you must also factor in 10-15 per cent of your property’s value for transaction costs before you even think about rentals.
Many investors spend a lot of time running numbers without being any better off in deciding on what and where to buy. Taking too long could mean you miss out on the perfect property, so spend your time finding the ideal property in a desirable location to evaluate each property for their value.
What are some metrics you can consider? First, you should look at the possible mortgage options and changes in the down payment requirements for investment properties compared to residences, where the owners will reside. Also, if you want a quick way to determine whether an area is an excellent opportunity, you should calculate the price-to-rent ratio. This number compares a market’s median home purchase prices and average rent. What’s the right number? If you get a number under 15, it’s worth buying in that area. If it’s above 20, then you should go ahead and rent instead because areas with a high rent/price ratio tend not to have as optimal investment opportunities.
Find that ugly duckling in a beautiful pond. Many will argue that it’s always better to buy the ugliest house in a good neighbourhood than to purchase the best-looking property in a run-down location. You can also apply this same logic to buying a property to let out. You should choose a property that will appeal to the tenants you want to attract after calculating the price/rent ratio.
What does this mean for property for sale on the Costa Blanca? Properties close to the beaches and all the amenities should be high on your list because this location will appeal to the tourists who visit the area, and are willing to pay for convenience on holiday.
Another critical component to consider in a rental property evaluation is the costs involved in the upkeep of the dwelling. If you choose to buy a villa-style home with a large garden, you may have to dedicate time and money to maintaining the grounds. If you’re a lock-up-and-go investor, you may prefer a bungalow-style apartment because you won’t have to save as much cash for maintenance costs and won’t need to stress over maintaining a larger property.
5. Call the experts
If you need an expert property evaluator to accompany you in this journey, real estate companies are a great resource when it comes to evaluating a property. They have all the local knowledge and understanding to calculate the metrics associated with mortgages, down payments and more that buyers need to choose an investment property that suits their financial situation and meets their investment goals.
If you are thinking about buying property along the Costa Blanca, the team at Seanest will ensure all the properties have on offer tick off these boxes and more, giving you the peace of mind that your investment is in good hands.