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Safeguarding your assets with investment properties

Real estate proves itself time and again to be a safe and stable investment option, especially during periods of economic uncertainty. Investment properties are one of the most popular forms of investment, regarded by investors as “concrete gold”. Long-term returns can be realised thanks to a regular rental income and an appreciation in value of a property. Despite the current situation, having somewhere to live will always be a basic need and the growing demand for homes is not going to slow down any time soon. Anyone looking to achieve long-term success and a real growth in assets through real estate should consider a number of different factors before investing:

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1.   Location: Top addresses bring high rental income and attractive returns

Over recent years, strong growth in population numbers and the persistent influx of people into major metropolitan regions have led to a significant increase in demand for residential real estate in these areas, and, in turn, an upward price trend for properties both for rent and sale. Places such as the Madrid districts of Barrio de Salamanca or Chamberí, Sarrià-Sant Gervasi, the Eixample, Les Corts and Ciutat Vella in Barcelona, ​​the coast of Malaga and Seville have registered a rise in property prices. The most sought after locations include districts of Valencia like Extramurs, Ciutat Vella or Poblats Maritims.

Anyone owning residential property in these areas has been able to let them out at very good rental rates up to now, while also enjoying a low vacancy rate and low risk. The reason: the demand for homes in these prime locations exceeds the limited availability of real estate on the market.

This fundamental state of affairs will not see any significant change, even in the current situation, as the reasons behind this excess demand are set to remain. Although the corona pandemic may result in a shift in the number of property purchases by investors in the short term, it will not lead to a drop in tenant demand for homes in the long term. In 2019, investors in Spanish territory generated a 7.4% return on their properties (Data from the Bank of Spain).

2.    Financing: Using rental income to cover running costs and build reserves

The same financing recommendations apply when buying investment properties as they do when purchasing residential properties for private use: Ideally, buyers should be able to cover around 20% of the purchase price and the additional acquisition costs with his own assets.

When it comes to securing a favourable mortgage plan, it is advisable to have the low rates of interest fixed for as long a period as possible. At the same time, the relatively low monthly interest payments should be taken advantage of to arrange and fix higher mortgage repayment instalments per month, in order to pay off the mortgage on the investment property as quickly as possible once the fixed interest period has come to an end.

Finally, investors should ensure that the current rental income not only covers the mortgage but also generates a surplus. This additional income lets owners build up financial reserves to cover ongoing management fees, maintenance of the property, or any unforeseen costs resulting from temporary rent losses.

3.    Type of property: Microapartments are an investment favourite

As urbanisation has continued to forge ahead, microapartments [or other types of property sought after by investors] have become a particularly popular asset class for investors in this country. These are partially or fully furnished one-room apartments in residential complexes with a minimum lease term of six to nine months. The demand for this particular type of property can be attributed to the increasing number of individual households, which represent around half of all types of households in the main Spanish cities.

Microapartments also meet the population’s growing need for flexibility and mobility. Target groups such as students, young urban professionals and business people who regularly commute to cities for meetings and job-related appointments are showing a growing interest in modern apartments with a premium appointment standard. Senior citizens who are drawn by a wide range of cultural and leisure activities are also relocating to city centres in increasing numbers, and tend to opt for small residential units to live in.

The steady demand among these target groups for one-room apartments means that capital investors can enjoy above-average rents. The relatively low entry prices for microapartments also make them a comparatively low-risk and profitable investment with attractive ROI prospects for investors.

4. Resale: Value can be added with modernisation work

Before buying, investors should make sure they inspect the property to assess its condition, regardless of whether it is an existing property or a new build. In the initial viewing phase, interested parties can be guided around the property via live videos or virtual 3D tours. A personal viewing appointment can then be arranged with the real estate agent.

Once the sale has gone through, owners should carry out regular maintenance and modernisation work to ensure that their property appreciates in value and a good return can be realised when they come to sell. In the end, a real appreciation in value will only be achieved if the rental income exceeds the acquisition and maintenance costs, or if the proceeds of the sale are higher than the invested capital.

External factors such as location, the infrastructure or the standard land value cannot be directly influenced here. It is important though that owners have the investment property checked on a regular basis for any defects. Investors are advised here to set aside approximately one euro per square metre of living space per month as a maintenance fund.

Refurbishment and renovation above and beyond this can have a further positive impact on the resale value. This includes, among other things, installing new energy systems for the property, laying high-quality floors, adding new bathrooms and contemporary kitchens, or equipping the property for barrier-free access. An upscale interior and a well-kept exterior façade can also enhance the property. The quality of the construction work and the materials used also play a key role here.

Those who take these aforementioned factors into account when investing will be in a position to diversify their investment portfolio with investment properties. As there is hardly any other form of investment that offers as much long-term security as properties in premium locations.

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