Case Study: Spanish Property Investment In Valencia

When investing overseas, finding a Valencia Property Finder to buy an investment you can trust, capable of providing a short-list of properties that are within budget and in the right location is vital. Choosing well ensures you get a good return on your investment. Contracting the services of a good property management agency is also crucial as it ensures the investment will perform in the market. This tends to be expensive in Spain (costing much more than in the US); but history has shown time and again that getting it right is worth the effort.

This article is the case study of a family from Europe that contacted The Spanish Brick , specialist in Valencia Property for investors and home buyers, looking to invest in Spanish property by purchasing two city properties in the city market. Their only initial stipulation, apart from budget – no houses; just apartments.

The following is the summary of a case study from the mentioned clients in Valencia.

1) Client profile: professional couple in their late 30s, with two daughters. They contacted us for the first time in June looking to discuss exactly what it was they hoped to achieve by investing in the Valencia property market. The clients were looking for two apartments to buy-to-let and generate a rental income. They also wanted to be able to use the property for family holidays 2-3 weeks a year.

2) Following the preliminary consultation, the clients decided to contract the Property Finder’s services (90% of consultations result in the service being contracted) after being inform of the pros and cons of investing in Spanish property, according to the current market, especially when it comes to taxation laws, income requirements and managing more problematic investments.

We initiated the search based on the following requirements:

– Budget per property – €150k

– Number of bedrooms per property – 2-3

– Location – either city centre or coastal… whatever produces the greater yield

– Potential yield – at least 5% for the first 2 years.

3) When dealing with clients in Valencia, for Property Finders is good to start working on the following three assumptions:

3.1) Clients are not familiar with the areas so need all the guidance we can provide. We need to work hard specially at the beginning to provide them with a diverse portfolio, covering all the bases.

3.2) Clients (especially couples or families) tend to be seduced by attractive locations rather than well performing locations.

3.3) Clients want a fast-moving, pro-active service with quick response.

4) We prepared a preliminary short-list of properties covering four different areas. This helps the clients to get to know the three different micro-markets of interest plus the city center market. The portfolio showcased a total of 14 properties with an acceptable yield. Following additional discussions with the clients the least favourite properties were eliminated; leaving 8 properties.

5) Clients are affected by what we call ‘the assumption number 3.2’: Clients generally prefer property near the beach rather than in the city centre. Also, apartments in the city centre have some particularities.

6) Clients visited Valencia for 3 days of viewings. Shortly before the clients travelled to Valencia, 3 new properties were added to the short-list, including an ugly, narrow house valued at €110k that ended up having a considerable impact in the final choice (please keep reading).

7) The three day viewing period turned out to be a great experience for the investors. The viewing period helps buyers familiarise themselves with the area as they get to see a representative sample of properties meeting their specifications. This gives them an excellent insight into the specific market and the opportunity to meet some of the vendors face to face. Weather was good for our clients’ viewings, being particularly hot on 6th to 8th August.

We left the viewing of the small ugly house until last.

The clients flew back to Zurich and 2 days later we followed up with a conference call to review proceedings. The clients informed us that they had changed their minds and had decided to start looking for a house rather than an apartment. This was quite a shock as we had spent several weeks searching for apartments.

Clients informed us that they had decided upon a house rather than an apartment as they had discovered that there was a strong network of potential clients in Switzerland looking for a property to use as a holiday let in Spain. Only a house with traditional features would do. These are the client exact words: “We know a lot of people working in Banks. A banker’s life is boring and when they go on holiday they want something authentic. That is why we have decided to look for a traditional house in Valencia, with traditional features after seeing the house that you included in the viewings portfolio.”

As a result of this change of heart, we prepared a portfolio of 5 houses with a maximum price of €160k. All except one needed some sort of refurbishment. The clients decided that two of these houses fit the bill. One of them cost only €60k but was slightly too small. The other option was a 180m² two-storey house in an amazing location. This was the best property investment but it needed a lot of work, including structural repairs costing an extra €6k (in addition to the general refurbishing costs). The asking price was €110k but after a lot of negotiating we managed to secure it for only €90k!

Here are the figures:
Property Purchasing Price: 90,000
Government Tax ITP: 9,000
Total Purchasing Costs: 99,000
Notary and Registry costs: 500
Solicitor fees and set up costs (setting up a Bank Account, etc…): 1,500
NIE Fee: 160
Property Finder Fee: 4,000
Structural repairs (quote provided by the architect): 6,592
Basic refurbishments: 29,000
Furniture: 9,430
Total Costs: 150,182

The rental yield for the first year is 6% for a long term rental, whereas for short lets it is 8%.

The beauty of this project is that while the property is currently arranged as two apartments, it could easily be converted back into a large two-storey house, with the option of re-marketing it and generating a potential 55% profit. The market still needs to pick up over the next few years, but this investment definitely ticks all the boxes.

A few days before exchange, we found another three-storey property located in the city centre. While the clients do not currently have the money needed to complete the refurbishments they did manage to secure ownership of the property. The refurbishing licence could take up to 6 months to be issued.

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