Property not only provides much better returns than any deposit in the bank and is less risky than alternative investments, since you hold the asset and can use it, but the mature rental markets are also close to where they started, such as in the UK and in London itself.
Property investors in Spain understand that rental returns have some limitations in the crisis that is happening, and that buying to let is a strategy designed for the mid-to-long term ownership of multiple properties. Buy to Let is one of the strategies to utilize in Spain now, along with others that can deliver high returns within a reasonable period of time. But it is not easy to make it work in any market. Property investors know it.
Compared with London returns
According to the Q2/2013 survey by the Association of Residential Letting Agents (ARLA), rental returns in London are 3.5%, whereas in the northwest of England they are 6%, on average. We all know how strong the rental market is in London and how high rental income is, especially with the HMO strategy.
Surprisingly, in Spain, the average rental yield according to the leading website Idealista is 4.6%. In Madrid the gross yield is 4.2%, in Barcelona it is 4.1%, and in Valencia it is 4.2%. The highest in the country, according to this report, is in Lleida (in Catalonia) with 6.2%.
Rental returns that we should be getting… and risks
Currently in Spain, there are buy to let investments that go above the 5%, 7%, and 10% gross rental yield. It all depends on how good the offers are in certain areas and how good and how quick your property searchers are (and you are) when buying. If you are not ready, you will lose precious days and property bargains.
Nevertheless, if in 2011 we said that investors should challenge a rental yield above 4.7% … nowadays we would aim for any return above 5.5%, given that property prices have dropped much faster than rental incomes.
I remember having a phone conversation with an investor from Norway, a few months ago. I said that a 5% return in Spain was currently a very good overall deal when it comes to investments below 70k euros. That is the average, with peaks up to 7% and 10% for very specific good deals.
If you are realistic, that is what you should aim for. It is true that Spanish property market for long term rentals has higher risks than London, but the costs is 5 times less and the strategies are also diverse. It is not easy to make them work and in terms of taxation there are sensible points.
There are different ways to assess the efficiency of an investment, but the most practical and straight-forward way for small investors is to use the income and cost figures.
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