Investing in housing: tips if you are going to buy to let

Advantages of investing in real estate

Housing has been widely recognised as a safe haven in economic and financial terms. This means that, in times of economic uncertainty or instability, investment in real estate is perceived as safe and stable. What advantages does it offer over other products?

• Stable prices. In general, the real estate market tends to be less volatile than other assets such as cryptocurrencies, stocks or bonds. While it is true that there may be short-term price fluctuations (as we have seen in previous years), in the long term the trend stabilises.

• Constant demand for real estate. Housing is a basic and ongoing need, so there will always be people who need a place to live. This ensures that demand remains constant.

• Income generation. Renting allows the owner to earn regular monthly financial returns, which represents an additional source of financial stability.

In short, investing in real estate offers security in the medium and long term, due to its constant demand and stability.

Things to consider if you want to buy to let

If you have decided to buy a property with the purpose of renting it out, you need to take into account some important guidelines before making that decision, such as the ones presented below:

A strategic location

Location is one of the most important factors. It is essential to select an area that is in demand because of the services nearby: health centres, libraries, good transport connections (to metro and bus or train stations)..
The better the location, the more applications you will have, and, consequently, the higher the income potential.

Type of housing

The type of housing most in demand varies from city to city. For example, according to the data in our Market Report 2022-2023in Madrid and Barcelona people are looking for flats of more than 100 square metres, with three bedrooms and a terrace, while in Malaga, the star property is a flat with between 2 and 4 bedrooms, a terrace and communal areas.

In addition, there are different aspects that add value to the property, such as parking space, communal areas, or a gym in the building.

Analyse the market in the chosen area

Before making any purchase, it is essential to thoroughly research the property market in the area you are interested in. Examining the sale and rental prices of similar properties will help you understand supply and demand, and determine if it is viable. It will also help you to establish a reasonable price range for the lease.

Calculate expenses

Conduct a detailed financial analysis. In addition to the price of the property, you should also consider maintenance costs, taxes, insurance, repairs, renovations if necessary, etc.

Determine an affordable rent

To establish the rental price, you must take into account the square metres of the property, as well as its characteristics: location, layout, quality of the materials... You can also take the average price of the area as a reference.

Calculate the profitability

Once you have taken into account the cost of the investment and the rental income, it is time to calculate the profitability. You can calculate it with the following formula:

• (Rental income/price of the property)*100

Let's say you buy a penthouse in the Salamanca neighbourhood in Madrid, with 4 bedrooms and 300 square metres for 5,000,000 euros. Due to the characteristics of the property, you could rent this property for around 9,000 euros per month, which adds up to an annual total of 108,000 euros. In this case, the return you would obtain would be 2.16%.

Carry out regular maintenance of the property

So that the property does not devalue and continues to attract the attention of tenants, it is important to carry out regular maintenance. In addition to repairing damage, consider making modifications that adapt to new needs, such as installing home automation or incorporating efficient appliances.
All in all, investing in housing is a sound financial strategy that requires careful planning and thorough research. Therefore, having the support and experience of an agency like Engel & Völkers will be decisive to guarantee success. Contact us!