How to make money on real estate

Due to its economic development and stability, Spain attracts not only tourists, but also large business investors. The desire to expand their business and open new branches in European countries leads entrepreneurs to the issue of renting or buying commercial real estate. Due to the simple process of acquiring real estate and the opportunity to take out a loan from a Spanish bank, more and more merchants prefer owning their own commercial premises rather than renting them.

Today we will talk about how to make money on commercial real estate in Spain.

Types of commercial real estate and why investors choose Spain

In Spain, as in other countries, there are several types of commercial real estate:

• Offices;
• Retail space;
• Hotel and restaurant buildings;
• Warehouses and industrial buildings;

Hearing the phrase “commercial real estate”, one imagines huge shopping areas, multi-storey business centers, pavilions and the like. But now businessmen are increasingly giving preference to small shops, shops, restaurants and cafes on cozy passable streets.

Why is Spain so attracted to foreign financial injections? First of all, it is stability – economic and political, it is the constant development of infrastructure, demographic growth, the ability to quickly overcome the crisis, and a decrease in the number of unemployed people. In addition to all these indicators, it is Spanish real estate that shows a high percentage of profitability compared to other European countries.

How to choose a commercial property in Spain

Of course, as in the selection of residential real estate, and when buying commercial real estate, you can and should use the services of a real estate agency. This will significantly reduce the time spent searching for an object and facilitate the process of signing a purchase agreement. Further, after selecting several options for objects, it is definitely worth examining them personally.

Pay attention to the location of the object. Don’t be guided by emotions. No matter how much you like the building itself, it is important where it will be located, how passable and popular the street is. Is there parking nearby, are the neighbors noisy, and so on.

Study the economic component of the facility, what income it has brought in recent years, what maintenance costs, etc.
It is also important to understand how quickly and how profitable it will be possible to sell an object, if necessary, i.e. to assess its liquidity.

A mandatory criterion when choosing commercial real estate is the condition of the premises. It depends on whether there will be additional expenses for repairs.

It is important to note that you can purchase real estate not only with your savings, but also with a loan. Banks are ready to pay up to 60% of the cost of real estate. The interest rate on a cash loan is on average 2-3%. You can repay the debt within 20-25 years. Strangely enough, using this option, you can increase the profitability of the enterprise by 2-4%. How does it work? Let’s look at the example of a hotel. On average, the profitability of such a business is 5-7%. You invest 40% in the project, and the bank 60%. After paying off the bank’s 3% interest rate, you still have 2% left. In addition, you receive an additional check from the bank on the effectiveness of the selected enterprise and thus reduce your risks of acquiring an unprofitable object even more. You can repay the loan before the agreed deadline for free.

Now is the time to talk about which option of commercial space is worth buying, and what is the profitability of each of the facilities.

• Hotels. Choosing a hotel as a business, we pay attention to the region and location, assess the level of occupancy of the hotel throughout the year. On average, the hotel can bring from 5-7% to 12% and even 15%. The amount of this percentage depends on who will manage your business. If you are personally, then profitability increases. If the management company, accordingly, this indicator will be lower.

• Business centers and office buildings. Here, in addition to the location of the object, it is worth paying attention to the company that will rent the premises. It is better to give preference to large firms that have been working for a long time and state-owned enterprises. The profit from such facilities is 4-6%.

• Retail space is the most popular type of commercial real estate. The profitability of such facilities is on average 4-6%. The advantages are high liquidity, long–term rentals (sometimes up to 20 years or more), limited offers. In addition, there is a constant increase in the cost of such areas, by 3-4% per year. If we take into account another 2% profitability from the bank’s collateral, then you can get up to 8-10% per annum.

Thus, investments in commercial real estate in Spain bring an entrepreneur from 5 to 15% per annum, income in foreign currency and a stable future. Do not forget that when buying a property from 500 thousand euros or more, you can get a residence permit in Spain.