How can you be sure whether a given Sotogrande property is a good investment?
by Liz Seyi Digital marketing managerIf
you’re currently browsing the finest property Sotogrande has to offer with investment as your
principal motivation, you can be assured that you have already made a great
choice. Sotogrande has been a highly desirable part of the Costa del Sol for
property purchasers and renters for literally decades, so anyone contemplating
buying here for investment is already off to a strong start.
But of course, even our team here at BM Sotogrande won’t pretend
that every single property in Sotogrande represents the perfect match to every
single person’s conceivable investment goals.
Here,
then, are some of the factors to consider when you’re unsure whether a
particular Sotogrande property is likely to generate the returns you’re looking
for.
Account
for not just the purchase price, but also all other costs
No
matter how much you initially like the look of a given Sotogrande property,
it’s crucial to work out the purchase, maintenance and management costs for
this Andalucía home, and consider them alongside your budget and savings goals.
As with
property purchases elsewhere in the world, various taxes and fees apply to
property acquisitions in Sotogrande, that are likely to add around 12% to 14%
to the purchase price.
Think,
too, about how much you may need to spend on renovating the property, the cost
of a property management and maintenance contract with a reputable company, and
any vacancy periods that may occur. These factors can all cut into any profit
you generate from the property.
Ask yourself how much money you could
realistically make from the property
You
might have previously read articles about property investment, suggesting that
you apply the ‘1% rule’ – the idea that the monthly rent you charge for your
investment property shouldn’t be any less than 1% of the upfront cost of the
house, including the cost of any required renovations.
That
might mean if you buy a property in Sotogrande for €700,000, for instance, you
may look to charge €3,500 a month in rent.
In truth, though – and depending on your exact investment
desires and expectations – you may treat this ‘rule’ more as a broad guideline
than a rule. After all, you will still need to charge a rental price that is
actually competitive compared to other properties in the locality.
If,
after looking at rental values for properties like yours nearby, it seems that
the amount you can realistically charge will fall below 1% of the purchase
price, you might consider whether you are willing to hold onto the property for
longer to accumulate more rental income over time.
Work out
the capitalisation rate
Figuring
out the ‘cap rate’ will allow you to determine the rate of return you can
realistically expect from a given property in Sotogrande, compared to
alternative investments.
It’s as
simple a process as taking the net income – otherwise known as income from
rentals, after expenses – that you anticipate the property would bring you, and
dividing it by the home’s current market value.
Let’s
imagine, for example, that you do indeed purchase Sotogrande property for
€700,000, and you’re sure you could charge €3,500 a month in rent, perhaps
amounting to €2,700 a month once expenses are subtracted. Your net operating
income a year would therefore be €32,400.
€32,400
divided by €700,000 would therefore be 0.046, or 4.6%. With a cap rate of
anything between 4% and 10% being widely regarded as comparable to what other
investments such as shares and bonds can bring, you might be quite pleased with
that rate. But of course, much depends on your personal investment criteria and
what would satisfy you.
Hopefully,
the above will help you determine how any given property in Sotogrande would
fare as an investment for you. To talk through your specific property needs and
desires with our team in more detail, remember that you can always drop us an email or give us a call, on (+34) 956 785 092.
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Created on May 6th 2021 04:58. Viewed 201 times.