What Makes a Good Investment

I have always thought that the words ‘investor’ and ‘investment’ were two of the most overused and misused words during the hyped-up property fest that was Spain’s property market from 2000.  In the worst of cases, these ‘investors’ were still piling into overpriced tat fully two years after signs were clearly visible that a severe price correction was looming, only most people chose to look the other way and pretend all was well.  But it’s a fact that Spain’s property market was in deep trouble from as early as the end of 2005 and was always going to be a major accident regardless of what was happening in the rest of the world.  The fall-out from the wider global turmoil triggered by the sub-prime crisis in the US just made it a whole lot worse.

Typically, a boom-era investor bought a two bedroom apartment off-plan and waited two to four years for delivery.  As the feeding frenzy didn’t really get underway until about 2002 this meant that by the time many people were getting the keys to a finished property the market was already past the peak and heading south.  Having got the ‘investor’ bug thousands made it much worse by purchasing more than one unit, buying into the fable that they would have no trouble selling on during construction for a profit so there was no danger that they would ever have to service the mortgage that they were taking on.  But in the unlikely event that they hadn’t sold before completion then they could service the mortgage through rental income so either way, no worries.  Well, we all know what happened next and for most it went pear-shaped.

Not An Investment

And the prices they were paying! I was contacted by someone who had fallen prey to the hype. He had an apartment in Elviria on the Costa del Sol, one of those locations where everyone prices their properties as if they were in Puerto Banús whereas they need to be at least 25% lower.  He had paid €350,000 for his unit, had a mortgage of €260,000 so he couldn’t sell for less, but he had had it on the market from day one at over €400,000.  He had found it impossible to rent, hardly surprising when there were thousands of identical units in the same area and why would anyone choose to be stuck up a hill in Elviria when they can pick and choose within strolling distance to Puerto Banús.  Strange thing was he had really been aiming to buy in the Banús/San Pedro area but fell into the clutches of an agent who told him that east of Marbella, around the Elviria area, was the next big thing and so off he went like a lamb to slaughter. At the time of our conversation I had to tell him that I didn’t think his Elviria apartment was worth more than €175,000, a serious case of negative equity.

Investments

As the post-2008 recovery got going there were some new, never-been-lived in two bedroom apartments 200 metres from the beach in San Pedro. At the height of the market the best units in the development sold for €600,000 - €700,000 but since the downturn after the crash took hold 40 unsold units had been listed at €480,000 for ground-floor units and the developer had refused to listen to lower offers. It took several years for his attitude to change but by 2012 he wanted out and to move on. The units listed at €480,000 sold for €320,000 and clients of The Property Finders secured a penthouse listed at €599,000 for €420,000. A decade later that unit sold for €680,000.

Then there was a small development of only 18 townhouses frontline to one of Nueva Andalucía’s best golf courses. It used to be a timeshare development but the individual freeholds were now being sold and a client of mine secured one at €230,000.  It will rent like a dream and would now make €500,000 without difficulty.  All 18 units sold within weeks.  Some were buying for rental yield, others for like the capital growth prospects but however you slice it deals like this deserve the tag ‘investment’.

Check out our Case Studies for more examples of what The Property Finders have found for clients in recent years.