How does investing in property in Spain work?
Equity Release investing in Spain.
Clients invest in property in Spain for many reasons. Prices are going up post-Covid, post the Brexit shock and investors do not want to miss the boat. Inflation means that everything is getting more expensive. I’ve got figures from the US Bureau of Labor inflation index for November of 2021 which tells us that inflation over there increased by 7% year on year.
In real language that means, your money now can buy 7% less than it did 12 months ago.
What can our Spanish property investors do?
I’m not an investment professional but I can tell you what not to do. Leaving your money in a Spanish bank is just about as bad a way to invest it as I can think of. According to the statistics, the real interest we receive from the Spanish banks is 0.06%.
Think about that; Zero, point Zero Six per cent is what they are paying us.
It is impossible for investors to stay ahead with prices rising 7% and the Spanish bank paying them, at best, 1%.
One option is investing in the Equity release sector in Spain.
There are tens of thousands of homeowners here in Spain who are struggling with cash flow. The old saying “asset rich, cash poor” fits this cohort perfectly.
These are people who have bought quality, legal, well-located real estate in Spain on average 15 years ago, long before Brexit was ever mentioned. Back then, their UK pension more than covered their lifestyle in Spain.
Now, with the increased cost of medical care, uncertainty in the air, restrictions of one kind or another, they find themselves struggling at the end of the month. We have clients who want to pay off their grandson’s college loans or fly to their last major family wedding in Hawaii. (literally)
These people need cash. We help release that equity on their Spanish home and they are suddenly back on track.
From an investment point of view, our clients are seeing double-digit returns.
Our property owners are seeing a new lease on life. They are the perfect clients, generally grateful and glad to get to the end of their cash liquidity problem.
They become perfect “tenants” too. These people maintain their property like they always have and have a great pride in the home they have lived in for so many years. Once the deal matures, the investor has the full protection of our legal division too.
Legal support fopr Equity Release investors.
Legally, equity release is perfectly acceptable, if not so well understood in Spain. Our partner in Madrid Julian France is Bank of Spain accredited. All deals are done on the local public notary and acknowledged in the Spanish land registry.
Just like any conveyancing deal, our team takes care of all the usual details. We ensure there is no debt on the property, all the licences are in place, the extensions and pools are all legal etc.
The legality from the side of the property owner is more important. We make sure that they can never leave the property to an heir who finds they have more debt than the value of the property. They will not be evicted if the investor suddenly decides to move into the house. The new owner can sell the investment opportunity but thanks to the guarantees we add for our property owners, the new investor must honour the terms and conditions already in place.
We make sure the investor cannot change the terms unfavourably for our property owner. For example; We had one investor who bought a property in Alicante on Equity release terms. Incredibly, at the last minute, she asked to park her large RV all year round in the garden of the sellers, our property owners. Of course, this was a deal-breaker.
If the investor does not honour his payment terms he risks losing the payments he had already made, just like if they were buying a “normal” property and failed to meet the financial payments.
One of our sellers, Jake, receives a 650 pm annuity, but the investor was constantly late with the payment. The reason was he is a large investor and all his payments are made on the first Monday of the month, rather than the 1st of the month. A quick chat with him rectified the issue and everyone is content again.
Who exactly does investing in Equity Release in Spain work best for?
The smart answer is anyone who; wants double-digit returns, a guaranteed investment, Bank of Spain approved deals and an easy to understand vehicle for investing.
More specifically, this is investment is aimed at;
- Anyone wanting to get their foot on the property ladder in Spain who doesn’t necessarily have the sufficient funds to buy a property outright.
- People looking to move to Spain in ten years, but want to buy a property today, with a 50% reduction in price, with a view to retiring here within the decade.
- Investors who are tired of the rental market in Spain with the ever moving goalposts.
- Landlords in Spain who do not need the hassle of tenants, damage to their property, paying tenants, periods where the house is empty etc.
- Large institutional investors who cannot find asset back investments anywhere in Europe with eye watering returns like what we see in this sector.
Ways to invest in Equity Release in Spain.
Generally, our Equity Release investors go for one of the following three investment types.
- Buy a property from our portfolio.
- Invest in our Fund.
- Enter into a JV agreement with us.
Exit strategy.
All depending on how an investor gets involved, an exit strategy can be very simple.
Let’s take each of the three above methods.
Buy a property from a private owner.
This is the most simple model. Let’s say you purchase an equity release deal through us. You pay your money through a lump sum, annuity or a combination. Once the deal matures you can either sell the property, rent the property or move in. You will be aware of the age of the property owner before you even make an offer to buy the house. Let’s say their life expectancy is ten years from today. If they should suddenly pass away in five years, you can execute your options then.
On the other hand, what if in ten years time, your 85-year-old owner is still running ultramarathons? Quite simple really. You can still sell the property. The owner is ten years older and the value of the property will have soared, according to the national statistics board and the previously quoted US inflation index. You can simply resell it, with the new owner agreeing to honour the legal obligations. (again, the new buyer cannot suddenly “evict” our client, the property owner).
Invest in our fund.
Let’s say that you invest 100,000 in the whole fund, rather than a specific property. You’ll have full guarantees that you get your 7% return yearly. You can decide whether to invest for 6 months, 6 years or any time frame you choose up to 15 years. If you want out early, you just give us 6 months notice and after deducting an early release fee, we return your money, with a considerable profit. More likely is that after say, one year, you will wish to extend your investment term. Again, we’ll be happy to do so, just like any type of investment fund.
Joint venture investing in Spain.
We’re open to proposals from investors. For example; We did a deal on the Costa Del Sol in summer 2021. Here we invested 20% of the money so that the client can see that we are very confident in the investment. We are willing to invest up to 50% however. In the Costa Del Sol investment, we reserve the right to buy the property if the investor wants to get out in 5 years. In reality, they will buy us out now that they can see how successful the operation is going to be. We’re flexible. We think that when investors see that we are using our own money to fund the deals, we really do believe our own publicity.
Next step.
If you are thinking of investing in this rapidly growing sector in Spain, we’re always willing to talk. Spanish Homes Online have agents all over Spain who will meet you to discuss your situation. We do not know of any other company in Spain that is offering this range of investment opportunities right now in January 2022.
Our team is happy to arrange a visit, a Zoom or Skype call; all you need to do is ask.