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Buy to Sell Investment

You may have heard about many investors getting rich...very quickly!...by buying and selling properties off-plan in Spain. This is one form of 'buy to sell investment'. The alternative, long-term plan is the traditional form of property investment both at home and abroad, namely to sell a property in Spain after a sustained period of ownership in the hope that the market has risen sufficiently to provide a return.

During recent years, a popular way of making money was to 'buy' a property off-plan in a rising market, and then to 're-sell' the property before completion to another buyer. The advantages of this are that you will only need to invest a proportion of the purchase price (in the example above, 30%), yet you will still benefit from the entire uplift in the price of the property.

Let's consider these two options as examples, using a fairly conservative growth estimate of 7% per annum:

  1. Buy a completed property in Spain for 100,000 euros. Market rises by 7% per annum for 2 years. Sell property after 2 years for new market value of 114,490 euros.

    Capital outlay (100% or purchase price) 100,000 euros
    Gain in value of property 14,490 euros
    Return on investment within 2 years. 14.49%

  2. Buy an off-plan property in Spain for 100,000 euros. Market rises by 7% per annum during the 2 year construction period. Sell property after 2 years (and before completion) for new market value of 114,490 euros.

    Capital outlay (30% of purchase price) 30,000 euros
    Gain in value of property 14,490 euros
    Return on investment within 2 years 48.30%

While both levels of return should be great news for an investor, Option 2 provides a greater return within the same period, and there would be fewer completion costs to pay on the transaction.

Like most things in life, there are no guarantees, and investors in Spanish property should be aware that there is no guarantee that their property will be sold before completion is reached. The choice of location and property is crucial if investing for this purpose. That is why speculative investors like to snap up the best properties on a development on Day 1, in the belief that they will still be able to offer the project's best properties to new buyers before completion. In recent times, some speculative investors have had their fingers burned by pinning their hopes on being able to quickly sell on their off-plan investment to a 3rd party, sometimes several months before completion. This is unrealistic, as most secondary buyers of these types of properties will be looking for something very close to completion.

And beware that if there is a glut of investors' resales available at completion, this simply encourages buyers to try and haggle for the best deal, normally secure in the belief that there will be a proportion of those early investors that will simply be forced to sell at a minimal profit, or even at a loss. This situation is created by too many early 'blinkered' investors snapping up properties off-plan, keen to take the profits, but with no contingency plan in the event of being forced to reach completion. This can fuel panic-selling, and as in any market based upon supply and demand, this normally hands the control to the buyers.

In the event that an investment property in Spain remains unsold, the buyer will need to know that the property can be used to raise money in another way, namely as a buy to let investment. Therefore, the guiding principles that govern a buy to let purchase should also be considered when investing speculatively in an off-plan development in Spain.
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