Invest to rent or buy to sell?

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Currently, many questions arise when it comes to investing in housing. What is the best option to buy and then sell or buy to rent the property? How do we know if we will obtain a return on investment? In this post we are going to analyse the advantages and disadvantages of each of the options.

Buy to rent

Buying a property to rent it out is one of the most common investments. The gross yield in 2020 was 3.7%, according to data from the Bank of Spain. This figure has decreased compared to previous years, but taking into account the global health crisis the decline has not been strong. The best reasons to buy and then rent a property are:

  • The option of renting a property has become very important in recent years and even more so with the current economic situation.
  • This option provides a regular monthly income although the capital invested in the purchase will take years to recover.
  • It is quicker to rent a property than to sell it.
  • Finally, taxation is favourable in this operation, as renting a property entitles you to a deduction of 60% of the total income.

Buy to sell

Another fairly common option is to acquire the property in order to refurbish it and sell it. In this case, the average return on investment calculated by the sector is between 15% and 20%. In the market, we can find excellent purchase opportunities to carry out this operation. Among the advantages of this alternative are the following:

  • Normally it is not necessary to carry out major renovations in order to be able to sell the property.
  • The benefits are perceived earlier. In the case of buying to rent, you have to wait several years to get a return on your investment, whereas when you buy to sell, you get the profit as soon as you sell.
  • Possibility of increasing the sale price depending on the reforms carried out and the location of the property.
  • Speed and higher volume of demand when you want to sell. Although the second-hand market is larger, the supply of refurbished used homes in perfect condition to move into is scarce in large cities. Therefore, it will be much easier to find a buyer.

How is cost-effectiveness calculated?

To calculate the profitability of buy-to-let, the expected annual rent should be calculated and the maintenance costs of the property should be subtracted (overheads, community fees, IBI or rubbish tax). The result of this operation is divided by the initial investment (purchase price of the property, taxes, transaction costs and disbursement for setting up the property...) and multiplied by 100.

To calculate the profitability of buy-to-let, the expected annual rent should be calculated and the maintenance costs of the property should be subtracted (overheads, community fees, IBI or rubbish tax). The result of this operation is divided by the initial investment (purchase price of the property, taxes, transaction costs and disbursement for setting up the property...) and multiplied by 100.

Considering the two options, it depends on your priorities to choose one or the other. In any case, at IPG Group we can help you choose the best option and find the property that you can get the most profitability out of.

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