Buy, reform and sell. Those three steps make up a real estate trend with which you can achieve up to 30% profitability by investing in old apartments.
The pandemic has impacted sales prices per square meter, but it has also led to savings that many are now trying to take advantage of by investing in housing. And, within the real estate market, renovating flats in poor condition with the intention of reselling them is a growing business that increasingly attracts the interest of more investors.
“Profitability shoots up when you buy a flat, renovate it and sell it. It is an upward strategy “, says Enric Jiménez, director of Property Buyers, a company that advises its clients to invest in the real estate market. According to the expert, the entire operation should last a maximum of six months and leave between 15 and 30% of gross profit margin.
“The strategy is to act as a small developer and give value to a property with a reform that lasts a couple of months,” says Jiménez, who warns that the most common is to obtain returns slightly higher than 15% gross .
“At least I am looking for a 30% to sell,” says Antonio Muñoz, a private investor who currently rents eleven renovated apartments in Madrid, Valencia and Barcelona. Its objective is to acquire two-bedroom homes in areas where couples of young professionals live with or without children.
Once he buys the property, Muñoz undertakes a reform of up to 40,000 euros to give it added value. “I put fiber optics, paint it, install plugs with a USB connection and even prepare an area to work,” he says.
Its objective is to rent at least 4% gross per year on the combined price of the purchase and the reform. However, the investor also considers disposing of their properties when an attractive offer appears.
In fact, it has sold three apartments already renovated to obtain liquidity and explore new opportunities.
“At Property Buyers we have been operating for ten years and we have never seen so much interest in investing in housing as now,” says Jiménez.
This situation is due to a post-lockdown context that mixes three factors: a high level of savings, lower prices per square meter, and a historical low-interest environment that allows mortgage credit to flow easily. At the end of November, the daily price of the Euribor hovered around the negative territory of -0.482%.
In the third quarter, the average price per square meter in Madrid was 2,856 euros, almost 6% less than the 3,033 in the first quarter , according to data from the real estate consultancy Tinsa.
Between the first and the third quarter, the price per m2 in Valladolid fell by 13.9%, in Pamplona by 11%, in Malaga by 8.1%, in Zaragoza by 7.9%, in Valencia by 6.6 %, in Seville 5.6%, in Barcelona 4.3% and in Bilbao 3%.
Meanwhile, household savings stood at a record 22.5% of disposable income at the end of the second quarter, according to the INE. “With the onset of the pandemic, there was a kind of technical stoppage and now we see a very lively market because the idea that prices have fallen drastically floats, although the reality is not so”, says the expert.
The second-hand market is broader than that of new construction. However, it is difficult to find used homes in large cities that are ready for resale without the need for renovation. This situation can be used by the investor to significantly increase the value of the property and turn it into a more liquid asset .
“Offering improved homes through renovations increases the possibilities of buying and selling”, says Andrea de la Hoz, senior consultant at Tinsa’s research service.
The expert focuses on trying to improve the energy efficiency of the property, an element that increasingly weighs more in the purchase decision.
“The value of a renovated home is increased by increasing its qualities and energy efficiency, the latter translates into savings in the medium and long term,” he comments on how one of the simplest improvements that can serve to differentiate the property of others.
“After several decades of use, the houses need to avoid becoming obsolete in the market,” he concludes.
