How to buy Real Estate in Spain?

How to buy Real Estate in Spain??

In this month’s article, I made a guide for buying Real Estate in Spain.

Why invest in Spain???

• Finding deals: The Spanish market has a lot of inventory. You can find deals below market value or fixer-uppers.
• Leverage: Spanish banks are very foreign-friendly in lending money. The banks can finance up to 70 % LTV for nonresidents
• Cashflow: High cash-flowing properties with short-term or mid-term rentals
• If you understand investing, you will probably beat the competition. There are a lot of not well-presented properties for sale or rent.?
• Low entry barrier: Property prices are significantly lower than in western countries.

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Are there any requirements for buying a property?

NIE Number:

The only thing you need as a foreigner to buy property in Spain is an NIE number. (Numero de Indentidad de Extranjero) The NIE number is a personal, unique, and exclusive number assigned to foreigners, who are engaged in activities related to Spain for economic, professional, or social reasons.

Spanish bank account: Having a Spanish bank account in Spain will make the formalities easier.??

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Location:

Determine the region and purpose of a house in Spain.

Spain is a big country. This means that each area is unique and has different regulations and restrictions.?

Real Estate is all about location. Location is one of the most determining factors in affordability, demand, and availability. Understanding the location, you are investing in is key to being successful with that investment.?

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Budget:

Before you start putting all your time and effort into finding a property you must know your financial situation. Can you afford to buy a house???

So how much money do you need for buying a property in Spain??

Example of buying a property in Spain.

• The purchase price is 200k
• Banks provide in general a Loan to Value of 70% to non-residents. This means you must put 30% down yourself. 30 % of 200k = 60k
• Taxes, notary, and commissions are around 12.5% of 200k. = 25k
• Own equity to put down = 85k.?

How can you buy a property when you don't have enough cash in your pockets?

You can use creative financing options such as the following:

1. Refinance your primary residence to pull out equity.
2. Create a joint venture and do a 50-50 split
3. Find a passive investor and be the ‘sweat equity investor’?
4. Private lenders

There are plenty of ways of creative financing. I recommend you read the book Investing in Real Estate with No Money Down by Brandon Turner.?

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Putting together the dream team:?

The key to achieving massive success is building a successful real estate team. When it comes to building a Real Estate team, you must perform thorough due diligence.I recommend reading David Greene's book the long-distance real estate investor. He explains in detail how you can set up your team and how to run it.?

Who is on your team?

- Real Estate Agents??

- Lender

- Bookkeeper

- Property Manager

- Contractors

Real Estate agent:

Your Real Estate agent is your partner in crime for your Real Estate investing journey. You want an agent who knows about neighborhoods, building structures, and different types of deals so you can close quickly on your first investment property. The Agent should know the financial metrics such as the fair market rent, operating expenses, cash flow, return on investment (ROI), and potential tax benefits of a certain type of rental property.?

There is no shortage of agents it’s not difficult to find one. There are fewer agents, though, who possess the necessary knowledge and skills to help investors.?

Most real estate agents help traditional buyers find homes and work with seller clients who are marketing their primary residence. But the “investor friendly” has spent time learning the investment side of the business and probably investing in Real Estate himself as well.

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5 signs of an investor-friendly agent.?

- Strong understanding of the market

- Experience with investors

- Ability to analyze deals

- Firsthand investing experience

- Strong negation skills

How do agents get paid??

Agents are earning their money on a commission base. In Spain, this is normally 5-6% percent on the selling side. The commission usually gets split 50-50 between the buyer’s agent and the seller's agent.?

In case the seller’s agent doesn’t split the commission or the seller is an individual. The buyer’s agent charges a 2-2.5 % commission to the buyer.?

I charge on top of the regular commission an incentive fee of the negotiated difference in the purchase price. Incentive fees avoid a conflict of interest. In this case, I won’t hurt myself financially by getting a lower purchase price for my clients. ?

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Lenders

Investor-friendly lenders understand how and why real estate investors use leverage. Not all mortgage lenders have experience working with real estate investors. Many prefer not to work with them because investors demand higher levels of service and expertise. It’s important to look for lenders who have experience in working with investors, and those known for reliable customer service

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Accountant/Bookkeeper

Bookkeeping or an Accountant ensures all financial information, including balance sheets, income statements, and more, is readily available and updated. He or she organizes your financial records with well-kept receipts and invoices. Especially if you don’t speak the language and you’re not known with the local taxation it's wiser to hire an accountant.?

Property Manager

Living in another country makes it more complicated to manage your property. A good solution is to use a property management company. Property management is the act of overseeing and handling the business operations of a real estate property, Property management 6-25% (Long-term rental, short-term, or AIRBN the type of rental you have partially decides what commission you must pay)

Contractors:

It’s not easy to find a reliable and trustworthy contractor for your home renovations. There are several ways to ensure that you hire a quality contractor at a reasonable price.?

1. Ask for references: Use Real Estate agents or Property managers for referrals of reliable contractors.?
2. Interview 3 different contractors.?
3. Ask for referrals: call up former clients to verify the work of the contractor.?

Taxes:?

You need to get familiar with all the applicable taxes and fees in Spain. I highly recommend that you talk first with a tax advisor.

Note: “This is for informational purposes only.”?

Taxation for individuals:

• Rental income tax Non-resident: 19% for EU Citizens and 24% for non-Eu citizens.
• Wealth tax: Non-resident owners of Spanish property may be obliged to pay wealth tax depending on the value of their Spanish property. The wealth tax is only on Spanish assets. There is a general exemption of €700,000 which is not subject to wealth tax. The National tax rate ranges between 0.20% and 3.50%.
• Property tax: The property tax is 0.4 – 1.1 % depending on the region of the property’s cadastral value.?
• Capital Gains: The following taxes apply 19% for non-residents from the EU or 24 % for non-residents from outside the EU.?

Taxation for companies:

• The corporate tax rate is 25%
• You can deduct operating costs from your rental income
• Property tax 0.4 – 1.1 % depending on the region
• If Real Estate is bought to resell reductions of 70% on the transfer tax apply in some regions. The property must be sold within 5 years?
• If you buy real estate through a company to let it out, you can benefit from tax benefits. However, to do this, the company must own a minimum of eight properties.?
• All of these must-have long-term leases. if the company meets this requirement, it can qualify for a maximum of 85% rental income deduction. In addition, there is the option to fully deduct community fees and municipal tax.?

Analyzing a property:?

Do you want to know how to analyze a property? In last months article, I explain how you can analyze deals.

Making an offer:?

Your Real Estate agent needs to tell you everything you need to know about the purchase costs, taxes, and other periodic costs that come with a house.?

They should give you strategic guidance, to be in the best position possible to get the best deal.?

Right now, Spain is in a buyers’ market. What does this mean? The Real Estate inventory is high and there are plenty of homes for sale, but there’s a shortage of interested home buyers.

Buyers- market is an ideal time to purchase a new home because prices are lower and there are fewer buyers to compete with.

How to get a property under market value??

1. Look for motivated sellers: If the house is on the market for several months or the sellers want to move. You can make an offer below market value.
2. Limit contingencies: By waiving contingencies the seller may be open for?
3. Cash: Paying cash gives the seller the guarantee the house will sell.

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Costs associated:?

What are all the costs that are coming along with buying a property and to who do you pay them?

You must consider closing costs when buying a house in Spain. Closing costs are expenses associated with the sale of a property, paid to the various vendors in the transaction.

Costs of buying a property in Spain:

? Spanish Transfer tax: 10% ITP ( 6-10% depending on the region)

? Real Estate agent fees: 0-3%

? Notary costs: 0.5-1%

? Land registry fees: 0.4%-1%

? Mortgage broker: My preferred partner charges a standard amount of 0.6% of the mortgage. (minimum €1,000).?

The exact costs involved will depend on the type of property, including whether it is a new build.

Reservation contract:?

In Spain, it is necessary to make a reservation on the property to prevent the house from passing. You need to pay a deposit to secure the property, of which the amount varies between €3000- €6000.

Signing the purchase agreement:?

As soon as the reservation has been made, and the reservation amount has been transferred, the parties will draw up the purchase agreement. This is called in Spain 'Contracto de arras'.In

Notary:?

To become the official owner of the house, the notarial deed of sale must be signed at the notary. This is called the 'escritura' in Spain, with which the property is officially transferred to the buyer. In addition, the house must be paid.

What can I do for you? ?

Real estate has both the stability and the profitability to be a great foundation for building wealth. Whether you are new or experienced in real estate investment, I can help you with making a personalized investment plan to reach your goals. My expertise lies in finding great deals in Barcelona and its surroundings.

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