If you’re currently browsing the finest property Sotogrande has to offer with investment as your principal motivation, you can be assured that you have already made a great choice. Sotogrande has been a highly desirable part of the Costa del Sol for property purchasers and renters for literally decades, so anyone contemplating buying here for investment is already off to a strong start.
But of course, even our team here at BM Sotogrande won’t pretend that every single property in Sotogrande represents the perfect match to every single person’s conceivable investment goals.
Here, then, are some of the factors to consider when you’re unsure whether a particular Sotogrande property is likely to generate the returns you’re looking for.
Account for not just the purchase price, but also all other costs
No matter how much you initially like the look of a given Sotogrande property, it’s crucial to work out the purchase, maintenance and management costs for this Andalucía home, and consider them alongside your budget and savings goals.
As with property purchases elsewhere in the world, various taxes and fees apply to property acquisitions in Sotogrande, that are likely to add around 12% to 14% to the purchase price.
Think, too, about how much you may need to spend on renovating the property, the cost of a property management and maintenance contract with a reputable company, and any vacancy periods that may occur. These factors can all cut into any profit you generate from the property.
Ask yourself how much money you could realistically make from the property
You might have previously read articles about property investment, suggesting that you apply the ‘1% rule’ – the idea that the monthly rent you charge for your investment property shouldn’t be any less than 1% of the upfront cost of the house, including the cost of any required renovations.
That might mean if you buy a property in Sotogrande for €700,000, for instance, you may look to charge €3,500 a month in rent.
In truth, though – and depending on your exact investment desires and expectations – you may treat this ‘rule’ more as a broad guideline than a rule. After all, you will still need to charge a rental price that is actually competitive compared to other properties in the locality.
If, after looking at rental values for properties like yours nearby, it seems that the amount you can realistically charge will fall below 1% of the purchase price, you might consider whether you are willing to hold onto the property for longer to accumulate more rental income over time.
Work out the capitalisation rate
Figuring out the ‘cap rate’ will allow you to determine the rate of return you can realistically expect from a given property in Sotogrande, compared to alternative investments.
It’s as simple a process as taking the net income – otherwise known as income from rentals, after expenses – that you anticipate the property would bring you, and dividing it by the home’s current market value.
Let’s imagine, for example, that you do indeed purchase Sotogrande property for €700,000, and you’re sure you could charge €3,500 a month in rent, perhaps amounting to €2,700 a month once expenses are subtracted. Your net operating income a year would therefore be €32,400.
€32,400 divided by €700,000 would therefore be 0.046, or 4.6%. With a cap rate of anything between 4% and 10% being widely regarded as comparable to what other investments such as shares and bonds can bring, you might be quite pleased with that rate. But of course, much depends on your personal investment criteria and what would satisfy you.
Hopefully, the above will help you determine how any given property in Sotogrande would fare as an investment for you. To talk through your specific property needs and desires with our team in more detail, remember that you can always drop us an email or give us a call, on (+34) 956 785 092.