Buy, reform and resell as an investment. Today called house flipping, it is not something new but the search for profitability in savings revives interest. “The new law makes investment for rental less attractive, but buying to reform and selling is still attractive,” says Emiliano Bermúdez, deputy director of Donpiso. The profitability that is achieved is around 7% -10% gross on average, he details. “Today no home security product offers it.”
Profitability grows depending on the conditions, if you have the money in hand, if it is financed… “If you do it with your lungs, I would not invest with an expectation of at least 15%. If you make the investment with someone else’s money, it can reach 60%-75% because most of the resources are put up by the bank and you bear the financial and reform costs,” says Iñaki Unsain, head of the association of Aepsi real estate personal shoppers and buying and selling professionals. But if you choose to finance the risk is in proportion to the higher return. If it doesn’t go well, not only do you not earn money, you end up in debt. For this reason, more than mortgages, it is committed to credit policies, which allow access to a line of financing and use what is required.
This forces you to set up as a company, something that has advantages: it gives access to reductions in the property transfer tax (ITP), 70% in Catalonia, or makes it easier to offset VAT. Better to continue as an individual or create a company? “If I do house flipping as an individual, I must declare the capital gain in the rent and it will be taxed between 19% and 28%. As a company I pay 25%. If the buying and selling is continuous, it is convenient to do it as a societyâ€, says Abel MarÃn, from MarÃn
From the first moment you have to make calculations to be clear that the operation can be profitable. When buying, nothing is worth it. It must be a well-located home –urban centers–, with an elevator, balcony, good light and good distribution. Today, spaces that allow teleworking are also widely sought after. It’s time to forget about mezzanines, huge homes, interiors without light, houses lost in unattractive towns… Xavi Aránega, a partner at Revel, specializing in house flipping, points to 70 m², two-bedroom homes, which are in high demand. He will also check that you have a certificate of occupancy and come without hidden charges. And manage market forecasts, today downward, to 6-12 months. The fewer of the above points are met, the more difficult it will be for the operation to go well.
“If you want to have a good rotation, you have to look at places with good demand. Better in big cities to refine the shotâ€, comments Aleix Pagès, from Housfy. In addition to Barcelona and Madrid, he sees good opportunities in Malaga, Valencia and the Mediterranean arc. The ideal is to get it with a discount of 15%-20% on the normal market price. “Even 30%. If not, the numbers do not come out with all the costsâ€, says Unsain. Registration, notary, agency fees, financial costs… Just buying adds several invoices.
In the step of the reform it is not necessary to sting, but also not to exceed so as not to erode the margin. “The buyer knows more and more about this. A well-done reform is valued, you have to think of at least 1,000 euros per m² â€says Aránega. Kitchen and bathroom are the key points, what makes the difference. It must be a neutral reform, with good finishes, of higher quality the more purchasing power the potential buyer has.
The sale arrives. The ideal is with the reform done. When setting the price, you must not err either. It is another of the moments where profitability can disappear. All costs faced in the purchase, reform and taxes must be reviewed. Based on this sum, set the expected return. “To this figure we must add the margin target, 10%-12%,” says Pagès. It will allow a discount to be assumed if the apartment does not generate interest or the buyer asks to adjust the price. In renovated apartments, the required discount is around 3%-5%, they calculate in Donpiso. You can do everything right and not hit the price and annoy the process…
If everything goes well, Bermúdez gives the example of a 100 m² house that under normal conditions is worth 300,000 euros. If you need a reform, you can get it for about 250,000 euros. The reform would be around 50,000 and a profit of 20,000 euros could be obtained from the sale, which leaves a 7% gross return. The ideal is to complete the process in 4-6 months to have the possibility of doing a couple of operations a year and improve profitability. Speeding up the process avoids burdening with IBI, community, electricity, services and the like until the sale.
In this market there are no barriers to entry beyond money, and profitability calls, “but you have to do everything very well,” warns Pagès.
