Buying a home as an investment: what to consider?
Acquiring a home as an investment requires prior analysis of factors such as rental profitability, the budget for the purchase or what mortgage to ask for.
Investing in the purchase of a home with the aim of renting it to obtain a monthly income or to be able to sell it in the future and obtain profitability can be an attractive option. But before buying a home as an investment, various factors must be taken into account, such as the market situation and rental profitability, the characteristics of the property, the budget and how it will be financed, among others.
Keys to invest in property
Although each case is different, there are a number of elements that are essential when choosing the right home to invest in:
- Market situation. In times of crisis or in situations of high inflation such as the current one, housing is a refuge asset that helps maintain the purchasing power of the owner.
- Rental profitability. In the second quarter of 2022, the profitability of buying a home to put it up for rent stood at 7.2%, one tenth more than in the same period of the previous year, according to Idealista.
- Location and characteristics. It is important to carry out a preliminary study of the elements that will influence the rental or sale price of the home in the future, such as the area in which it is located, the average price per square meter, access to basic services and infrastructure, the qualities of construction of the property, its year of construction or the common areas that the property has.
- Budget. Calculating how much to allocate to the purchase of a home is another of the main factors to take into account before making this decision. Experts recommend that the monthly fee paid for the property does not exceed 30% of the owner’s income. In the event that the latter also has other debts, such as another mortgage or a loan, the percentage of indebtedness must not exceed 35% of income.
- Mortgage for second residence. For the purchase of a second property, banks offer capital for, at most, between 60% and 70% of the appraisal or sale value. In other words, to invest in a house of 200,000 euros, you must have saved between 60,000 and 80,000 euros. It should also be borne in mind that buying a home entails a series of associated expenses, so it is necessary to have between 10% and 15% additional on the total purchase price. Likewise, the repayment terms are shorter and are usually between 20 or 25 years.
- Taxes. You have to differentiate between whether it is new or second-hand:
- New construction housing. You must pay the value added tax (VAT) which is 10%, except in the Canary Islands, where the general indirect Canarian tax (IGIC) is applied, which is 6.5%; and the tax on documented legal acts (AJD), which ranges between 0.5% and 1.5%, depending on the autonomous community in which the property is located.
- Second-hand housing. You have to pay the property transfer tax (ITP) which, also depending on the region, varies between 6% and 10%.
- Taxation. A dwelling is distinguished in the Income statement in relation to whether it is for habitual use or not. If it is for regular use, you do not have to pay more taxes for it, but if not, three situations may occur:
- Second home. If the home is dedicated to recreational or vacation purposes, without this implying any type of income, it must be taxed on the general base of the personal income tax (IRPF) by allocation of income.
- Rental. If the dwelling is intended for rent and, therefore, is a source of income for the owner, these must be included in the Income Tax return. In this case, the expenses faced by the lessor can be deducted, such as the real estate tax (IBI) or the community expenses.
- Sale. The sale of a house must also be reflected in the income statement. It is taxed between 19% and 26%, depending on the benefit obtained with the operation and all the expenses generated by the process can be included.
Advantages of investing in property
- It is an investment with a long time horizon and high profitability expectations.
- In the event that it is dedicated to rent, a home provides stable liquidity to the owner.
- It helps to diversify the investments of a saver.
- It is an asset that protects against inflation, given that in times of price increases, it is common for the real estate market to also rise.
- Increases the owner’s equity that maintains its value over time.
In any case, when making the decision to invest in housing, the professional advice of an expert is key, such as the real estate professional, who guides the buyer and resolves all the doubts that may arise throughout the process. Do you want an expert to advise you without any commitment? Let yourself be advised by a specialist.