Investment or consumption ?

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This topic contains 6 replies, has 4 voices, and was last updated by Profile photo of Anonymous Anonymous 5 years, 11 months ago.

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  • #56032
    Profile photo of Anonymous
    Anonymous
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    Hello
    I am new to the forum; we recently bought a property in Mallorca after surveying the market for a year. We dont view the apartment as an investment, but rather as an alternative to a charter holiday. All costs (and the cost savings) considered the cash flow from owning is appr. equivalent to 2 charter holidays a year. However the cost could vary depending on the proportion of equity you put in and your cost of capital. In my case, any increase in value is an option, also I have only included rental income from friends/relatives for 3-4 weeks/year, and a sustainable level for mortgage rates.
    As for price/value I think the theoretical yield from net rental income for a year is a good benchmark for determining value. In my case we would get a yield of 5-6%, which I think is fair. Of course the current situation in the property market could/will also affect rental rates but there is a bit of margin. At the peak the yield would have been apr 2% which I think is telling.
    Prices could of course fall further, but I think that as an alternative to charter holiday it makes sense for us to buy now, but if you are buying for pure investment that might be another matter!

  • #102042
    Profile photo of Anonymous
    Anonymous
    Participant

    Wheter its investment or consumption it really depends on life style & the level of consumption that you wish to take up.

    I dont know what price you have paid your yeild of 5-6% seams on the hogh side irrespective of what you paid. In so far as relying on your friends & family to rent your property. This is a folly. Unless & unless your family name is Bin Laden i.e. zillions of brothers, sisters, inlaw’s, cousins, nephews

  • #102055
    Profile photo of Anonymous
    Anonymous
    Participant

    I would think that the yield would be a function of the price (and rent) ? Regarding the number of family/relatives I dont think 3-4 is unrealistic, and even so the potential rental income is not a major source of income

  • #102058
    Profile photo of Anonymous
    Anonymous
    Participant

    Mr Bean. I agree as to how you would calculate the yeild. I wish you luck & do let us know after year one as to how you got on.

  • #102315
    Profile photo of Anonymous
    Anonymous
    Participant

    Thank you for the encouragement! Would like to add that this forum has provided some useful information during the process and maybe we will avoid some of the mistakes/risks otherwise made.

  • #102320
    Profile photo of Anonymous
    Anonymous
    Participant

    It is interesting to me to see someone make a distinction between investment & consumption, so many over the years have justified the purchase of a home in Spain as an investment, however I seriously doubt this to be the genuine reason in most cases

    IMHO, people bought (and some still buy) for a range of reasons, and “investment” is just used to justify the purchase, but is rarely the genuine motivation

  • #102321
    Profile photo of Anonymous
    Anonymous
    Participant

    i think alot of people who bought viewed it as both.they wanted a holiday home but couldn’t really afford one they then listened to the hype on holiday home programmes that if they used it for 4 weeks a year and rented it out for the rest it would pay for its self and of course it would go up in price so was a really good investment.
    I wanted to buy but couldn’t afford to at the peak then the pound crashed and the dream was further away, but with prices falling and the pound making some gains maybe i won’t have missed the boat and in a couple of years it might seem i was lucky to have not been able to buy at the peak

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