You can still buy a holiday home that pays for itself on Spain’s most popular coast … but not without a slog.
Sunday Times Home Section, 11 June 2006
The theory is irresistible. You buy a holiday home in Spain that pays its mortgage and costs from rental income, while making you richer from capital gains and happier from off-season breaks during the gloomy British winter. But, in reality, how feasible is this on the Costa del Sol, the most popular holiday destination among Brits? Nothing could be easier, if you believe some of the agents flogging property there. For years, young, inexperienced British salespeople have been sweet-talking their compatriots into buying off-plan properties on the strength of wildly optimistic potential resale and rental claims.
The reality is rather different.
“After all the recent building, there is now an oversupply of properties for rent,” says John McCallum, who runs Holidays Marbella, a property rental and management agency. “The rental market on the Costa del Sol is tough — competition for rental clients is fierce.”
Mark Clifton, a director of International Property Partnership, which specialises in spotting good-value properties with rental potential, agrees that buying a holiday property that rents well takes more nous than it once did.
“The days of giving any old property to a local agent and getting 30 weeks’ rent a year are history,” says Clifton. “Easy-money situations never last — they always attract stiff competition sooner or later.”
But greater competition doesn’t mean the game is over, Clifton points out. “It just means you have to make more of an effort, be better informed than the competition and think more strategically. Do it this way, and you have a good chance of achieving your goal.”
Chris Hall, 28, a television sports presenter from Manchester, shows what can still be achieved, even on a tight budget. Last July, he and a friend bought a two-bed, two-bath penthouse duplex at La Maestranza, a development just outside Puerto Banus, at the end of the “golden mile” west of Marbella. “With help from our agents we managed to negotiate a price of €265,000 (£183,000) for a property with a mortgage valuation of €300,000 (£207,000). We used an 80% mortgage, so we didn’t have to come up with too much capital,” says Hall.
They tried several agents before picking International Property Partnership and shopped around for a good mortgage, finally selecting one that was interest-only for the first year. “Paying only interest at the start gave us the financial breathing space we needed to get up and running,” he says.
By offering below-market rents and working through personal networks and work intranets, Hall has already taken bookings for 25 weeks in this, his first full year of renting, just enough to cover his mortgage and contribute to rates and community charges.
“After a couple of years, when we have an established client base, I expect the rent to cover all the costs of owning the property,” he says.
Hall isn’t there yet, but the signs are good that he will achieve his dream of a holiday home that pays for itself. “Buyers who get everything right can hit pre-tax gross rental yields of 5%-10%, which is usually enough to cover ownership costs,” says Clifton. “Of course, many buyers will never achieve this because they get the formula wrong.”
So what is the secret formula for a holiday home that pays for itself? Ideally, with a flat, you should buy within five minutes’ walk of a good area such as Puerto Banus, with all its amenities and attractions, or an emerging spot such as Elviria, just to the east of Marbella. Failing that, a five-minute drive is still manageable.
“Apartments more than five minutes’ drive from the beach and the action are a failure,” warns McCallum. “But villas are different, because people can live a more self-contained life in them, especially when several families rent together.” He rejects the theory that homes on golf developments will rent well to golfers. “Golfers are happy to drive to courses, but in the evening they want to have a few beers and walk to restaurants.”
You could target a niche market facing a shortage of properties, for instance, one- bed flats, perfect for couples without children. But if your own requirements mean you need something already in abundant supply, such as a two-bedder, then choose one with bright, open, attractive living areas and terraces, and get the decor right.
“Avoid glass tables and fabric sofas, which are a nightmare to keep clean,” says McCallum. “Leather sofas are much more practical. Cane or black ash furniture and bean bags are out. Stylish, modern furniture is in. Linen and crockery should be white and easy to replace. And you really must offer satellite television, a DVD player, stereo and broadband.”
Don’t overpay. If you do, the rental numbers are stacked against you from the start. Make the effort to research the market and select an agent with genuine local expertise. Brief inspection trips that leave you at the mercy of one agent will almost certainly end in failure.
The more effort you make to market your property, the more you will rent it out. Rental agencies can help you book clients and look after it, but you should also list it with the most popular holiday rental websites and on a staff intranet if you work in a large organisation. Offer competitive rates and discounts to build up business, and don’t let your friends use up prime weeks for free.
© Mark Stucklin (Spanish Property Insight