Turning a property on the island into an investment property requires creativity, patience and experienced partners.
Buying a property in Mallorca is an easy way to make money in the long term, thanks to sustained demand and dwindling supply. In other words, the loss in value of an island property is as unlikely as a tsunami off Arenal.
However, it is also possible to earn money with a property regardless of the increase in value or to generate a return - despite the high prices. However, there are a few things to bear in mind.
„A real estate purchase is generally defined by three types of investment,says Markus Beforth, real estate investor and construction expert in Germany and Spain. „For most buyers, a classic real estate purchase is just an investment with a purely emotional return. The buyer is happy about the property they have purchased, fulfilling a dream that may have been cherished for a long time, and usually uses it themselves“.
Parallel to this, however, such a property becomes a return on investment due to the increase in tangible value.
The buyer speculates that his property will increase in value over time and that he will make a profit when he sells it later,
Berth explains further. „Of course, it also depends very much on the purchase price and the development of the location.“
However, if you want to earn money with your property in the short term, you have to make it work for you. They then achieve an annual return from the rental. On Mallorca, properties can be rented to holidaymakers (vacation rentals) or to locals and residents over a longer period of time (long-term rentals) with the appropriate license.
Example: A few months ago, a German entrepreneur bought a vacant apartment building with two residential units in Playa de Palma for around 700,000 euros plus the incidental costs of around 10 percent incurred when buying the house. Only one of the apartments was ready to move into, the lower one was awaiting a complete refurbishment. In this case, in order to achieve a return of 5 or 6 percent per year through rental income, the entrepreneur first had to spend money to bring the apartments up to a more modern and therefore higher rental standard. Following the renovation work and a new, attractive interior, the rental income from the property now amounts to 45,000 - 50,000 euros per year.
Of course, this example of a yield investment in Mallorca sounds simpler than it actually is. A lack of specialist and local knowledge are usually the biggest hurdles. Whether a property is suitable as an investment property at all also depends on various factors. Above all, however, a favorable purchase price. With ultra-modern villas for which you pay millions of euros, it is difficult to generate an annual return. The situation is more interesting financially with unfinished buildings and refurbishment or renovation projects," explains Markus Beforth. But the first thing that matters here is the creative imagination of the investor. „How can the future rental property be designed, furnished and decorated so that it fetches a good price on the market? What should the tenant profile look like? What type of accommodation do you want to offer? Exclusive, chic and sophisticated or rustic, elegant and cozy?" says Beforth. „I always say: the bigger the problem, the bigger the potential return on investment.“For example, if you are looking for a multi-family property in the outskirts of Palma as an investment property, you will mainly find local tenants who are less interested in beautiful views than in practical and affordable living conditions.
Also important: If you do not have in-depth knowledge of construction technology, renovation or refurbishment, you should always consult a building expert. Property investors who are not constantly on the island during the necessary renovation or modernization work to supervise tradesmen and material deliveries can sometimes experience nasty surprises.
A qualified person of trust should always be on site to make decisions on behalf of the builder or investor,
recommends Markus Beforth.The estate agent can also play a decisive role in a successful real estate investment in Mallorca. They know the local conditions best and are usually able to assess whether a property is suitable for vacation or long-term rental. He may even already have solvent tenants on hand. He also knows construction companies and tradespeople who can reliably assist you with any necessary renovations or refurbishments,
says Markus Beforth.
Markus Beforth is an investor, construction expert and surveyor in Germany and Spain. In addition to investments in the residential sector, he is one of the leading project developers for the revitalization of German commercial real estate in the mid-market sector. It invests exclusively for its own portfolio.
Andreas John
