the controversial real estate investment formula that generates returns of up to 50%
Invest in brick has always been considered a safe, tangible and stable value that can generate passive income, but also protect assets in periods of high inflation. Traditionally, the small investor bought homes, premises or garages and put them on the rental market to obtain the appropriate returns.
This reality continues to exist for the most part, but the high price that housing has reached in Spain has caused many investors to see new business opportunities in this situation, especially with older apartments. Not in vain, The used housing stock in Spain has an average age of 43.5 yearsaccording to a report from the National Federation of Real Estate Associations (FAI).
All this, together with a growing demand, has been the perfect breeding ground for a new form of real estate investment focused on the purchase of old apartments to be comprehensively renovated, which is characterized by the speed of the operation and by offering returns that can reach 50%: this is what is known as house flipping.
“He house flipping It is a method that consists of buy an old house at a good price to renovate it and give it a second life. The goal is to value an already obsolete construction that needs important renovations and return it to the market with a high profitability,” they explain from the real estate portal. Idealisticwho assure that with this formula “all parties win”, both “the buyer, who will more than recover the money invested, and the market itself as there is a new habitable property in circulation without the need to demolish and discard an old construction to design a new one.”
“In Spain there is an interesting situation for this type of investment because the existing housing stock is very obsolete and needs reform not only for the improvement of the property itself, but also in view of the new legal requirements regarding energy efficiency from Europe,” said Ferran Font, director of studies and spokesperson for flats.com.
Various experts consulted by this means agree that the key to achieving success with this method of real estate investment is in detect homes that need major renovations, but that are not in ruins. That is to say: that the structure of the property is in good condition, even if it needs extensive work inside. This situation of precarious habitability will allow the investor to negotiate a reduction in the purchase and sale and subsequently obtain greater profitability.
Returns of between 20 and 50%
According to the figures he manages Property Partnersa real estate network dedicated to the intermediation of luxury residential and commercial properties with more than ten years of experience, this formula of buying at a low price homes that need renovation, remodeling them and selling them within a period of between six and eight months “is generating returns of between 20 and 50% of the initial investment and is beginning to consolidate itself as a growing segment within the residential market.
For Felipe Reusegeneral director of the company in Spain, “the flipping It is a valid tool to regenerate disused real estate assets, but it requires a technical, ethical and sustainable approach. It is not just a purchase and sale operation; is a decision that impacts the quality of the urban fabric and access to housing“.
They propose taxing this practice at 25%
However, this practice has also generated numerous criticisms. Some consumer organizations have warned that this model encourages real estate speculation in a context of housing access crisis. According to the Federation of Consumers and Users CECU“renovating to resell more expensive is also a form of speculation, which does not necessarily improve market accessibility.”
The controversy has also reached the Congress of Deputies, where Compromís has recently presented a proposal to impose a 25% tax on those who carry out this practice.
Your deputy Alberto Ibanez considered that all the people who “play Monopoly, buying and selling to speculate on a fundamental right” would have to pay 25% of the total in taxes so that, in this way, “start thinking about playing with housing”. Ibáñez considers it speculative to “buy a house for half a million euros and sell it tomorrow for 750,000”, thus justifying the payment of higher taxes in these operations than in a normal sale.
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