5 types of real estate investments in Mallorca

Mallorca Investment Real Estate

Tired of leaving your money in the bank where it only loses value? Looking for a lucrative investment? Have you often thought about investing in real estate? Then you are exactly in the right place!

 

 

At Lucas Froese Real Estate we are specialized in investment properties in Mallorca (together with the luxury real estate sector in Mallorca Southeast). Our job is to find you a top investment property with a good return and low risk. We are at your side in the elaboration of your investment plan, the entire purchase process, the subsequent renovation, rental management, etc…. But enough talk about our real estate agency.

Real estate investments in Mallorca

Mallorca is a solid option when it comes to real estate investment, whether in the standard or luxury real estate sector. Some regions still offer particularly high yield options, due to slightly lower prices per square meter, which have shown an upward trend over the last few years. A currently very interesting area is the southeast of Mallorca (towns such as Portocolom, Felanitx, Cala Murada, Portocristo, Cala d’Or…). There are more than half of the most beautiful natural beaches of Mallorca, it is a quiet area despite a great infrastructure (stores, supermarkets, hospital, sports fields, doctor’s house, restaurants…) and it has soon an (almost) direct way by highway to the airport and to Palma (estimated 20 to 30 minutes).

 

 

What real estate investments are there?

There are different types of real estate investments, ultimately it always comes down to the total return of the investment (although for some, cash flow can also be a deciding factor). Most real estate investments can be reduced to rental income or sales profit focused returns (either the profit is expected from rental income or from the higher sales price on resale). Of course, there are also combinations of these two investments, but these are rare.

Real estate investment types:

1) Fix & Flip

2) Buy – Rent – Sell

3) Buy local – change/convert license – sell

4) Buy – ETV license – Rent*

5) Buying land – building – selling

These are some interesting options in Mallorca, but of course there are others that we don’t find as interesting or too risky. There are also combinations of these different investment types, but we will explain each investment individually.

 

1) Fix & Flip

This type of real estate investment is based on a short buy-sell period. Usually these deals are closed/sold again within 6-12 months to collect the profit.

It consists of the purchase of a property in need of renovation, a complete renovation and the resale of this property. The most important points in this business are the speed of achieving a good purchase price and the high increase in value through the renovation for resale.

In general, this investment is associated with a slightly higher risk, but in return you can achieve a very high return in a very short time (we can help you minimize the risk with several tips for these investments).

 

2) Buy – Rent – Sell

One of the simplest and yet best investments, if you do it right! Look for a property with a good rental yield and an interesting increase in value over the next few years. It is best to finance part of the purchase price to increase the total return on your investment (some of our investments can achieve up to 15-20% annual return).

You should also achieve a good purchase price here (as the return on investment depends on this). You can also check whether the property is in need of renovation, as this can often pay off with a higher increase in resale value. Then it is very important to know the rental market of the area in order to set a correct rental price and to know how to differentiate potential tenants and select the correct one (to set the risk of vacancy to practically zero).

With this type of investment in Mallorca, we recommend that you take on a partner (real estate agency, tax consultant, etc.) who will take care of the rental for you (costs on average around €50/month, but you can sit back and relax, see how your investment finances itself, and simply enjoy your cash flow.

 

3) Buy local – change/convert license – sell

The concept is based on the lower purchase prices of premises compared to residential units. You have to calculate the return in such a way that after purchase, conversion, license modification and resale, a good profit comes out! There are also some tips and tricks to minimize the risk of this investment and always have a plan B in hand.

 

4) Buy – ETV license – Rent* (vacation rental)

Who hasn’t experienced it? Renting a beautiful finca with a swimming pool or an apartment with sea views for several days or weeks in the summer in Mallorca, and at a fair price compared to hotel prices! Due to the higher rental prices of vacation rentals compared to normal rentals (and still fair for the tenant compared to hotel room prices), this could also be an interesting investment for you.

Of course, this investment option involves more work than a traditional rental, but there are several options for having someone else take care of it (for a commission, of course, only if you rent out your property, so always consider beforehand whether you want to take care of it yourself or not).

The investment itself is very simple; find a property that can be of interest to tourists, either with an ETV license or where it is possible to apply for an ETV license and eventually rent it out.

 

5) Buying land – building – selling

Mallorca still offers very good investments for investors who want to build. Fincas with a plot of land (preferably over 14,000 m2) are particularly sought after. When buying a plot, you should always pay close attention to the location and whether you are allowed to build what you want on this plot, according to the guidelines of the town hall of the village.

 

 

Further tips for your real estate investment in Mallorca

No matter which of these options you choose to invest in the real estate market in Mallorca, you should always bear a few points in mind;

– Negotiate a good purchase price for the property
– Try to take advantage of economic and real estate market cycles
– Invest with financing (low interest rates, higher returns)
– Always take a close look at the zone/region
– Have a plan B ready (if not selling, rent – if not renting, sell)

 

 

If you have any further questions, please feel free to contact us here!