Buy to let in Spain

In the heart of Madrid, Lavapies is a cosmopolitan area with plenty of amenities, clubs, restaurants and small retailers. There are two different points of view about Lavapies: either you love it or you will never live there. The fact is that the population density is very high and about 50% of the population is not Spaniard.

If we had to compare Lavapies with an area of London, I would choose Bethnal Green.

In both areas, immigration is high, they are full of retailers, they are low-badged areas and both of them are a legacy of the roots of the cities. Whereas Bethnal Green reflects its London Cockney appeal, Lavapiés is a legacy of the traditional culture and architecture of Madrid.

Transport and Amenities

Lavapiés is a very handy area for residents who work locally and also for residents who need to commute on a daily basis. Newsagents, shops of fresh food and dairy, internet coffee shops with all the amenities are ’everywhere’ in Lavapiés. The affordability of the area makes Lavapiés very attractive for medium- and low-budget tenants.

Regarding transport, the area is well covered by three main underground stations just 15 minutes walking distance from the stations of Lavapiés, La latina, Tirso de Molina and Antón Marín. From this perspective, the area is ideal for commuters.

Prices Comparisons

We have conducted the price comparisons between studio flats placed on a first or second floor. The reason why is because, in Lavapiés, the buildings are over 30 years old and the layouts hardly leave room to accommodate a lift.

Also, given the historic value of some of the buildings, they are listed and the regulations do not allow for the development of internal reforms in order to put in lifts.

We assume that any flat above a second floor will struggle to compete in the market at a reasonable price. That is why we have taken into consideration only flats on first and second floors.

All the studio flats that we have compared to this investment are in the same borough and within an area of ½ mille from the studio flat that we present. The flats also have similar characteristics in terms of sqm and specifications, except the studio flat in c/abades, which is just 19 sqm but we consider relevant in terms of matching price/sqm.

Rental Comparisons

Property prices trends since the crisis broke out

According to idealista prices index, average property price in the borough of Embajadores, where Lavapiés belongs, was 3,601 €/sqm in December 2009, whereas in December 2010 the average price was 3,489 €/sqm. It means a 3.1% drop in the space of a year. The average price drop in Madrid city in the same period is 4.5% ( 3,700 €/sqm). So we could say that the Embajadores distric property price drop is below the average of the city.

2008 was the year of the dramatic price fall in the Spanish capital, where the inter-annual price drop per sqm was -5.1% in 2008 compared to 2007.

In Embajadores borough, the price fall in 2008 was -13.9%, compared to 2007.

The rental market in Lavapiés is very competitive and we estimate that studio flats will be easily rentable for €400/month (5.3% yield) up to €500/month (6.6% yield). We have estimated the rental yield using an assumption that the selling price will be €90k.

Lavapiés is a populated area in Madrid and the rental demand for medium-low budget properties is always high. Students, young professionals and couples are the potential tenancy market for this investment.

It is well known that Lavapiés is an old town and many buildings are without lifts.

Therefore, only properties up to a second floor are realistically potentially rentable given this peculiarity.

The rental comparisons that we have made are based on five other studio flats of similar specifications in the same area as this investment opportunity.

This article has been submitted by Daniel Talavera from the Spanish Brick