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viernes, 17 de julio de 2020

 

 

 

  How to calculate the value of a property?


From Marti Projects Real estate agency on the Costa Blanca, we want to facilitate as much as possible any matter related to the real estate issue, in this article we offer you a simple way to know approximately the estimated value of a property in Spain based on a relationship table of prices between sale and rental of a property called Per.

The question that always arises when we think about the sale or rental of a property is the PRICE, is it expensive or cheap?

It does not matter if it is the buyer, the potential tenant or the owner, everyone doubts what would be the appropriate price of a property independently for sale or rent.

Through the Bankinter bank, of which our company is an authorized agent, we offer you a table and a formula with which you can calculate an approximation to what the price of a property should be, to the result that this table offers us then an upward or downward adjustment could be applied depending on the specific characteristics of each property, but at least it will place it at an appropriate price level.

   The key to the table is called: PER (Price Earnings Ratio)

There is a relationship between sale and rental prices that vary over time but can be calculated:

- Gross profitability for rent; It would be the percentage resulting from dividing the annual money we obtain for a rental property by its sale price. Serve as an example; A house that is rented for 12,000 euros a year (1,000 euros / month) and that is worth 240,000 euros is said to offer a gross return of 5% according to this formula:

(12,000 / 240,000) x 100 = 5%

- The PER; If the inverse operation of dividing the sale price by the rental price is performed, we will obtain what is usually called PER (Price Earnings Ratio) .This data is equivalent to the number of times that the rental price is contained in the sale price or the number of years it would take to pay the price of a home by renting under current conditions. It is a universally accepted ratio to value assets such as companies, homes, etc. With which the PER of the previous home would be 20 times and the calculation by which that data has been reached would be:

(240,000 / 12,000) = 20 times

- Table of equivalence between rental and sale price; According to the previous data, if we had two of the three previous figures (sale price, rental price or PER), we could calculate the third. As we have the data on the gross profitability for rental of all Spain offered by the Bank of Spain (BdE), we only need to know a reliable rental or sale data to calculate an approximation of the other variable. According to the latest report from the Bank of Spain (BdE), the gross profitability of renting a home in Spain at the end of the first quarter of 2016 is 4.6%. This is equivalent to saying that the PER is 21.7 years or 260 months.

In short, if we are sure that a house with similar characteristics to which we are interested is rented for a certain price, currently it would be enough to multiply the monthly rental price by 260 months to obtain a suitable approximate sale price. For example, if you rent for 1,000 euros a month and multiply that monthly rental price by 260 months we would obtain that the sale price should be around 260,000 euros in current conditions.

In the same way, if we have a house that could be sold for 260,000 euros, it would be enough to divide by 260 to know that its rental price should be around 1,000 euros per month.

Using this data, you can now build a table in which the rental price is related to the current sale price.

It is important to know that the PER or the dividend yield vary over time, so the calculation of this data should be updated to optimize the calculations. In times of very high real estate prices, the PER was very high, while it is now more moderate, the previous data has been calculated according to the latest data published by the Bank of Spain of a profitability of 4.6% in 2Q 2016 (PER 21.3 times). To move from one column to another, one of the data must be multiplied or divided by 260 months. This coefficient is current for current data, but varies over time.

In summary, the lower the PER of a home compared to the Spanish average (21.7 times), the better it will be to buy it, while the higher it is, the better it will be to live in it for rent.

   Consider possible adjustments for each property

The previous table serves as an approximation of sale and rental prices, however afterwards it should be refined because not all markets nor all homes are the same. As general rules we have that the PER can vary by:

- Location; The provinces with the highest demand tend to have a higher PER than those with the lowest demand. Thus, it contrasts that in Spain the PER of San Sebastián is 27 years old, while that of Las Palmas is 17 years old.

- Location; Within the same city or town, the PER also varies. Thus, for example, the areas with the highest demand and considered as more consolidated, tend to have a higher PER.

- The best houses usually have a higher PER; In keeping with all of the above, for the best houses or those in better condition, a premium is usually paid for the security of investing in them. Lower quality houses tend to have a lower PER.

All these data lead to the reality that in the best houses it is often easier to live on rent than to buy them. In fact, there are people who can pay a rent in a good area of ??the cities, but who could not buy the apartment in which they live for rent.

We hope that this information has been of interest to you and makes it easier for you to have an approximate idea about the value of a property in Spain, do not hesitate to contact us for any clarification, we are happy to assist you.

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