Lanzarote investment property update
HOT PROPERTY
Where do shrewd buy-to-let investors look when the domestic property market starts to cool? Debbie Roberts explains why she and husband Sean, both aged 41, chose to put their nest egg into a villa in Puerto del Carmen in the Canary Islands.
It sounds almost too good to be true. Release equity from your home.
Buy a place in the sun. Rent it out to other holidaymakers. Then just sit back and watch the money roll in - whilst the property also appreciates in value.
But many investors are now finding that buying an overseas property is the key to beating diminishing rental returns, rising interest rates and overpriced property back in the UK.
Why did you decide to invest in an overseas property?
Like of lot of British homeowners, we have benefited enormously from rising property prices over the last decade.
Just over a year ago we realized that our house in Lewes, East Sussex, had appreciated in value quite substantially since we bought it in 1999 on a small mortgage. This meant that we were sitting on a sizeable sum of money that was not really working for us at all.
We started to cast around for ways of using this equity to generate additional income and long-term capital growth. But rising prices in the UK, along with rising mortgage rates meant that returns on development and buy to let investments were dwindling. So we decided to explore buy- to-let options abroad instead.
Why did you choose the Canary Islands?
We have been enjoying villa holidays on Lanzarote for many years. So we know from first hand experience that the Canary Islands offer a number of advantages over other locations.
Most importantly - in the rest of Europe the holiday season only lasts for around six to seven months at best. But in the Canaries - year round sunshine means year round rental returns. Which means you can generate more revenue, more consistently.
And unlike other options, such as say new build investments in Eastern Europe, the Canaries are a firmly established, tried and trusted holiday destination, attracting millions of tourists every year. So you have a big ready-made rentals market to tap into.
What type of property were you looking for?
Our plan was to enter at the upper-end of the holiday lettings market. The basic thinking was that we could achieve a better return on our investment this way, as weekly rates in the main resorts for a decent rental property start at around 700 pounds. And that’s outside of the peak school holiday periods when owners can charge over 1,000 pounds per week.
So even after allowing for taxes and periods of non-occupancy it was obvious that the rental income would still comfortably cover the mortgage repayments on the property.
We knew that we needed to buy an independent villa; with a minimum of three bedrooms and that it had to be located in one of the main resorts. We also knew that the villa had to have a decent sized swimming pool – as this is a standard requirement.
Beyond that, we weren’t scared of buying a property that required a little renovation and improvement, but we didn’t fancy getting tied up in a lengthy restoration project.
How did you find the right property?
We began our search via the Freedom4Sale website – which gave us plenty of options, both in terms of potential properties and estate agents to work with. As a result, we got in touch with Simon and Tim, who manage Inversiones Timanfaya, a long established and reputable agent based in Puerto del Carmen.
Initially, we harboured all the usual negative preconceptions about estate agents. But we were quickly proved wrong. Inversiones Timanfaya matched our criteria perfectly and only showed us properties that were already operating successfully as holiday rentals. In fact, after seeing four or five viable options we ended up buying the first property that we viewed with them.
So we really feel that they went out of their way to find us a villa that we wanted to buy – not just a property that they wanted to sell us.
Tell us more about your villa, Casa Gabriela.
Well, the house is located in Los Mojones, which is a very tranquil, upmarket residential enclave in Puerto del Carmen. It’s just a short walk to the Old Town harbour - so you don’t need to hire a car and there are plenty of shops and restaurants close by.
The villa itself is very spacious and has a charming secluded volcanic garden as well as a heated swimming pool – which is an important feature in the cooler winter months.
Having experienced a good few villa holidays ourselves, we think that we have learned a little about presentation and accommodation standards. So we’ve worked hard to ensure that Casa Gabriela exceeds the expectations of even the most discerning guest.
For example, we’ve added luxurious and stylish fixtures and fittings throughout –such as a touch control halogen hob and black granite work surfaces in the kitchen.
We’ve also furnished the villa to a very high standard. And we thought very hard about providing all of those small finishing touches that make the difference between a one-off booking and a repeat guest.
How do you generate your bookings?
We work with a professional lettings agent called Nick Brumby – whose company Lanzarote1.com is the holiday lettings arm of Inversiones Timanfaya. This arrangement has a lot of advantages, as Nick was responsible for letting the property previously, so he knows it well.
They are very switched on when it comes to marketing the property – especially online, which is where the bulk of bookings are generated.
So they essentially market the property for us in return for a percentage take of every guest booking. And at the moment they probably account for around three quarters in total. The remainder come via our own website. A good friend, who is a professional web designer, created this for us and the site also features some really good quality visuals by a Lanzarote based photographer called James Mitchell.
Along with word of mouth and repeat bookings this activity looks set to generate an occupancy level of 25 weeks for our first year, which we are very happy with. We then expect to gain more momentum and hopefully hit 40 weeks worth of bookings in 2007.
Checklist
Independent villa
3+ beds
Good sized pool
Year round lettings
Tried and trusted holiday location
Ready made rental market
You Do The Math
Purchase price 316,000 pounds (€465,000)
30% Deposit 102,000 pounds (€150,000)
70% Mortgage @ 3.6% 680 pounds per month (€1,000)
Rental Income 1600 pounds per month (€2352)
Gross Profit = 920 pounds per month
Top Tips
Research
Invest in a villa that already enjoys holiday bookings.
This not only illustrates the viability of your business plan but means you may also ‘inherit’ some bookings and rental income with the property to get you started.
Presentation
Stand out from the competition.
Add value with features such as quality furnishings and complimentary welcome packs. Small touches give your villa an edge and can make a big difference when it comes to generating repeat bookings.
Marketing
Invest time and money to generate bookings
Professional photography, a good looking, easy to use website and well-written promotional materials are all money well spent.
Bookings
Work with a lettings agent
Reputable, professional lettings agents will supply you with the bulk of your bookings, especially when you are starting out.
