Spain attracts foreign investors with its wonderful climate and well-developed economy. Many people decide to invest in residential real estate in Spain, as commercial properties provide ample opportunities for income generation. You can start a business by either purchasing an already existing firm or buying unoccupied premises and starting from scratch. Let us consider which option is more promising.
Content:
- Purposes of purchasing
- Buy-to-rent commercial property
- Pros and cons of purchasing unoccupied premises
- Purchasing a ready-made business
Purposes of purchasing
Clarify your goals before making a decision. If you are planning to run the business yourself, you will need to relocate and apply for a residence permit. In this case, you will need to select not only a place to work but also an apartment in Spain for permanent residence. It can be quite complicated to find both comfortable conditions and a good location for the potential profit that you are planning to generate with your business. Suppose you purchase a two-story house and open a small bakery on the ground floor. The house is perfect for relocation but do the residents of this district need freshly baked goods? If the competition is too great, your business plan will not produce the expected results.
On the other hand, the potential return from a project in another district may be high but you don’t fancy living there or commuting across the city. This is the drawback of purchasing unoccupied premises. Analysts recommend buying a home first and then making a decision on purchasing a non-residential property. You could rather try renting the work site to make a start and get an idea of the demand for your business. The only shortcoming is the additional rental expenses.
Buy-to-rent commercial property
If you are planning to invest your money to preserve it, purchasing commercial property could be a great option. You can lease it without worrying about the return on investment. Whatever the economic situation might be, real estate assets are always liquid. Taking into account the trend of real estate value capitalization in Spain, it can be safely assumed that selling a commercial property in several years will generate an additional profit. However, a lot depends on the quality and location of the premises. You should also take into account that purchasing real estate mitigates the risk of bankruptcy. Running an active business on your own premises will generate an income higher than the standard rent.
Pros and cons of purchasing unoccupied premises
The key advantage of purchasing unoccupied premises is the existence of a tangible asset. The drawbacks include:
- Potential challenges with finding tenants if you are planning to lease your property. A property being idle reduces the return on investment in commercial property.
- The need to invest significant funds when opening a business.
Additionally, you need substantial knowledge and information about the market condition in this region to run your own business in a foreign country. Even a seemingly impeccable business plan can fail if you overestimate the need for a certain activity. Another drawback is the red tape associated with opening a business. For instance, if an investor is planning to open a small café, they will have to furnish the premises, hire employees, and procure all the necessary licenses, which takes time and additional expenses.
It’s easier to start a business if you purchase premises with an already signed long-term rent contract. In this case, only the owner changes, while the tenant continues to operate on the premises following the established pattern similar to the plan of purchasing a ready-made business.
Things to consider when purchasing a commercial property
You shouldn’t purchase real estate as a physical person. Registering a company requires additional investment but you will receive more profit as a legal entity due to a lower income tax rate. Besides, 21% VAT is refundable.
Selecting premises
Location is an important criterion. In the case of large cities, look for premises near underground stations, in large residential or business centers. This increases the flow of potential customers. Premises with a floor area of up to 100 – 120 m2 with a display window and a separate entrance are still the most liquid. A lot depends on the specific type of activity. For instance, premises for food retailers must be more spacious, while a hair salon can fit in up to 50 m2.
It is important to have all utilities you might need for the further operation of your property. This is also relevant in terms of potential liquidity, which is the key criterion for selecting premises.
Purchasing a ready-made business
A ready-made business looks more attractive from the return-on-investment perspective than opening a business from scratch. It is better protected from the risk of financial losses, as it has an existing customer base. The most important thing a potential buyer should do is study the actual business performance indicators. An unscrupulous seller may overstate the return on investment, which is why it’s advisable to hire professional brokers who know the ins and outs of the situation in this country. The return depends on the specific type of business and its location. Such a purchase promises several advantages to the investor:
- No need to stay in the country at all times.
- No risk of opening an unsuccessful business, as the purchase already generates a stable income.
The only drawback is significant expenses during the purchase, but a stable income in the future is worth it.
There are numerous promising areas for business in Spain, as tourism, agriculture, logistics, and services are consistently in demand.