The investment.

Every small or large saver has ever thought of investing their savings in a second home, because it is an asset that has a series of advantages unlike other assets (financial, for example, or artistic) that entail knowledge that not everyone world drives.
Among the advantages of acquiring a second home are roughly:

- It is a tangible good, that is to say, it is not a book entry that floats in the telematic space of the world's computers and monitors.

- We can make use of the property itself on our vacations or even let our relatives use it.

- We can obtain some interesting income: income from rental or assignment, or capital gains from the transfer of the property title in the future.

- It is a "pension plan" for our retirement: an interesting way of forcing ourselves to save periodically (if it exists through external financing, that is, a mortgage) to consolidate consolidated rights in the future. These consolidated rights, that is, the market value of the property, will depend on many exogenous factors such as the area where the property is located, the economic cycle, legislation...


To consider.

Other factors have recently come into play that just two years ago were so unlikely that nobody had when it came to weighing the risk of this type of investment and they are:

- Climate change: many scientific studies already predict a rise in sea level that will inevitably affect areas bordering the coast. That is the case of La Manga del Mar Menor in Murcia and of many towns. Investing €400,000 in a penthouse on a beach with a high probability that it will be impracticable in the future, becomes a somewhat risky decision...

- Pandemics: Covid 19 has put on the table what some Economic Gurus, such as Bill Gates, already announced a few years ago and is the risk that exists today of new diseases emerging. The impact of Covid on world tourism has been devastating.
The almighty tour operator Thomas Cook collapsed the national market at the end of 2019, but the effects of Covid 19 have caused GDP to fall by more than 106,000 million euros in 2020, that is, a 68% drop compared to 2019 revenues.

Not to mention the fall in the stock market of the hotel companies and the aviation sector listed on the Stock Exchange.

Other disadvantages:


- High payment of taxes at the beginning and during the life of the asset: depending on whether we are talking about VAT or Property Transfer Tax, the truth is that we must face the payment of between 4% (super reduced rate) or 10% on the purchase price, in the purchase of a home, together with the invoice of the corresponding Notary and the Property Registry. Also the municipal taxes that accrue each year, home insurance and maintenance, repair or conservation expenses.

From an IRPF or IRNR point of view, we also have the obligation to impute an income to our rent, called Imputations of rent, for the mere fact of having a second home.

What's more, the AEAT doesn't care if our home is expected to be rented, because according to a recent ruling by the Supreme Court, the period of time in which the home is not rented must be considered for the purposes of article 85 of the IRPF. or 24 of the IRNR as an imputed rent and to make matters worse, the expenses incurred to set up that home will not be tax deductible.


Types of risk: 


- Risk due to insolvency: If a bad economic time befalls us, we can fall into defaults or even lose the property, also losing all the money (or even our personal assets) that we have invested in it, until we pay off the debt and the contracted responsibility.


- Liquidity risk: If we need liquidity for any reason of urgent need, liquidating a property can be an operation that takes months and even years and the worst thing is that, in case we need the money immediately, our negotiating power in the sale price would be clearly reduced, so it is likely that we will have capital losses.


- Risk for renting in the habitual residence: Breach of contract by the tenants, damage to the property, collapse in the general justice system that slows down eviction procedures, etc... make the owner fear who increasingly opts for vacation rentals in the short term (which is not 100% risk-free either...)

Expert opinion.


As a Financial and Tax-Fiscal Advisor, I always advise my clients to choose those assets that best suit their personal circumstances, because for that there is a wide variety of assets and possibilities.

The investment time horizon, risk aversion, the ability to generate cash flows, family circumstances and the expected return-risk ratio (Sharpe ratio) are, among others, some of the pillars on which we must base our investment decisions.

Additionally, we must incorporate good tax planning that covers the treatment of profits and returns generated and the future transmission to our heirs.

In our next article we will deal in depth with the details of the taxation of tourist vacation rentals.