How to Participate in an Online Property Auction in Spain – Part 2: Determining Your Maximum Bid

In the previous article, I explained the initial steps for participating in a property auction online in Spain, including how to register on the auction website, conduct property searches, review available information, and perform feasibility analyses to decide whether further research is warranted. If you missed it, you can read it here.

Now, let’s move to the next crucial step: determining the maximum bid you should make in line with your investment objectives.

1. Understanding Property Taxes (ITP)

The first factor to consider is the Impuesto de Transmisiones Patrimoniales (ITP) or property transfer tax. The ITP rate varies depending on the region in Spain where the property is located. Since each autonomous community applies different tax rates and offers specific tax deductions, it’s essential to determine the exact rate applicable to your auctioned property. This tax is calculated on the higher value between the property’s cadastral value and its auction acquisition price.

2. Auction Value as a Key Indicator

On the auction website, you’ll find a critical figure: the auction value. According to Article 670 of the Civil Procedure Law, if you are bidding in a judicial auction, this figure determines the auction's outcome. Two key thresholds come into play:

• Above 70% of the auction value: This ensures you will win the auction if your bid is the highest.

• Between 50% and 70% of the auction value: In this range, the debtor and creditor are allowed to make a counteroffer before the asset is awarded.

• Below 50%: Your chances of winning decrease as the judge will need to ensure that the outstanding debt and legal expenses are covered.

Knowing this, you should factor the auction value into your bidding strategy.

3. Outstanding Debts and Obligations

Another critical consideration is the pre-existing debts tied to the property. As explained in the first article, you will need to settle all prior debts (such as unpaid property taxes and community fees), but debts following the auction will be cleared. Specifically:

• IBI (Impuestos sobre Bienes Inmuebles): Up to 4 years of arrears can be claimed.

• Rubbish collection taxes: Again, up to 4 years.

• Community fees: A maximum of 3 full years plus the current year must be paid.

4. Costs to Make the Property Marketable

It’s critical to recognise that the true cost of acquiring a property at auction extends beyond the winning bid. There are legal registration fees and additional expenses necessary to make the property marketable, which are not always straightforward to estimate, particularly for first-time investors. These costs can include:

• Renovation costs: Older or neglected properties often require substantial repairs, from structural work to updating fixtures and fittings. Depending on the property's condition, refurbishment can range from minor cosmetic changes to full-scale renovations, which can significantly affect the overall profitability of the investment.

• Utility reconnections: In many cases, you’ll find that utilities such as electricity, water, and gas have been disconnected. Reconnection can involve not only financial cost but also bureaucratic procedures that may vary depending on the local municipality.

• Eviction procedures: One of the most overlooked aspects of purchasing at auction is whether the property is occupied. Evicting tenants or squatters can be a long and costly process, especially if legal action is required. This may also require legal fees and extended periods without being able to monetise the asset.

Estimating these costs requires a certain level of experience and due diligence. It's not always easy to assess the property's condition beforehand, particularly if it is still occupied or access is restricted. As a result, potential buyers need to conduct extensive research, seek professional advice, or work with experts who can help estimate these costs accurately. Underestimating these additional expenses can lead to lower profit margins or even turn what seemed like a good deal into a loss-making investment.

5. Property Valuation and Market Analysis

Accurately estimating the property's resale value is essential for setting your maximum bid. Here, I recommend using multiple valuation approaches to ensure a reliable estimate:

• Comparative Method: This involves comparing similar properties listed on major portals like Idealista and Fotocasa to gauge the current market offer.

• Spanish Property Register Valuation (MVI): This system relies on actual transaction data from the Spanish Property Register, giving you insight into real prices paid for properties.

• Lean Method: For my clients, I also apply the Lean Method (developed by URBEi CEO Jorge Danes), a proven approach to cross-check the market’s willingness to pay.

6. Setting Your Target ROI and Maximum Bid

Once all the above costs (taxes, debts, renovation, etc.) are calculated, the next step is to estimate the potential resale value of the auctioned property. From there, you can establish a target net ROI (Return on Investment) based on your financial objectives. This ROI will guide you in determining the maximum bid you should make at the auction. As a general rule, always base your estimates on the most pessimistic scenarios—this means accounting for the highest possible costs and assuming the property sells at the lower end of your estimated price range.

7. Professional Assistance and Final Steps

As mentioned in my previous article, the help of an experienced real estate investment professional can make a significant difference throughout this process. It’s crucial to include their fees in your cost structure to ensure an accurate ROI estimate. If you'd like more information on how I assist clients as a Real Estate Investment Portfolio Manager, you can schedule a free consultation here.

By following these steps, you’ll be able to calculate your maximum bid with a clear understanding of your investment's potential return and associated risks. Just remember, precision and preparation are your best tools for success in a property auction.

I hope this article helps you navigate the next stage of your auction journey. If you'd like to discuss your bidding strategy or have any questions, feel free to get in touch https://m.urbei.es/GNICOTRA-consultas

Stay tuned for more insights on the world of real estate auctions, and as always, don’t hesitate to connect if you need support.

Related Links:

• How to Participate in an Online Property Auction in Spain – Part 1

• The Power of Home Staging in Real Estate Investment

I hope you found this helpful and wish you success in your next real estate auction!