How to Choose a Company for Real Estate Investment in Spain

Choose a company by its documents, not by its presentation. You need to find out five things: whose money is in the project, how your participation is structured, who holds your money, who builds and how the numbers are shown to you. The twelve questions below cover those five areas. If the company answers any of them vaguely, ask for the answer in writing before you transfer money.

Whose money is in the project and who is responsible for what?

1. Does the sponsor invest its own capital? If the company earns only on commission, its interests can diverge from yours at the moment when the project is going worse than planned.
2. Which legal entity signs the contract and where is it registered? A company in Spain can be checked in the Registro Mercantil (the commercial registry). A limited liability company must file its annual accounts with the Registro Mercantil within a month of their approval (art. 279 Ley de Sociedades de Capital), so you can request the balance sheet.
3. In whose name is the property registered? In yours, in a separate project company or in the sponsor's. The answer determines what shows in the nota simple (the registry extract on a property) and what happens if the sponsor gets into trouble.

What must the contract say?

1. What is DNPI's fee calculated on, and after which costs? Ask where the base is measured from: after taxes, financing, contractor fees.
2. Which fees does the investor pay, and for what? Entry, management, exit. A vague wording here means a hidden fee.
3. Is there a contractual clause on a minimum return, and who pays it? If there is, find out three things: over what period it is measured, from what money it is paid and where the limit of the obligation lies. Any such clause works only within the contract and does not become a guarantee of capital.
4. Who decides on the sale, and when? And what happens if the property does not sell within the planned period.

Who builds, and how is it controlled?

1. Who is the contractor, and is it independent of the sponsor? A contractor working under a contract, with its own estimate, is checked differently from "our own people". More on accepting stages: milestones and retention in a renovation contract.
2. How are budget changes approved? In writing, with your signature, or after the fact, when the money is already spent.

How is the result shown to you?

1. What reporting do you get, and how often? Budget, status of works, payments to the contractor, photos. The report format is covered in the article on the investor report.
2. Can you see plan against actual for the budget at any moment? Or only on the day of the monthly email.
3. What do you get before signing: a calculation or a presentation? A calculation contains assumptions and scenarios worse than the base case; a presentation shows one result. How the return on a project is calculated at all is described in the calculation methodology.

What you can check without the company's help

Several things can be checked independently. Facts about the company: the Registro Mercantil, the accounts, the list of directors. The status of the offer: if you are offered something that looks like a financial instrument, check whether the sponsor is in the CNMV register of authorised entities (the Spanish securities regulator). In its guide to chiringuitos financieros (unauthorised financial firms), the CNMV itself lists among the warning signs a promise of high returns at minimal risk, insistent demands to decide immediately, and unexpected calls or emails. A sponsor's absence from the CNMV warnings list does not yet mean it is authorised; the CNMV says so separately. Whether a particular structure falls under CNMV regulation is for an abogado (lawyer) to determine.

The property is checked separately: the registry extract, licences, the technical report. That is the next step, covered in the due diligence checklist before the arras (the preliminary contract with a deposit).

How DNPI answers these questions

As an example, without assessment: DNPI invests its own capital in projects. DNPI's fee is 50% of profit; the other half stays with the investor. If the investor's return over the whole project, after distribution, falls below the contractual 10%, DNPI pays compensation out of its own fee. This is a return for the project, not an annual one; the terms and the calculation base are set by the contract for the specific project, and this is not a guarantee of capital. Renovation and construction are carried out by BCNYARD, SLU, an independent construction company working as a contractor under a contract. The investor gets a digital account with the budget and the status of the works. These answers should be checked against the text of the contract, not against a description on a website, this one included.

When the questions will not help

Good answers do not replace an independent lawyer. The contract is read by your abogado, not by the sponsor, and it is read before you transfer money. The list also does not protect you from an unscrupulous company that knows how to answer well: you can tell such a company apart only by its documents.