Investment approach
Managing investor capital in property: what it covers
Managing investor capital in property means organising one specific project: property selection, the economics, the purchase, legal support, the works and the sale. A look at who is responsible for what.
Managing investor capital in property means organising one specific project from property selection to sale, not managing money as a portfolio. There is no money placed at a third party's disposal here: the funds go into a specific property, the budget is set out line by line, and every line is tied to a document, from ITP (impuesto de transmisiones patrimoniales, the transfer tax on resale housing) on the Catalan scale, where the rate starts at 10% on the share of the price up to 600,000 € (ATC), through to the sign-off on completed works. The roles are set by law: under art. 9 Ley de Ordenación de la Edificación, a promotor, the party who commissions the works, is anyone who decides on, programmes and finances works for themselves or for subsequent sale. This is not a discretionary management service and not a promise that capital will be preserved.
Who acts as promotor in a specific project, in whose name the property is held and who signs the contracts is visible from the project documents, not from a service description. Below is the list of stages, the areas of responsibility and the points at which the investor decides.
What managing investor capital includes
Six blocks of work that the project operator covers:
- Property selection. Search, a first filter on entry price, viewings. The criteria and the method for a maximum purchase price: entry price for a renovation.
- Project economics. A budget by line, an exit price from comparable transactions, scenarios and a margin of safety. Covered in the article on how to read an investment proposal.
- Purchase. Arras, the escritura before a notary, registration, calculation and payment of the buyer's taxes.
- Legal support. Nota simple, encumbrances, minutes of the comunidad de propietarios, the permit regime for the works. In Catalonia new construction and a range of reconstruction works require a licencia urbanística, a planning licence (art. 187 Llei d'urbanisme).
- Works. Design, cost estimate, schedule, technical supervision, sign-off. On DNPI projects the works are carried out by BCNYARD, SLU: an independent construction company engaged under contract.
- Sale. Property documents, preparation, viewings, negotiation, the escritura and the seller's taxes.
Who is responsible for what in a project
| Stage | What the operator does | What the investor decides and checks |
|---|---|---|
| Property selection | Pipeline, viewings, filtering on entry price | Agreement to a specific property and its price |
| Economics | Budget, exit price, scenarios | The assumptions in the calculation and the size of the reserve |
| Purchase | Arras, escritura, registration, taxes | Signing or a power of attorney, the source of funds |
| Legal support | Checks on title, encumbrances, the works regime | Choosing their own abogado for a second opinion |
| Works | Cost estimate, schedule, supervision, sign-off | The finish standard, changes to the estimate, payments on schedule |
| Sale | Preparation, viewings, negotiation | The minimum acceptable price and the exit date |
The division of responsibilities is fixed by contract, not by practice. The questions to put to a lawyer about the contract text are collected in the article on the investor participation contract; who owns the property in a joint project is covered separately.
How the investor controls this
Control rests on documents and on the payment schedule, not on free-form reports. Four mechanisms that work:
- The payment schedule against actual works. Money leaves by stage, and a stage is closed by a sign-off. The method is described in the article on the payment schedule and estimate control.
- Regular project reporting. Budget, actual, permit status, timeline. How the investor account works: reporting to the investor.
- The right to decide. The list of questions that cannot be settled without the investor is stated in the contract. A closer look: management decisions and investor rights.
- Checking the counterparty in public data. A limited liability company is required to file its annual accounts with the Registro Mercantil within one month of their approval (art. 279 Ley de Sociedades de Capital), so the balance sheet can be requested.
After the works are handed over, liability for defects remains. The LOE sets warranty periods: one year for finishes, three years for defects affecting habitabilidad, ten years for the structure (art. 19).
How the project result is split
DNPI's fee is 50% of project profit; the other half stays with the investor. If the investor return for the whole project after the split is below the contractual 10%, DNPI pays compensation out of its own fee. This is a return for the project, not an annual rate. The terms, the calculation base and the limits are set by the contract for the specific project. This is not a guarantee that capital will be preserved.
Profit is counted after project costs, and the list of those costs matters more than the percentage of the split. What goes into it: project costs before the split.
A worked example, not a forecast. Assumptions: resale housing, ITP on the Catalan scale (10% on the share of the price up to 600,000 €, 11% on the share from 600,000 to 900,000 €, ATC), paperwork at 2% of the purchase price, selling costs at 4% of the sale price.
| Line | Amount |
|---|---|
| Purchase price | 800,000 € |
| ITP on the scale | 82,000 € |
| Notary, land registry, gestoría | 16,000 € |
| Works | 200,000 € |
| Holding costs over the project term | 24,000 € |
| Selling costs | 52,000 € |
| Total invested | 1.174 M€ |
| Sale price | 1.3 M€ |
| Left before tax on the result | 126,000 € |
The 126,000 € left is not the investor return: tax on the result still comes out of it, and the split is calculated under the rules of the contract. The difference between project return and investor return is covered here. If the sale price turns out to be 1.25 M€, selling costs come to 50,000 € and what is left is 78,000 €: minus 50,000 € on the exit price removes almost 40% of the result.
When this format does not fit
It does not suit anyone looking for fixed income: the result appears at the moment of sale and may turn out lower than calculated. It does not suit anyone who needs capital by a particular date: the sale date is not set in advance. It does not suit anyone unwilling to read the contract and the budget: without that, control turns into taking things on trust. And it does not suit anyone who wants to run the construction and the negotiation themselves, in which case buying and running the property independently makes more sense (passive participation or running the project yourself).
A separate question for an abogado: if an operator raises money from the public and each participant's return depends on the overall result, the structure may fall within the definition of collective investment undertakings in art. 1 Ley 35/2003.
How the company approaches the stages of a project is described on the methodology page, and the list of questions for a first meeting is collected in the article on 20 investor questions.
Questions and answers
Is this discretionary capital management?
No. The money goes into a specific project with a budget set out line by line, not into management as a portfolio. The preservation of capital is not promised, and the result depends on the exit price.
Who makes the decisions on the property, the operator or the investor?
The division is fixed in the contract. Operational decisions on the schedule and the contractors usually sit with the operator; decisions on the purchase price, the budget, the standard of the works and the exit price require the investor's agreement.
How can the operator be checked before signing?
Request the annual accounts from the Registro Mercantil, look at completed projects with their figures, read the contract with your own abogado. The selection criteria are covered in the article on how to choose an operator.
Can I take part without living in Spain?
Yes, through a NIE, a bank account and a notarial power of attorney covering an agreed list of actions. What is better done in person is covered in the article on power of attorney and a personal visit.
Who is liable for defects after the renovation?
The LOE sets warranty periods: one year for finishes, three years for defects affecting habitabilidad, ten years for the structure. The specific scope of liability and who bears it are determined from the project documents and discussed with an abogado.
