Magazine

Lucena Project: Grouping of Two Commercial Units, Transformation, Change of Use, Horizontal Division, and Flipping.

We have identified a real opportunity on Calle Lucena, in Castellón de la Plana, which involves acquiring two commercial units, merging them, and transforming them into five independent residential units, each with its own cadastral reference. These units are designed to meet current market demand: functional studios, newly renovated, with new construction declarations, fully furnished, and offering a very competitive price-to-quality ratio.

This operation leverages the low initial cost of the commercial units and the value increase generated by the change of use, the integral renovation, and the horizontal division.

This is our first official flipping project, so it is crucial to consider the final picture of the project we are creating to determine if selling the completed project makes sense once it is finished.

Why is this an interesting opportunity for the investor-developer?

For the investor driving the project (us), this opportunity stands out for several reasons:

• High profitability and cost control: Successful flipping projects typically offer very high short-term profitability. However, as this is a new investment typology, we need to adjust the assumptions of our project plan:
  • Firstly, we reduce the target capital gain margin from 20% to 15%, making us more competitive in the market and facilitating a quicker sale.
  • We optimize management, reducing associated costs from 20% to 15%, thanks to economies of scale in the area, in this case, Castellón. Remember, when you invest with us, if we are more efficient, we pass that efficiency on to our partners.
  • We adjust the time horizon of our investments. While our previous horizon was five years, we are now reducing it to four years. Reducing it further would inflate the IRR, and we aim not to publish excessively high IRRs. Our objective will be to sell the properties in under a year.
• Diversification and capital rotation: Integrating these operations into our portfolio, alongside other types of investments, allows us not only to diversify risk but also to rotate capital more frequently. The rapid market release of this product (flipping) provides liquidity, boosts the overall IRR of the portfolio, and enables us to reinvest in other projects with greater agility. This agility is especially valuable in a constantly changing market where the most profitable opportunities appear and disappear quickly.
• Taking advantage of the current regulatory context: Investing now, before the new habitability regulations come into effect, ensures access to projects that are easier to process and execute, with lower regulatory costs and greater certainty. Once legal conditions tighten, the value of properties we have already transformed will increase, solidifying the return on our investment.

Why is this an interesting opportunity for the end buyer of the development?

We have adjusted our business plan and focused on creating the most attractive product possible for the end buyer. It will be very hard to find something better in Castellón, and here’s why:

• Competitive price and added value: It is very difficult to find newly renovated studio apartments in Castellón that are completely new, furnished, and priced under €100,000. Our target sale price of around €88,500 offers an opportunity to acquire a quality property at a significantly lower price than the market. Additionally, the buyer receives a turnkey product, ready to move in or rent, with all paperwork, renovations, and furnishings completed.

• Attractive real estate investment opportunity: For a projected studio unit on Calle Lucena (we will promote 5), we estimate a total cost of approximately €77,000 per unit. The target sale price is around €88,500, below €90,000. Assuming a monthly rental income of €700, this product could be very appealing to a final buyer.

For an investor with borrowing capacity, obtaining a mortgage equivalent to 80% of the purchase price (approximately €70,800 mortgage) at a 2% interest rate over 30 years, the monthly mortgage payment would be €262.

The investor would also need to contribute the remaining 20% (around €17,700) plus 10% in taxes (approximately €8,850 for ITP). In total, about €26,550 in personal resources would be required.

If the property is rented for €700 per month, the monthly cash flow would be approximately €438 (€700 - €262). Additionally, part of the mortgage payment corresponds to principal amortization (around €144 in the first month, increasing monthly), meaning that, adding this "savings" to the cash flow, the effective monthly return would be around €582 (€438 + €144).

Annually, this would amount to approximately €6,984, which, based on the initial €26,550 investment, represents an approximate 26.3% return. Impressive, isn't it?

The question is: Who wouldn’t want to invest in such a property? 

• Security and peace of mind:

The property will be delivered fully renovated, with modern materials and in compliance with current regulations, minimizing the risk of unexpected expenses. Additionally, it will be sold furnished—a perfect turnkey product for an investor looking to maximize their investment, leverage borrowing capacity, and generate passive income from day one. As always, management can be delegated to Brickstarter. A textbook example of passive real estate investment with record-breaking returns.

The need to act quickly due to scarcity and regulatory changes

The time to take advantage of these opportunities is limited. From February 2, 2025, new habitability regulations in the Valencian Community (Decree 80/2023, May 26) will come into effect, tightening the conditions for converting commercial units into residential properties. This means that, in the near future, such strategies will become more challenging or less profitable due to stricter technical and urban requirements, reducing the viability of many projects.

For this reason, we must be opportunistic. Acquiring and transforming commercial units in consolidated or emerging areas now allows us to create an attractive product, well-located and adapted to current market needs, before the window of opportunity closes. Moreover, the scarcity of properties meeting the new habitability standards once the regulations are in force will increase the value of units already renovated and brought to market. We invite you to learn more about the first opportunity of this new project: Calle Lucena Studio-A.