How to Spot a Good Real Estate Investment: A Guide to Buying Smarter in Mallorca

Investing in real estate has and will always be one of the greatest ways to build wealth, but it’s not without risks. Many people get drawn in by flashy listings or seemingly great deals, only to regret their decisions later.

The key to success lies in your ability to spot good investments before the crowd does, and in Mallorca, this is especially important. Knowing how to evaluate potential investments can make all the difference between a successful purchase and a costly mistake.

Luckily, I’m here to provide a clear roadmap to help you spot a good real estate investment and also how to avoid the bad ones.

Let’s get started…

Price Compared to Value

The first question to ask when assessing a property’s value is: How does the price compare to its true market value? This is about understanding the context of the prices in the area where you are buying, not just the numbers on the listing.

For example, if you are looking at a €5 million property located in a neighbourhood with properties valued at €1 million, why is it priced at €5 million? At first glance, this might appear to be an inflated price, but this doesn’t always have to be the case. There could be hidden potential, perhaps it sits on a prime plot, with views or it could be further developed. However, it might actually just be overpriced, the key here is comparing it to similar properties (comps) in the area and asking: Why is this priced the way it is?

This also applies to lower-priced properties. If you are looking at a property priced at €1 million surrounded by properties at €5 million, it might seem “too good to be true” for its asking price, so dig deeper. Is it a value add property? Do you have to tear it down? It may be cheaper because it’s in poor condition, has problematic permits, or faces redevelopment restrictions which means that you can’t actually rebuild or do what you want with it without going through a 1 year or longer approval process. If you don’t know that, that could end up being a really bad purchase for you.

The key here is due diligence. Compare the property to similar ones in the area (comps) and dig into the why behind the price tag. Ask yourself: Is it truly a bargain, or is it cheap for a reason?

Understanding the Highest and Best Use

Not all properties are created equal, and sometimes the true value of a property isn’t in what it’s currently used for, but in what it could be used for. This is where the concept of the highest and best use comes in.

The highest and best use of a property is essentially its most profitable, legally allowed and physically possible use. A smart investor looks for properties where they can improve or change the function of the property to unlock its full potential. This requires forward planning and a deep understanding of permits, local regulations and market demand.

For example, you might find an older building that’s currently underperforming as a residential property, but with the right upgrades or conversions, it could be turned into a high-end boutique hotel, a series of luxury apartments, or a unique commercial space.

The smartest investors are those who can spot potential in properties others overlook. And the great thing about highest and best use is that if a property is not performing at its highest potential, you can often find great deals because there is going to be less competition.

Objective vs Subjective Factors

While the price, value and highest and best use are objective, there are subjective factors that can make or break your investment in Mallorca. Consider these additional elements when evaluating any property:

View and Location Considerations: A property may have an incredible sea view today, but what if a high-rise development is planned for the area that will block those views in a few years? You need to consider not only the current view but also potential developments in the area that could affect its value in the future.

Neighbourhood and Environment: You may be drawn to a property’s unique charm or appeal, but if it’s surrounded by developments that make it difficult to sell in the future, that’s a problem. Make sure that you understand what the plans are but also the possibilities for the area where you will be buying to make sure you end up with an investment that remains attractive in the long term. If you’re investing in an apartment in the city, a beautiful apartment with a great layout may be harder to sell if it’s facing a brick wall or undesirable view.

Maintenance and Renovation Risks: If you’re looking at an older property, make sure you consider the costs and achievability of renovation. Can you modernise the space easily, or will the structure require extensive work?

Trophy Assets Are A Different Story

When it comes to real estate, trophy assets don’t necessarily follow the same rules as typical investments. These high-profile properties are often bought for their exclusivity rather than their immediate return on investment.

Trophy assets typically sell for above market value because their appeal is rooted in their prestige and uniqueness. These are properties that buyers are willing to pay a premium for, simply because they offer something rare or iconic. While they may not provide the highest returns in the traditional sense, they often retain their value and attract a steady stream of high end buyers.

The Power of Trophy Brands

Trophy brands are globally recognised brands such as Four Seasons or Ritz-Carlton. These brands develop their own real estate projects known as branded residences for people to buy, they offer an added layer of security for investors. Why? Because these brands have built-in demand.

There’s something about owning a piece of property with a famous name attached to it that appeals to buyers. It adds a sense of prestige, exclusivity and reliability. Branded residences are often easier to sell and retain their value better than unbranded counterparts, making them a smart investment. They also often come with top-tier amenities and services, which helps maintain their attraction and value.

Conclusion

Identifying a good real estate investment isn’t just about the price tag, it’s about understanding potential, evaluating risks, and having a strategy that allows you to spot opportunities that others might miss.

In Mallorca, the combination of natural beauty, strong demand, and different property types makes the market an exciting place to invest, but only for those who know what to look for. By considering price compared to value, highest and best use, subjective factors like views and location, as well as the power of trophy assets and trophy brands, you will be on your way to making smarter, more strategic investment decisions.

If you’re serious about making a move in Mallorca’s property market, don’t do it alone. We specialise in guiding and advising buyers, offering complete market coverage, clarity, transparency and honest advice.

You wouldn’t go to court, without having someone to represent you so why would you make such a huge investment without someone to represent you? Get in touch and let’s set up a non obligatory consultation call.