Nowadays, it is very common for Spaniards to see foreigners coming to the country and buying houses. Especially along the coast, they fall in love with the sunny beaches and the views to the Mediterranean Sea and decide to buy a holiday home to visit eventually in different times of the year.
However, in many other cases, the purchase of properties is thought of as an investment: by renting out an apartment or house In case you have a destination wedding in Spain, one can find a stable and generous return that cover the buying price in just a few years. Since we suspect it is still an unknown field for many, we are going to put our expertise at your service and explain the keys.
- Market and prices
Spain is a very dynamic market when it comes to housing. Construction has kept growing, although at a more prudent pace than in the times of the 2008 bubble, and the demand is higher than ever. As most people in the nation find it almost impossible to buy a house and get a mortgage, those who do have the resources to purchase and rent out do not have to work too hard to get tenants ready to pay and settle in.
This is even more true if we look at Madrid, the capital, where everyone wants to go to seek for jobs or better opportunities, or along the entire Mediterranean Coast from the very bottom spot in Cádiz to the border with France in Catalonia. The thing is, despite interregional disparities are huge in terms of economic resources, the coasts are marked by a higher standard of living that tend to equalize them all. That is why, for instance, you can find some of the most exclusive areas of the country, let us say Marbella or Benahavís, in Andalusia, one of the poorest regions.
Due to the different entry barriers that exist for renting and buying, the demand for houses for rent have increased at a much higher speed than houses for sell. This has made the ROI gap bigger, offering better chances for owners to optimize their income.
Nevertheless, compared to other European countries, Spain remains relatively cheap overall and prices could not seem initially too attractive for property owners: the average price per square meter is 10.5 euros (as for September 2021), though showing strong differences between regions, from Madrid or Catalonia over 13.5 euros to Extremadura at 5.6.
2. Taxes and costs
Property owners in Spain must know that acquiring a house involves paying taxes and facing certain costs during the process. For those who would want to check this out, read this other article: https://www.premierlaw.net/taxes-in-spain-part-2/. When it comes to renting out the already purchased house, we also must bear in mind the different charges to pay.
First, the costs related to the very ownership of the property:
– IBI: tax on real estate property. Paid yearly to the city hall.
– Community: paid monthly to the neighbourhood management, in case the property is located in an area that counts on private services such as pools, security guards, etc.
– Garbage: paid yearly to the city hall. The sum depends on each municipality, but it is usually very low (under 50 euros per year).
– Electricity and water bills: this is often paid by the tenant, so you will not have to worry about it if you write down a good contract.
Second, the costs related to the renting as such:
– Income tax: income generated from renting your property counts as general income and therefore adds up to the sum that will be taxed from 19 to 47% progressively (depending, again, on each region). This will not happen if you are NOT tax resident in Spain, in which case you will be subject to a fixed tax of 19% if you are EU citizen or 23% if you are not.
– Presumed income: this is often unknown to foreigners, but Spain charges you taxes on your empty non-rented house as it was. Be it a measure to promote renting, be it the simple will to collect more taxes, you will have to face this “imputación de rentas”, so it will be smarter to rent out your property as much as possible.
– Necessary reforms: being a landlord in Spain does not consist of just buying a house and see the cashflow coming in. In case there are repairs needed, or the apartment needs to be painted, etc. it is your obligation to make the moves and pay for those things, unless they are caused by the tenants’ negligence. Nevertheless, there are businesses which handle your renting so that you can actually not worry about any of this trouble in exchange for a fee.
3. Limitations
In Spain there is a decent level of contractual freedom, at least in this regard. You can stipulate almost anything as long as you comply with the basic regulations (seen in the Urban Renting Act or Ley de Arrendamientos Urbanos). However, there are certain limits to the free will, mostly adressed to protect the tenants.
For example, if you want to rent out your house for the holiday season (let us say, for the summer months), you need good reason to rent it for such a short period. Beside being registered as a touristic place in the municipality, it must be clear that the intention of the contract is really temporary. Otherwise, the tenants can claim that they want to stay in as their permanent residence and make it their home for up to 5 years (paying every month as usual, of course).
This is intended to protect the locals who struggle to find affordable houses during seasons that attract millions of tourists. But on the other side we must say that no one actually knows about this. It is only us, the lawyers, who are aware, and you will hardly find problems like this.
As for the price, there is complete freedom, but renewals are limited to an increase in line with the CPI (Consumer Price Index).
4. Issues
There is a phenomenon that turned very famous in recent years in the country: the okupas.
Okupas are people (individuals or whole families) that enter someone else’s house and live there without paying any rent or being entitled to any right.
Although there has been great concern and misunderstanding about this, and of course as a foreign landlord this is not comfortable to hear of, we are hear to calm you down: if someone enters your house, even if it is your holiday house, they will be committing a crime and the police will take them out immediately. And if you never spend there a single night, you will still be protected by the law, but via civil procedure. Anyhow, this issue has been of more trouble to banks and businesses which have been hoarding lots of properties once mortgages were massively unpaid, but it should not be worrying a small owner.
In conclusion, renting out your house or apartment in Spain can be very profitable. It is a safe country that is always willing to receive investments from outside. But the regulations can be quite confusing, and trying to do everything by yourself is likely to get on your nerves.
Save yourself this stress and count on local professionals like us who will give you the best legal advice.
