Safe and profitable property rental in Spain. Here's what an investor should know in 2022
“Buy to rent” in Spain is an increasingly popular way of investing capital. If you dream of a sun-drenched apartment that generates a regular income, first learn about the laws that govern the local rental market. It's worth taking a look at how it works in the Iberian Peninsula.
During the twelve years of Dream Property's existence, we have answered thousands of questions. Some of them relate to investing in rental property in Spain. Why is it worth it? What are the main advantages? Is it safe? How is this business different in the Spanish edition? What rate of return can you count on? Is there a "catch" here? Recently, these questions have appeared more and more often.
More and more people understand that buying real estate abroad is not “mission impossible”. It should be assumed that one of the factors driving this trend is the fear of the war taking place just beyond the eastern border of Poland. In this situation, many investors want to locate their capital in the theoretically safer market.
Yes, the Spanish rental sector has experienced some turbulence in recent years (economic crisis, pandemic), but it has always returned to good shape, because investing in rental in this region is simply fashionable. Good capital security, regular profit from short-term or long-term rental, owning real estate - these are the main advantages.
What about pure math? As I recalled during a recent webinar organized by the Individual Investors' Club (by the way, I invite you to watch it), the annual rate of return on a rented apartment is 7 - 8% according to official sources. Although my experience shows that the ROI is about 5% in practice (it all depends on the cost of maintaining the property), it is still an attractive option for an investor.
Another factor that makes buying an apartment for rent in Spain a better idea than buying it, for example, on the Baltic Sea, is naturally the weather. The holiday season is much longer here, so you can earn longer. However, in order for you to be able to start doing this at all, you first need to know the laws that govern the Spanish rental market. Here are the basics.
Short-term rental - Spain and its rules
If you are concerned with short-term rental in Spain, you will need to apply for a tourist license (licencia turistica). The lack of this document is associated with the risk of a fine. Obtaining a license is not complicated nor long process. All you need to do is apply to your local office, complete an application (declaracion responsable referente a viviendas de uso turistico), submit it in your province and wait for a license number to be issued along with a special code assigned to your location and property. Important: both the tourist license number assigned to the property and its category must appear later in all advertisements.
Before you start looking for an apartment for a future rental, remember that holiday rentals are limited in many regions of Spain. In some cities (eg Barcelona or Madrid), the authorities have introduced certain limits on the days of the year that can be rented to tourists. The aim of these activities was the need to tame the expanding rental market and stop the rent increases, which also hit ordinary residents.
Remember! Your short-term rental apartment in Spain must also be registered as a place to be rented out to third parties. Each such property must meet specific requirements in terms of equipment, area and available amenities. It is about the so-called real estate requirements for tourist use (requisitos de las viviendas de uso turistico).
Long-term rental in Spain
First, for long term rentals in Spain, you don't need a tourist license.
Secondly, you need to know the specifics of the local long-term rental contracts. Generally, such rental contracts are valid in Spain for 12 months and are renewed annually. On the other hand, long-term contracts signed for more than 12 months give the landlord the right to renew the lease for 5 (if the landlord is a natural person) or 7 years (if the landlord is a legal person).
However, many landlords incorrectly assume that the contract will be terminated after the 5 or 7 years have elapsed. If you as the owner do not make any move, automatic contract renewal, known as "silent renewal", will work by law. The purpose of this law is to better protect the rights of tenants. For all long-term leases signed on or after March 6, 2019, in practice it looks like this:
- if the landlord is a natural person, the silent extension of the lease extends the 5-year lease by an additional 3 years, which gives a total of 8 years of lease;
- if the landlord is a legal entity (company), the silent renewal adds 3 years to the 7-year lease for a total of 10 years.
How to avoid such situations if you would like to terminate the cooperation with the tenant after 5 years? You need to formally give notice to the tenant and give it to the tenant within a certain period. If you are an individual you should do so with 2 months' notice.
Importantly, the tenant himself may terminate the contract prematurely after six months at the earliest, provided that the landlord is notified 30 days in advance. What if the tenant wants to leave your apartment within six months? This is a breach of the contract and in such a situation, as the landlord, you will have the right to demand payment of the rent for the "missing" months.
Property rentals in Spain: deposit law
If you are targeting long-term rentals, Spain requires the tenant to pay a deposit (fianza). This is a security for the owner of the property in the event that the landlord defaults or damages the apartment. Two types of the said deposit should be distinguished here: statutory and contractual.
The statutory deposit is a mandatory payment provided for by Spanish legislation. This is the equivalent of one month's rent if it comes to renting a property for residential purposes. Importantly, the date of payment of the statutory deposit is set by the autonomous communities, which may result in a slightly different situation in different parts of the country. What is fixed, however, is the law according to which the amount of the deposit cannot be changed in the first 5 years of the lease. As for the return of the deposit, the landlord has one month to do so from the moment the tenant returns the keys to the apartment.
The contractual deposit is not regulated by law and is an additional security. In this case, the deposit amount can be flexible and you, as the owner, have no obligation to make a deposit to a specific Autonomous Community. But be careful! The submission of a contractual deposit does not release the tenant from the statutory deposit.
Rent and taxes
In Spain if the rental agreement does not regulate the rent, by law the rent must be paid within the first seven days of the month. If the tenant fails to meet this deadline, you, as the landlord, have the right to recover the amount due in court proceedings.
Renting a property in Spain is also associated with a tax obligation. It looks like this:
- residents and non-residents who live in EU countries pay 19% of income tax (rental income can be reduced by the tax deductible costs incurred to generate the income);
- non-EU citizens pay 24% of tax.
Important: in 2022, the Spanish government approved a decree on housing law, which allows the state to regulate the prices of rented apartments. The new regulations allow to control prices in regions of high demand for renting real estate.
Property rentals in Spain give you a wide choice
First, let's take a closer look at possible long-term rental properties in Spain. Analyzing the Dream Property offer from this angle, a 99-meter apartment in Estepona in the Las Mesas district may be a good proposition. This investment also includes penthouses and ground-floor apartments with large, private gardens. In addition, amenities such as a swimming pool, children's corner, fitness area and a social club. Prices start from 230.000 EUR.
A 200-square-meter apartment in Marbella for 496.000 EUR may also be good for long-term rental. The property is located in a gated community of 2, 3 and 4 bedroom apartments with original, modern architecture.
On the other hand, if you are thinking about short-term rental in Spain, i.e. vacation rental, an interesting offer may be an 86-meter apartment in Nueva Andalucia near Marbella. Paying 240.000 EUR, you will be able to offer guests a fully furnished and equipped apartment overlooking the swimming pool and tropical garden. Plus, it is only a 10-minute walk from the beach.