Investing in Spanish rental property: a complete breakdown of costs and income

Investing in Spanish real estate is one of the most popular investment portfolios in the world in the real estate sector. Why? It’s simple. Spain is currently the second resort destination on our planet after France, if we evaluate by the number of tourists, cash spending and flights. And according to many surveys, it is the first. For example, most sophisticated tourists will call the Canary Islands the best resort in the world without hesitation. For these reasons, the attractiveness of cash investments in Spanish real estate is constantly growing. Even despite all the crises within the country itself, the COVID-19 pandemic and other reasons. The economic and social situation in the world itself has become an excellent confirmation of the reliability of investing money in Spanish resort real estate. The real estate market in this country does not even think of going down. So, you:

• thought about where to invest a certain amount of money,
• chose the topic of real estate,
• settled on Spain (by the way, we wrote about the investment attractiveness of Spain in our previous article )

and what next? And then we will tell you about all the pitfalls of investing money in this or that property in Spain for rent. We will focus on the latter – in this article we are considering exactly the aspects of investing in property for subsequent rent . Because there are other ways of investing, which – in the next article.

We invest in real estate, which we then rent out

The first question that usually arises here is income. How much can you earn by renting out real estate? The second question is expenses. What expenses await an investor after purchasing an apartment, house or villa in Spain? What about taxes? Who will do the cleaning? How can you independently draw up an occupancy plan for the purchased property? Who will pay for utilities? And so on. You can find a lot of information on investing in Spanish real estate on the Internet. Some of it is true, and some is somewhat exaggerated. For example, they usually exaggerate the percentage of profit from renting out, promising 10% per annum. In fact, after deducting all expenses and taxes, it will actually be about 5%. In addition, there are also deliberate distortions of information, when agencies try to intercept clients from each other. In this case, you can come across articles with the following logic: “you don’t need to invest money and invest in Spanish real estate, everything that is written about it is not true, it is better to invest in other areas.” This is usually followed by an offer to invest money in the areas of the agency that wrote this article. As in any other area, investing in Spanish real estate has its pros and cons:

• Spanish real estate is somewhat more expensive, compared to, for example, Turkey. However, the market in Spain is also much more stable.
• Rental yields for Turkish property can in some cases be higher than in Spain (read our next article with comparisons of several countries), but the tourist flow to Turkey is not as stable as to Spain
• In addition, while tourists of different types go to other countries, it is mainly Europeans who vacation in Spain, who have high solvency and personal responsibility for the condition of the apartment.
• Spain is one of the most legally protected countries in Western Europe and you can rest assured about your investments there. However, this comes at the cost of increased bureaucracy in the Spanish authorities.
• There is virtually no corruption in Spain.

Let’s look at all the nuances of investing in Spanish real estate in order. The agency “Deniz-Estate” has been working in the foreign real estate market since 2014. We are interested in our good name, long-term reputation and are focused on the “win-win” paradigm. Our task is not to “palm off something incomprehensible to the investor, profit from his money and forget about him”, as unscrupulous agents do, but on the contrary:

• Provide recommendations on purchasing truly liquid real estate . In other words, we make a selection of properties based on a lot of details and nuances of the market (city, location and location of the property, income opportunities, and much more). In addition, we work only with those developers who really build beautifully, reliably, and whose properties will definitely give a good profit to our investors:
  • Usually, after the first work with us, our investors later buy 1-3 more properties and recommend us to their friends. Often, they conduct subsequent transactions without even coming to look at the options, but trusting our choice and recommendations, they sign all the documents online.
  • We are pleased with this trust from our investors.
  • If you still have doubts or are working with us for the first time, we will be happy to provide you with the contacts of our previous investors and you can discuss their cases with them yourself. They will share all the details of how they bought, how they operate and rent out their properties and how they earn.
• Provide full support to the investor . To do this, we organize online and offline tours, transfers, help to get acquainted with the objects on site or via the Internet, ensure the comfort and safety of the investor during travel so that he is not distracted from his tasks and:
  • got acquainted with the object of his interest,
  • I bought it and was happy with it,
  • paid for the transaction without any problems or bureaucratic red tape,
  • furnished,
  • connected all the necessary contracts with suppliers,
  • successfully rented out,
  • I got a lot of pleasure and positive emotions from the process.

  We provide turnkey support to investors, as if we were buying real estate for ourselves.

• Provide full legal support to the investor . We literally lead him by the hand along the “unknown path” of legal nuances and legislative peculiarities of Spain.
• We provide free consultations. From advice on which management company to use to recommendations on how to avoid certain additional expenses “out of ignorance”.

Because if you win as an investor, receiving profit, then we win too, receiving reputation. The developer always pays the commission for our work. So, the first question

How much does it cost to rent out liquid real estate in Spain?

Let’s first define what we consider liquid real estate. First of all, this is resort real estate, not far from the sea. “Not far” here should be understood as from 200 to 500 meters. On foot, this is from 7 to 15 minutes. It is for such objects that we provide all the calculations below. As practice shows, such objects are the most profitable for renting out – the prices for apartments and houses as close to the sea as possible are more expensive, sometimes unreasonably high, but they are still rented during the season. But such real estate also has its downsides :

• The rental period for such apartments usually does not exceed 3-4 days, which requires more administrative resources to work on occupancy (and it is not always possible to do this 100%).
• In addition, the proximity of the sea has a negative impact on the property itself, and it will be necessary to make repairs more often (which again will require additional expenses). Mold and mildew appear here faster, especially during downtime and poor maintenance of the property.

Real estate up to 1500 meters from the sea. These properties are also liquid, because there is a special type of client for them. These are mainly mature Europeans (English, Swedes, Norwegians, Belgians) for whom it is important to relax in peace and greenery, away from the hustle and bustle. Since all the tourist bustle is concentrated around properties 200-400 meters from the sea, the above-mentioned public tries to rent real estate further from the first line. Here, too, there are views, nature, greenery. Since usually real estate by the sea is built on coastal heights, no less beautiful views of the sea, lagoons and bays open from here. In addition, usually, further from the sea there is more greenery and urban infrastructure, which is so important for Europeans: shops, restaurants, parks, car service facilities, etc. Europeans prefer to go everywhere by car, they practically do not use public transport. Therefore, having arrived at the airport, they immediately rent a car and get to all the beaches and attractions exclusively by car. Therefore, for them, housing on the first line is not essential, on the contrary, they seek to settle away from the tourist bustle. It is for this client segment that such real estate is designed. Russian and Ukrainian investors often underestimate it, since in our eastern mentality there is an established pattern: the further the property is from the sea, the worse and cheaper. But for Europeans this is not so. The second point. It is necessary to understand whether we will rent out our property for a long-term or short-term (daily) lease. The cost of long-term lease for resort real estate is €1,000/month. Contracts are usually concluded for a year or more. We found a client, concluded a contract, we receive €12,000 per year (before taxes).

Also consider that long-term rent will not allow you to use this property yourself. From this point of view, short-term rent will be more flexible, when you can book some time in your own apartment or house and come to relax, renting it out the rest of the time.

In addition, short-term rent is more profitable. And here the seasonality factor appears. In Spain there are concepts of high, middle and low seasons. The cost of rent will vary depending on the season.

• High season (from mid-May to mid-September and two weeks before New Year’s Eve for Catholic Christmas) – four full months plus two weeks = 120 + 14 = 134 days
• Mid season (mid-March to mid-May and mid-September to mid-November) – 120 days
• Low season (half of November, half of December, January, February and half of March) – usually these are idle periods, but you can rent it out to European pensioners or freelancers for 500€/month – 30 + 28 + 14 + 30 = 102 days

Let’s move on to the second question.

Taxes in Spain when renting out purchased property

Regarding taxes, it is worth saying that when choosing such a business, you will have to pay several taxes. One of them is the property tax, which depends on the specific municipality and is approximately €100 to €300 per year. And this is the only small amount, taxes on profits will be much higher. Working independently, i.e. when you are engaged in the search for tenants and occupancy of the purchased property on your own, you will have to pay about 25% of the income in taxes. This is a lot, so almost no one works according to this scheme. And it is this scheme that everyone writes about who scares with high taxes in Spain. So, if we rent out on our own for a long term, we get: €12,000 / 100 * 25 = €3,000 in taxes Net profit €12,000 – €3,300 = €8,700 per year. However, the vast majority of investors prefer to entrust their properties to the management of one of the management companies. And the company already deals with all organizational issues, and the management company also pays taxes. You only receive profit as cash or non-cash payments. And this smoothly brings us to the third question.

Management company services: cost and list of “headaches” that you will be relieved of

The services of management companies cost from 15% to 25% of gross income and include:

• All necessary taxes according to Spanish law
• All necessary services and personnel to keep the apartment/apartments clean (after each tenant)
• All necessary services for filling your property with tenants (you receive an account in the management company’s CRM and can monitor all the details online: who is renting your property, for what period and at what price).
• Payment of utilities (by limits). Not all companies include this item in their list of services, so this needs to be clarified.

So, you can choose the “I do everything myself” scheme and have a lot of headaches and at the same time pay 25% for taxes, and then pay for utilities, for cleaning personnel, for renting services (if suddenly you need such services, and they most likely will be needed). Or you can give your property to a company that specializes in this for management, pay the same 25% to this company (in the worst case), no longer pay any other costs and get rid of all the “organizational headaches”, just watching how your property works and brings you profit. Choose. And we move on. Let’s put all the numbers together, getting closer to the cases themselves.

Calculating the return on investment for specific properties in Spain

Case 1. We will calculate the investment and its return for a property in Torrevieja, worth €179,000.

These are apartments in a new residential complex, which will be commissioned in November 2022. Now you can still invest in this property at the construction stage at minimal prices. By the end of construction, the price will increase by 20-25% (from the developer) without taking into account the increase in the total cost of real estate. The residential complex is located in the city center and contains only 20 apartments. The embankment is 250 meters away. There is a swimming pool with a jacuzzi and a common area for residents on the roof. The construction quality is “business plus”. The apartments will be delivered renovated and with a built-in kitchen. The configuration of the apartments is 3 + 1, the total area is 88 square meters with a balcony of 10 square meters. The price includes underground parking. Our agency provides a discount on furniture and appliances up to 20% when buying with us. Let’s calculate the total cost of expenses: Cost of the apartment – €179,000 Cost of registration and government payments (12.5% – 13%, we take the worst case of 13%) – €23,270 Cost of a set of furniture and equipment €7,000 Total expenses: €179,000 + €23,270 + €7,000 = €209,270 Let’s calculate the return on investment for this property. Short-term rental cost for such an apartment:

• 100 €/day in high season
• 70 €/day in mid season
• downtime, or 500 €/month in low season (or you can come and relax yourself*)

* Many of our clients do this. When the apartment is not occupied, they come to relax themselves. This is usually the low season (December – March). In the high season, when rental prices are at their highest, priority is given to renting.

Warning! Some investors want to sit on two chairs at once: both earn well and come on their own vacation during the high season. This will not work, and you must initially decide for yourself: are you buying real estate to earn money or for your own vacation. If you come on vacation at a time when the apartment could earn the most, do not blame the low annual income later.

Let’s calculate the occupancy rate for such an apartment. The occupancy rate during the high season will be 95-100%. Let’s take the worst case scenario of 95%. 134 – (134 / 100 * 95) = 127 days the apartment will be occupied. Gross income will be 127 * 100 = 12,700 € for the high season. Let’s subtract the costs of the management company (let’s take the worst case scenario of 25%) 12,700 – (12,700 / 100 * 25) = 9,525 € net profit for the high season Occupancy rate during the mid-season fluctuates between 50% and 75%. Let’s take the worst case scenario. 120 / 2 = 60 days the apartment will be occupied. Gross income will be 60 * 70 = 4,200 € for the mid-season. Subtract the costs of the management company (we take the worst case scenario of 25%) 4200 – (4200 / 100 * 25) = 3150 € net profit for the average season Low season can be a bonus, we will not take it into account in the calculations. But in principle, during this time you can earn 1500 € minus 25% = 1125 € net profit.

Or you can come and relax yourself. In December – March the weather in Spain is not hot, but the temperature during the day is still 20-25 ℃, and at night 13-15 ℃.

Let’s sum it up. For both seasons, we will earn a net profit of €9,525 + €3,150 = €12,675. The return on investment period will be: €209,270 / €12,675 = 16.5 ≈ 17 years. However. The Spanish real estate market shows a steady increase in price even during the COVID-19 pandemic. And so if for some reason you suddenly decide to sell your apartment, you will not only immediately return all your investments, but also make money on the sale. In this case, all rental income will immediately turn into net profit. Case 2. Let’s calculate the investment and its return for a property in Torrevieja, worth €132,000

Apartments in a residential complex 200 meters from the beach Playa de los Locos in Torrevieja. The residential complex has a cozy common area on the roof, an equipped recreation area and a communal pool. In addition, the complex is ideal for both a pleasant holiday due to the proximity to the beach and for permanent residence. Configuration of apartments 2 + 2, with a total area of 79 square meters. Terrace 6 square meters. The price includes: storage room, underground parking, renovation and furnished kitchen. The complex will be completed in December 2022. You can invest in parts. 50% in different parts during the construction phase, 50% after commissioning. Let’s calculate the total cost of expenses: Apartment cost – €132,000 Cost of registration and government fees (12.5% – 13%; we take the worst case scenario of 13%) – €17,160 Cost of furniture and appliances – €7,000 Total expenses: €132,000 + €17,160 + €7,000 = €156,160 Let’s calculate the return on investment for this property. Short-term rental cost for such an apartment:

• 80 €/day in high season
• 50 €/day in mid season
• downtime, or 400 €/month in low season (or you can come and relax yourself)

Let’s calculate the occupancy rate for such an apartment. The occupancy rate during the high season will be 95-100%. Let’s take the worst case scenario of 95%. 134 – (134 / 100 * 95) = 127 days the apartment will be occupied. Gross income will be 127 * 80 = 10,160 € for the high season. Let’s subtract the costs of the management company (let’s take the worst case scenario of 25%) 10,160 – (10,160 / 100 * 25) = 7,620 € net profit for the high season Occupancy rate during the mid-season fluctuates between 50% and 75%. Let’s take the worst case scenario. 120 / 2 = 60 days the apartment will be occupied. Gross income will be 60 * 50 = 3,000 € for the mid-season. Subtract the costs of the management company (we take the worst case scenario of 25%) 3000 – (3000 / 100 * 25) = 2250 € net profit for the average season Low season is again considered a bonus. 3 months at 400 € = 1200 € minus 25% = 900 € Let’s summarize. For both seasons, we will earn a net profit of 7620 € + 2250 € = 9870 € The return on investment period will be: 156160 € / 9870 € = 15.8 ≈ 16 years Case 3. Let’s calculate the investment and its return for a property in Torrevieja, worth 75000 €

The house was built in 2010, the apartments are sold furnished and equipped, air conditioning is installed. The price of the apartments also includes a garage in the same building. The total area is 70 square meters. The configuration of the rooms is 2 + 1. The sea is 12 minutes away on foot. Let’s calculate the total cost: Cost of the apartment – 75,000 € Cost of registration and government payments (12.5% – 13%; we take the worst case scenario of 13%) – 9,750 € Total expenses: 75,000 + 9,750 = 84,750 € Since this is secondary housing, before renting it out you will need:

• carry out cosmetic repairs
• partially renew furniture
• update the bathrooms and the front door
• perform partial repairs of various plumbing fixtures in the apartment
• carry out one or two more repairs over the next 10 years

All this will require investments from 12,000-15,000 € Let’s calculate the return on investment for this property. The cost of short-term rent for such an apartment:

• 50 €/day in high season
• 30 €/day in mid season
• downtime, or 350 €/month in low season (or you can come and relax yourself)

Let’s calculate the occupancy rate for such an apartment. The occupancy rate during the high season will be 95-100%. Let’s take the worst case scenario of 95%. 134 – (134 / 100 * 95) = 127 days the apartment will be occupied. Gross income will be 127 * 50 = 6350 € for the high season. Let’s subtract the costs of the management company (let’s take the worst case scenario of 25%) 6350 – (6350 / 100 * 25) = 4762 € net profit for the high season Occupancy rate during the mid-season fluctuates between 50% and 75%. Let’s take the worst case scenario. 120 / 2 = 60 days the apartment will be occupied. Gross income will be 60 * 30 = 1800 € for the mid-season. Subtract the costs of the management company (we take the worst case scenario of 25%) 1800 – (1800 / 100 * 25) = 1350 € net profit for the average season Low season is again considered a bonus. 3 months at 350 € = 1050 € minus 25% = 787 € Let’s summarize. For both seasons we will earn a net profit of 4762 € + 1350 € = 6112 € The payback period for the investment will be: (84750 € + 15000 €) / 6112 € = more than 17 years

Deniz-Estate’s recommendations for investing in Spanish real estate

1. Give priority to new real estate.
2. If you are considering the option of secondary housing and real estate older than 5 years – choose very carefully. Very scrupulously evaluate the location, the current condition of the housing, previous rental figures, and better yet, consult with Deniz-Estate specialists.
3. We do not recommend buying apartments older than 10 years for rent, unless they are within walking distance to the sea, beaches and city attractions. And even then, buying such an apartment will be an exceptional case. Remember the main rule: No one sells a chicken that lays golden eggs. On the secondary market, no one will sell a good apartment cheaply that is well rented out.
4. The most profitable purchase is characterized by several factors:
   1. Buy real estate away from the sea at the construction stage, complete with all the infrastructure.
   2. Use the developer’s interest-free installment plan.
   3. Finish building and only then consider options (already at this stage you will earn 20-25% of your investment in 1-1.5 years)
   4. If you are considering renting, be prepared to rent for at least 2-3 years until the residential complex becomes recognizable and starts attracting the maximum number of tenants. After that, you can either earn the maximum on rent or sell it as a fully liquid property.

At the end of our calculations, it is necessary to say that the cost of rent per day depends on many factors, including the desire of the owner to rent out the property as quickly as possible. For this reason, some average figures on the market for objects of the same type were used in the calculations. But it is necessary to understand that the real figures will be slightly different, either up or down. These calculations are given for an approximate assessment of the return on investment when investing in certain objects. Contact us for advice, we will help you calculate the real calculation for any object you are interested in.