Investing in Spanish property to let it out (BTL) became a hugely profitable business over the last five years, yielding two digit returns year-on-year. Although the market has taken a beating recently with government imposed Covid entry restrictions and lockdowns, there is no doubt Spain will rise again to the occasion and soon reclaim its rightful place as the world’s second most alluring tourist destination. Spain attracts over 84 million tourists every year, and they all need a nice accommodation to stay in!
From a tax perspective, Spain offers a very attractive landlord tax relief package on leasing as a holiday rental, to the point a landlord can confidently write off 70%, or more, from his tax bill on average (if you are EU resident)! This makes the prospect of Buy-to-Lets even more attractive!
With this in mind, we’ve written a short blog post on eight points you should be mindful of on investing in buy-to-lets in Spain:
- Location, location, location. Any article on real estate worth its salt usually starts with this timeless saying. A worn-out trope no doubt, but that doesn’t make it any less true and it is hands down the first tip that is often neglected by most. Property prices can increase or decrease, but nothing impacts more on them than location. A great location helps you to cap off the storm greatly cutting down on your losses in a cycle downturn. Conversely, in a property boom, well-located real estate greatly capitalizes from it, soaring at a much higher rate than the average. When you invest in BTL, you need to choose a location which has a great touristic affluence.
- Inland vs coastal. Both are in high demand but for very different reasons. The discerning city crowd, with refined tastes, are after the glitz and bling of a cosmopolitan lifestyle, and are drawn to museums, restaurants, cultural events and all the flashy spoils large cities have to offer. By contrast, the beach crowd is after raw fun, sun & beach, sports, mojitos and disconnecting for a while. Both are proving to be great business options.
- Affordability vs maintenance. Budgeting carefully is a key element of any successful conveyance procedure. Yes, you may afford to buy a swanky property in a great location, but can you afford its steep maintenance? Only buy property you are absolutely confident you can afford to maintain over the mid to long run, and this includes servicing the mortgage repayments.
- Tourist Licence. Several regions in Spain have devolved competencies on this matter, passing their own regional laws. Some of these laws are very stringent i.e. Balearic Islands. You would do well to acquaint yourself with the regional regulation where you plan to invest in a BTL. You must comply with all the requirements set out in the regional law and attain a Tourist Licence, where mandatory.
- Licence of First Occupation. A staple requirement to apply for a Tourist Licence throughout every region in Spain is to have attained what is known as a Licence of First Occupation. This is an unconditional requirement which marks the difference between being able to let your property legally, or not. Humongous fines are levied on landlords who fail to prove their property has attained a LFO from their town hall.
- Community of owner’s bylaws. If you buy into a gated community or building, chances are high you will become part of what is known as a community of owners. New laws passed on March 2019 have empowered communities of owners across Spain to outright ban, or restrict, holiday rentals. You need to ensure the property you are buying allows you to offer holiday rentals to tourists.
- Rental management companies. This is a make-or-break. A competent rental manager, for a reasonable fee, is a key component to successfully develop and run your rental business.
- Taxation - Lawyers. A competent accounting company, such as Larrain Nesbitt Abogados, with over 18 years’ experience, are able to reduce by 70%, or more, your landlord tax bill. We provide this accounting service nationwide covering all of Spain, ask us for our Holiday Rental Accounting Service (HRAS) if you want to pay low taxes, or none at all!
At LNA we can assist you buying, selling or renting out your property in Spain. We have 18 years’ experience in conveyance & tax. We are also specialized in Immigration & Residency permits.
Larraín Nesbitt Abogados, small on fees, big on service.
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