What to know before buying a home as an investment in Spain

The real estate sector in Spain remains one of the most profitable, given the recent evolution of house prices. According to the latest data from idealista, the average price of a home for sale reached €2,438/m² in June 2025 – a record high – after rising 14% over the past year. Rental prices have also hit an all-time peak, at €14.6/m², reflecting a year-on-year increase of nearly 10%. In major cities such as Madrid, Barcelona and Málaga, these prices and rises are even more pronounced.

Investing in real estate – whether to sell in a few years or to rent out – offers the potential for high returns, though, like any investment, it carries risks.

If you are considering buying a home as an investment, here’s what you should take into account before making a purchase.

What to know before buying a home in Spain as an investment

1. Location

Most industry experts and estate agents agree that location is one of the most important factors to consider. Although prices are typically higher in high-demand areas, such as city centres, these properties benefit from consistent demand, and their value tends to increase over time.

In urban centres, there is often not much land available for building new homes, which drives up the price of existing homes.

Focus on areas with good services, transport links, connectivity and planned urban development, while avoiding locations with issues such as squatting or projects that could negatively affect quality of life.

If you intend to rent out the property, also consider the type of tenant you aim to attract – families, students, professionals or holidaymakers – as each has different requirements.

2. Market research

Before deciding to buy a property as an investment, it is essential to conduct a thorough analysis of the local real estate market. Understanding current prices, historical trends and future forecasts will help you determine whether the opportunity is promising or if the market is overvalued.

Consult reliable sources, such as idealista studies, and consider seeking advice from a local estate agent, who can provide insights into practical factors that may influence your investment.

3. Choose a mortgage

Most investors rely on bank financing to purchase property, making the choice of mortgage crucial for maximising profitability. At present, financial institutions offer a range of options, including fixed, variable and mixed-rate mortgages.

If you want help with your mortgage, click here.

Assess which interest rate best suits your needs based on your investment goals. If you prioritise stability, a fixed-rate mortgage offers greater peace of mind over the long term, though it usually comes with a slightly higher interest rate. Conversely, a variable-rate mortgage may be advantageous if you expect interest rates to fall, but it carries the risk of potential increases.

Additionally, take into account other factors such as fees, mandatory linked products (insurance, credit cards) and the loan term. Tools like idealista/hipotecas can help with this analysis.

4. Review taxation

This is particularly important for foreign investors, as locals are already familiar with how the Spanish Tax Agency operates. Buying and selling property in Spain is subject to several taxes.

When buying a new-build home, VAT is payable. The rate depends on the type of property: 21% for commercial premises, 10% for new homes, and 4% for social housing. This tax also applies to garages and annexes, provided they do not exceed two spaces per property.

In addition to VAT, Stamp Duty (AJD) is payable on new-build transactions. The rate varies by Autonomous Community, typically ranging from 0.5% to 1.5% of the sale price.

However, for second-hand properties, VAT does not apply. Instead, Property Transfer Tax (ITP) must be paid, which varies by Autonomous Community, typically ranging from 6% to 11%. In addition, Stamp Duty (AJD) may also apply.

Beyond these taxes, other costs associated with the purchase process should be considered, such as notary fees and administrative charges. It is also wise to factor in ongoing property expenses to avoid surprises, including community fees, IBI (property tax) and waste collection charges.

You can find all the information in this article: What are the expenses and taxes for buying a home in 2025?

On the other hand, if you plan to buy a property to sell it in a few years, you should be aware that taxes will be payable upon its sale.

1. Personal Income Tax (IRPF): This tax is payable on any capital gain – that is, if the property is sold for more than its original purchase price. The gain is taxed at rates ranging from 19% to 28%.
2. Municipal capital gains tax: This local tax is levied on the increase in land value between purchase and sale. It is calculated using the cadastral value, the number of years of ownership and the municipal coefficient.

You can find complete information on the taxes levied on home sales here: What are the taxes and expenses for selling a home in 2025?

5. Property type

Choosing the type of home you'll buy as an investment also directly influences future profitability. Each option has its advantages and risks:

• New build: New-build properties require less maintenance in the first few years, making them easier to manage and reducing costs. They also offer higher quality, better energy efficiency and developer guarantees. However, the price per square metre is generally higher, and in many cases, buyers must wait several months – or even years – until the property is completed.
• Second-hand property: Second-hand properties are generally more affordable and allow access to established areas where new construction is no longer occurring. They are often ready to move into or rent out immediately. However, it is important to consider the property’s condition, as renovations or repairs may be needed, potentially affecting your budget.
• Renovation project: This option can provide significant opportunities for value appreciation if the renovation is carried out correctly. Purchasing at a lower price, improving the property and then selling or renting it for a higher return is a common strategy. Naturally, you must also factor in costs, the duration of the work, licensing requirements and potential unforeseen issues.

6. Define an investment strategy

There are several possible approaches:

• Traditional rental: Buy-to-let for long-term tenants. This can offer a stable income and less management.
• Holiday rentals: Higher profitability per night, but greater volatility, restrictive regulations and more management.
• Buying, renovating and selling quickly can mean capital gains of 20–50% or losing money. All of the above points should be taken into account before making the purchase.

7. Evaluate the expected profitability and the time horizon

Before investing, make realistic calculations of both gross and net returns. Gross returns are calculated by dividing the annual rental income by the purchase price and multiplying by 100. However, net returns are what truly matter, as they account for all expenses, including mortgage payments, taxes, community fees, insurance, maintenance and periods of vacancy.

Also, define your time horizon:

• Are you going to keep the property rented for 10, 15 or more years?
• Or do you want to renovate and sell in three or five years?

The shorter your investment horizon, the more crucial it is to make the right purchase and keep all expenses under control. It is wise to avoid excessive debt, in case the market falls and you need to sell quickly.

Like all investments, buying property carries significant risk. For example, in recent years, the Spanish government has intervened in the rental sector, making evictions more difficult and limiting supply – a double-edged sword: less supply can push prices up, but future policies remain uncertain.

If you plan to buy to rent, it is always advisable to take out tenant default insurance.