Bouldrd

Hi, I am considering moving to Spain in the next 10 years or so. With this in mind, I am looking to acquire my first property in the Canary Islands (Fuerteventura) with the intention to rent it out to holidaymakers purely as an investment. I understand that the amount of Spanish tax on rental income you pay as a non-resident is dependent on the country in which you are currently a fiscal resident and not your nationality. In my case, since I live in the UK, this rental activity will then be subject to a tax rate of 24% as I am a non-EU resident instead of 19% (even though I am a Belgian national). Also, expenses such as letting agency costs, electricity, IBI etc. are non-deductible.

I ran some calculations to estimate what kind of profit margin I could expect. Based on a rental property that generates an annual rental income of €17,459 and expenses of €9,834, the following tax will have to be paid in Spain:

• Total rental income: €17,459
• Non-deductible expenses: €9,834 (€2,793 (AirBnb) + €1,210 (Cleaning) + €154 (Insurance) + €3,491 (Letting agency) + €425 (Electricity) + €184 (Water) + €394 (Internet) + €150 (IBI) + €1,032 (Service charge))
• Spanish tax due (24%): €4,190 (€17,459 * 0.24)
• Yearly profit remaining: €3,434 (€17,459-€9,834-€4,190)

This leaves me with a monthly profit of €286 which surely isn’t worth the trouble — yet I hear many UK nationals still continue to invest in Spain even after Brexit… What am I missing?

I have two issues: the high tax rate and the non-deductible expenses from the Spanish tax that are driving this very low profit.

Are there other options to invest in Spain to make it more cost-effective perhaps by acquiring the property via a UK company or a Spanish company?

Any tips or expertise to share?

Moses2013

Probably not and compared to other European countries it was never really profitable unless you have some sort of property that stands out from the rest, or is in a city with massive rental shortages (Barcelona, Madrid etc.) I wouldn't rent out our property in Spain unless I really had to, but for those who want maximum profit probably a bad time to buy anyway with these high prices.
€17,459 seems like a very high amount, so that's assuming you are buying luxury sector?

SanNico

If you're in the UK you're probably better off investing in a buy to let there and in ten years apply for a non-lucrative visa. If you're intent on buying here then maybe look at a basic buy to let to reduce your costs, just beware of the dangers of letting in a foreign country and trusting agencies etc.

Looking at your expenses, they might be a bit out for a holiday let, especially the electricity, water and cleaning fees. Holidaymakers tend not to care about leaving the A/C and lights on. You're also missing the accountancy fees unless the letting agent includes that in their extortionate fee. I don't know about Spanish agency fees but 20% seems high if you're taking care of the cleaning and AirBnB.

spainrico

I would agree with San Nico that utility cost forecasts look very optimistic. Also, where are your replacement/maintenance/repair/contingency costs? What occupancy rate have you calculated your rental income on?

I would tend to say the answer to your question is no you cannot make a good ROI as I do not believe the Spanish tax system is geared for non-residents to make a significant profit.

Given the higher interest rates which are now appearing this might not be your best investment opportunity (IMO)

spainrico

The Brits are still buying -

'The British bought the most houses in Spain during the third quarter of 2022, 9.3% of the total, followed by the Germans, French and Romanians with coastal properties proving the most popular.'

but OK does not analyse for what purpose but I thought it was an interesting fact.

https://www.majorcadailybulletin.com...ket-spain.html

mikelincs

I suspect that there are still very many properties empty in Spain since Brexit, and that there will be a lot of people fighting for a decrease number of visitors, the long term rental market is much more difficult with visits limited in time. 10 years ago there were abundant empty rental places in mainland Spain due to oversupply, people relying on rental income were having a lot of problems, we were renting and had a huge number of properties to choose from.

Mark604

A few years ago I costed out similarly our property in Spain. I obviously had to make a prediction as to occupancy but felt I'd been reasonable in my estimate. At the end I felt the whole thing and the hassle wasn't worth my time. My objective was to make enough money each month to rent a 1 or 2 bed apartment in Spain on or near the coast. Couldn't do that.
One minor thing about your mention of the cleaning fee. It's a normal thing to charge on an AirBnB type rental and the amount some people seem to want strikes me as being a lot more than would actually be paid out to a cleaner - so rather than being a non-deductible expense I bet most owners see it as a profit.

Lou71

Fortunately the OP is a Belgian national and has EU freedom of movement.

I agree a buy to let in the UK is easier if you live there. You need to decide on your budget, buy something like a one bed flat in an area with high demand (practically everywhere) and leave the whole thing in the hands of a letting agent. That is what we do although we always give the tenants our contact details because letting agents can be very slow on maintenance issues.

Obviously you can still buy a place in Spain and get plenty of use out of it without the hassle of renting it out.

Rotor

Spain can be a nice place to live but it is not a good country to invest your money into property, easier and safer to invest in the UK

DLC

Just make sure you buy after the crash.

UK house prices set for 15% drop, Nomura predicts

Ronnyone

An example of this: apartment in my building purchased in 2009 for 130.000 € is on sale for 110.000. Nothing wrong with apartment and in go location with large terrace. I doubt that anyone will pay asking price as everyone will haggle- so that is quite a sizeable loss of money for the UK owners who probably assumed that a property would have marginally increased over 10 years.

Moses2013

I suppose it's the same as everywhere now and across Europe they predict a recession, if it hasn't already happened.
The next day they predict that house prices will only go up because apparently we will have over 1 billion more people in 10-15 years.
Even if house prices drop, it probably won't affect the rental price in certain areas. Who knows what will happen and we see it with the refugees or medical tourism in countries like Germany.

From one day to the next the apartment that might have made 500€ a month can now make 6000€ (if it's in the right place at the right time)

spainrico

More by default than a planned strategy I have ended up renting out 2 properties to long-term tenants and I think the rental income is a good return on investment especially given the very fair tax treatment. But I have been lucky with my tenants who take good care of the properties (as it is their homes) and pay every month (maybe because the rents are fair) Also a good source of Euro income as against my sterling pensions with the fluctuating exchange conversion problems.

Long-term rents have risen a lot over the last few years and I would assume demand will increase if property prices crash (as predicted) as people may be nervous about buying with expensive mortgages (OK great for cash buyers) Also many people now seem to prefer renting so they have more flexibility to move and don't have the same responsibilities.

Ronnyone

It really depends though on the place. Sure major cities with large populations, jobs, students, cultures will always be in demand but places like the South with the Costas is essentially about lifestyle choices and therefore not really essential- this is why buying as an investment either long or short term will most likely lose you money. The market is totally saturated with short term tourist rents in Alicante as estate agents have cottoned onto the idea that foreigners all want investments the result is many communities are thinking of limiting licences or taxing empty properties. Only buy in Spain if you actually want to use the property over a long period of time and the enjoyment compensates for a potential loss.

Moses2013

My comment was only in relation to property prices dropping by 15% in the UK. Even if the house that is worth 300K today is worth 255K tomorrow, it won't affect the rental income it generates.
I agree that the market is totally saturated in parts of Spain, but again depends who your target group is and where. We have also seen it in Spain before and an area that attracted tourists on a budget can suddenly attract the wealthy. You also see a trend and investors now target other nationalities, instead of the Europeans it's now people from Kuwait, Bahrain or Saudi Arabia and they are willing to pay a lot more money.
Even in Germany it made the news that people are worried they will lose their sunbeds to Americans visiting Mallorca. Things can change quickly as we've seen before, but overall the tax benefits in Spain are not great and if your buying a bog standard apartment that's available everywhere don't expect much.