In recent years, the Spanish property market has grown considerably, especially in the rental housing sector.
Investors find this market safe because there is a strong rental demand, particularly in urban areas, as well as touristic locations like coastal areas, so buying homes to rent out has become a common option for both local and foreign capital.
However, although common, this opportunity comes along with several risks. If you want to buy a property in Spain thinking about a rental property investment, you should carefully read these common mistakes buying rental property and learn how to avoid them first.
1. Not Researching the Local Market and Rental Laws
Being a foreign investor and buying a property in Spain requires a deep understanding of Spanish property laws and other property investment risks, such as tenant problems.
One of the most serious mistakes investors make is failing to understand the local market and the rental laws that apply in Spain.
Rental regulations vary from one location to another, so it is also important to check state, regional and local regulations to avoid unpleasant surprises, conflicts or penalties. For instance, big cities like Barcelona or Palma de Mallorca have strict regulations regarding short-term and touristic rentals.
There are also rules regarding the minimum contract duration, tenant rights, rent updates, and mandatory registration of rental agreements. Ignoring these laws could result in being unable to rent the property legally or facing fines and other legal issues.
2. Underestimating Additional Costs
Property prices in Spain usually seem affordable, especially to foreign investors but, to buy a house, you must face some additional costs. A common mistake many people make is not taking additional expenses into account, so they find that their return on investment calculations are incorrect.
Some of these costs are the Property Transfer Tax (Impuesto de Transmisión de Propiedades, usually between 6% and 10%, depending on the region), notary fees, land registry (Registro de la Propiedad) fees, property maintenance and community charges, insurance policies, building inspections (in case of older buildings) and possible renovations or furnishing.
All these expenses change considerably the total amount required to buy a property in Spain.
3. Skipping Legal Due Diligence
Before signing any real estate deal, you must make sure you carry out legal due diligence. Skipping this step can lead to buying a property with hidden legal issues or other unexpected financial burdens.
Make sure you check the property’s file in the Land Registry (Registro de la Propiedad). Go through all details regarding ownership, mortgages, liens or other legal claims, and also check that there are no debts related to the property (the building’s homeowners’ association or the residential complex, or the government).
Overlooking these documents could turn a promising investment into a legal nightmare.
4. Poor Financial Planning
Before buying a property, you must do the math and make sure the investment numbers look right. A common mistake is calculating gross profitability based on the rent amount but missing vacancy periods, unexpected repairs and problems or fixed periodic costs.
It’s crucial to build a financial forecast that includes all these factors, along with a contingency plan in case of long vacancies or non-payments. For the second question, you can also get rental income protection.
5. Ignoring Neighborhood Research
In real estate investments in Spain and every other country, location is one key factor conditioning value and demand.
Buying a property without thoroughly researching the city and neighborhood can lead to low demand or cohabitation problems. Look for properties that have easy access to services, public transport, education centres, hospitals or workplaces.
6. Not Having Rental Default Insurance
At Just Insurance we strongly encourage you to get rent guarantee insurance in Spain if you want to protect your investment.
This landlord insurance in Spain typically covers missed rent payments and includes legal coverage, so you can have peace of mind and avoid unexpected unpleasant surprises.
7. Signing Contracts You Don’t Fully Understand
All in all, you will have to go through a lot of paperwork to buy a property in Spain, so it is crucial that you fully understand every contract you sign, especially as a foreign investor.
Take your time to go through all clauses and clarify every detail, hiring someone to assess you and guide you through the process if needed. It is advised to have a qualified lawyer review purchase, rental agreements and other legal contracts.
Misunderstandings or missing details can lead to problems and conflicts.
Just Insurance: your perfect insurance partner for a safe investment
So, if you want to invest in rental property in Spain, make sure you do it wisely and avoid making these common mistakes.
At Just Insurance, we offer you peace of mind by finding the best tailor-made insurance solutions to make sure your investment is safe. We will help you find the best rent default insurance for long-term rentals and damage and civil liability insurance for both long-term and tourist rentals so you can make the most of your investments and avoid unpleasant surprises.
