Buy to rent out: Estepona is a good tip

For a long time it was Marbella’s poor neighbour, but now it is well worth investing in a holiday property there and the margins when renting out are very good.

By Stefanie Claudia Müller, Madrid.

Making money with little effort is not easy, but if there is anywhere in Spain where that is possible it is in Estepona in Andalusia. The selling prices here are still relatively low, but rent prices are comparable with those of Madrid, and tourism there has been growing for years. Two hundred square-metre houses with three bedrooms, in good condition and in a good location cost, with long-term rentals, between 3.000 and 4.000 euros per month and with holiday rentals in the summer prices for objects in the middle segment reach up to 6.000 euros.

The shorter the rental period the more profitable the deal, as the price is then relatively expensive. Those who rent out for the whole months of July and August without gaps can achieve an income of up to 10.000 euros. Apartments close to the beach during this period reach around 5.000 euros. Apartments are, relatively seen, not much cheaper when renting meaning that the purchase of an apartment can be a good test of whether the principle ‘buy to rent out‘ is successful.

Magnificent country villa on the New Golden Mille Marbella close to the beach for nature and horse lovers

Britons are currently the strongest buyer-group

The province of Malaga, to which Estepona and Marbella belong, is visited by hundreds of thousands of German tourists every year but it is the British who are currently the biggest buyers possibly due to the proximity to the Crown Colony of Gibraltar which has its own airport and where alcohol and tobacco are cheaper. Some areas such as central Malaga are already expensive due to the huge increase in demand from England and Scandinavia, but an apartment in the Estapona area costs significantly less. In neighbouring coastal areas such as Piedra Paloma, for example, prices for 3-bedroom apartments in residential complexes with pool range between 250.000 to 300.000 euros.

In the Bahia Dorada there are apartments available from 200.000 euros, and those who search long enough will find even cheaper bargains. Particularly high rent prices can be achieved here in the summer months, but meanwhile also during the winter months. Due to the fact that this part of the Costa del Sol (sun coast) enjoys a microclimate and offers a large choice of health clinics, events and cultural programmes, even the Christmas and New Year tourism functions well. The temperatures then are around 20 degrees in the sun and the skies are blue, and there is very little rain or snow except in the mountains. Rent prices, however, are lower at that time and a smaller apartment costs between 800 to 1000 euros for 10 days which is still more than could be achieved in other places in Europe, relative to the purchase price of the property.

Invest in a booming province

Everyone is talking about holiday renting in Mallorca, but where it is really happening with renting prices is the province of Malaga, now one of the most popular city-destinations in Spain. In the province, to which Marbella and Estepona also belong, the number of tourist establishments has grown by 672 % during the last five years according to official figures (see graph). There is a particular boom happening with tourist town-apartments, country houses (casa rural) and tourist village-apartments (vivienda turismo rural). In 2017 there were 280.000 beds offered in the province of Malaga, but this number will certainly have grown again in 2018.

The province of Malaga is booming

Growth rate of individual categories of tourist overnight stays in the province of Malaga, in absolute figures

Source: Observatorio turistico de la Costa del Sol – Malaga 2017

According to the report of the tourist research centre ‘Observatorio turistico’ the number of tourists increased from 2013 to 2017 to 4.7 million visitors from Spain and abroad. Large growth was experienced in national tourism, but the largest increase was with the British. Many Spanish now rent or buy a holiday house or apartment around Malaga as the hotels are too expensive or are full of `Guiris’ (foreigners) and the largest number of hotels are in the 4-star category which explains the huge boom in tourist town apartments as Airbnb explain.

Those who offer a well-appointed house in a good location, however, always have an ace up their sleeve. It does not need to be in Marbella, central Malaga or Estapona but can be situated in the small surrounding villages, but always important is the proximity to a beach and views of the sea. Most clients will be Britons or Spanish, but the Germans with 304.542 visitors per year are far down the list. For that reason it is important to speak Spanish and English if you intend to administer the rentals yourself.

The Spanish love their ‘sun coast’, but the Britons almost more so

Holidaymaker rankings from 2013 to 2017 in absolute figures

Source: Observatorio turistico de la Costa del Sol – Malaga 2017

Be careful – new regulations for holiday renting

Renters should, however, be aware that Spain is reaching its limits with its holidaymaker capacities. The inhabitants of the Balearics and Catalonia have had enough of the masses and with increasing cruise-ship tourism the discontent has turned into strident protest. The large increase in Airbnb offers has upset the people in Madrid and Barcelona and local politicians are reacting, as in the Balearics, with restrictions. On the Costa del Sol the holidaymakers are still welcome as it is not yet too full, there are not as many ‘locals’, and the alternative sources of income are more limited than in Barcelona, Madrid or Palma. The unemployment in Andalusia where the Costa del Sol is situated is amongst the highest in Spain.

However: Certain city governments and also the national government are currently restricting urban renting. In Barcelona a court case is under way against Airbnb and the Balearic government has become very rigorous with respect to tourist renting. Nothing is possible any more without a licence and these are currentlyhardly being issued. The fiscal authorities monitor this kind of business much more intensively than before as more and more problems and anonymous complaints are being registered in normal residential buildings. Nationwide the new government under Pedro Sanchez has recently decreed that apartment rental in a normal residential building can only occur with the agreement of three-quarters of the owners.

Completely fully renovated private mansion situated only a few minutes from the Laguna Village Beach

Those who are considering ‘buying to rent out’ should do everything legally

In the past there has been a great deal of problems with the German and Spanish tax authorities concerning complicated tax-saving schemes which later turned out to be a trap, such as the founding of a company in Spain to administer the rental income. ”Those who are considering this idea should always choose the legal path of obtaining a licence and declaring the taxes in Spain. Every individual case must be examined” advises lawyer Tim Wirth who specialises in real estate in Spain. He does not agree at all with constructions using offshore companies: ”That will cause more difficulties than advantages. The liquidation is very complicated”.

For those who are competently advised the rental business on the Costa del Sol is relatively simple – in spite of negative news about illegal house-squatting or vandalising tourists: ”The majority of the rentals run smoothly and cause no problems as long as everything on site is monitored and checked in advance by the administrators, and the rental is offered by serious rental brokers”, says Wirth whose offices are in Palma de Mallorca. He warns, however, about expecting excessively high rental income: Maintaining a property can cause a lot of expense for which liquidity should be available”.

For tax reasons investment in a holiday property in Spain are attractive

Fiscally, interested persons should take care as there is not only a double-tax agreement in force between Spain and Germany, but also energetic communication between the two fiscal authorities. For that reason it is advisable to be open and honest with the authorities. Now tax-foreigners in Spain may deduct services to their property, such as cleaning or repairs, from the income and the difference is taxed at a rate of only 19 per cent. The property tax differs from one municipality to the next, but as a rule is between 0,3 and 0,4 %. If the property is located within a town, however, this can increase as far as 10%.

The property tax amounts to seven per cent for properties with a purchase price of up to 300.000 euros. From 700.000 it is 10 per cent. This all valid for non-residents, ie. Those who spend less than 183 days a year in Spain and are not registered there. Should they be there longer they are obliged, like every Spaniard, to submit an income tax declaration every year to the tax administration of the municipality where their property is located. Should the location be in Estepona, then that is the relevant tax office. ”It is better to go there too many times than not enough. The penalties in Spain for late submission or deception are now very high”, warns Wirth.