City officials in Madrid, like in many other cities around the world, are responding to political pressure and strictly limiting the number of Airbnb licenses it issues. However, one can still make an excellent investment return on Madrid property if they understand the changes to the Airbnb laws, know the optimal neighborhoods in which to purchase property and the ideal clients to target. In summary, the optimal rental yields come from renting properties medium term: for periods of 2-11 months. Maintaining these properties is also much easier and cheaper than maintaining short term rental properties. This article explains all of this and finishes with a Case Study: Medium term Madrid property investment.
Changes to Madrid Airbnb laws
The Madrid government has not stopped handing out touristic licenses altogether, as happened in Barcelona. Property owners can still rent their property short term if it is a ground or first floor property with no neighbors underneath. There are additional requirements, stipulated by the city, that must be met. Finally, the property must be certified by an architect.
The city is still issuing touristic licenses for rentals that are more than 28 days in duration. The new question is: to rent your property medium or long term?
The sweet spot for Airbnb investment in Madrid
With the rise of digital nomad visas and more students studying abroad, medium term rentals are an increasingly attractive option for property owners. This is increasingly true in Madrid, now that Spain has started issuing digital nomad visas. In June 2023, Spain introduced a digital nomad visa scheme that allows remote workers and freelancers to live and work in Spain for a year, renewable for up to five years. The minimum income threshold to be approved is currently set at €2,160 per month for an individual. This is much lower than the threshold required to be awarded a digital nomad visa in other countries. Italy’s minimum threshold is 2,500€ per month. Portugal, which runs an extremely popular digital nomad visa scheme, has set their threshold at four times the national minimum wage, which means applicants must earn at least 3,040€ per month. Greece’s minimum threshold is even higher, clocking in at 3,500€ per month. The Netherlands also issues digital nomad visas, but only to US Citizens through the Dutch American Friendship Treaty (DAFT). The minimum income threshold for a DAFT Visa is 4,500€.
This recent introduction of a digital nomad visa scheme makes medium term rentals an increasingly viable option in Madrid, since the Spanish minimum income threshold is the lowest in Europe.
There are many advantages to renting your property in the medium term, as opposed to the long term:
- Higher rental yields
- Less risk of people over staying their lease. If someone has a year long lease and over stays, under Spanish law it can take a long time to evict them, even if they don’t pay rent
- Fewer legal responsibilities
- You can stay in your apartment a couple weeks, or even months, out of the year
-> If you want to immediately know the net returns you can earn renting your property medium turn, you can jump to the final section of this article: Case study: Medium term Madrid property investment
Do you want to learn more about the benefits of renting a Madrid apartment for the medium vs. long term? If so, contact Madrid Estate and arrange your FREE CONSULTATION TODAY to learn more, and see how we can help you find the perfect apartment to maximize your net rental yield.
Ideal clients for medium term property rental in Madrid
Students
Students are excellent clients for medium term, seasonal rentals. Madrid has a large number of international universities and with IE’s recent expansion, we expect students to continue to come to Madrid. They are good clients because their parents typically cover their housing costs. Since student housing in Madrid is cheaper than in places like the US or the UK, their parents are willing to pay “top dollar” for their child’s apartment. Students typically rent seasonally (August-May), which frees up your apartment for a medium term rental (or two) in the popular tourist months of June and July.
If you wish to own a number of properties, building a portfolio of student rental properties will create synergies. Moreover, if you own eight or more properties you can benefit from a 2019 law that allows you to deduct up to 100% of your rental income. Purchasing these properties via a Spanish limited liability company will lead to other tax advantages.
Digital nomads
As we mentioned above, Madrid recently introduced the cheapest digital nomad visa in Europe. Portugal, which once had the most popular digital nomad visa program in Europe, is becoming increasingly hostile to both digital visa holders and expats investing in Portuguese property. As both countries are located on the Iberian Peninsula, have excellent weather and easy access the ocean/sea, we expect Spain to attract a lot of digital nomads in coming years.
The optimal neighborhoods for medium term rentals
There are two neighborhoods our experience suggests are optimal for medium term rentals: The Center and Tetuán.
Tetuán
Tetuán is the new trendy area in Madrid. What used to be the end of Madrid is now the epicentre of art studios, photography and even bakeries. The neighborhood is also becoming an increasingly popular neighborhood for Madrid property investment. The properties are still relatively cheap, which means you can achieve a higher net return on your investment. Moreover, it is close to many universities, which makes it ideal for renting to students that want to live in .
The properties in this neighborhood haven’t been as picked over as properties in more popular neighborhoods, nor have as many of them been renovated. Money can be made by investing in an older property and fully renovating it. In our experience, every 1€ a client invests in renovation leads to a 1.5€ increase in their property’s value.
Our recommended strategy in Tetuán is to invest in a property in the neighborhood of 360k€ that is 3 bedrooms. Renovate it and then rent it to students.
The Center
Their are still properties available in the Center. Many students from affluent schools, like IE, prefer to live in the Center as they can easily get to university but are still in the middle of all the trendy bars, restaurants and clubs. However, many of the larger properties have appreciated in value, which can really cut into your net rental return.
Our strategy in the Center is to invest in smaller properties: one bedroom/one bath, for an average price of 250k€. If you want to get a golden visa, you can invest in two properties to meet the 500k€ investment threshold. These can be rented to two different students.
Case study: Medium term Madrid property investment
To get an idea of the returns you can earn by following our recommended strategies for medium term Madrid property investment, here are two case studies. These are recent studies based up current Madrid Estate clients.
Case study 1: Invest in a 3/4 bedroom apartment in Tetuán
This client purchased a single property in the up and coming neighborhood of Tetuán. Our client purchased a four bedroom apartment in the neighborhood for 350k€ (typically apartments in this price range have only three bedrooms). Closing costs summed to 38,095 and they invested 2,000€ in capital improvements (renovation + furniture + decorations). Thus their total initial investment was 390,095€.
They were able to rent the apartment for 21,522€ per annum (85% occupancy rate). Total annual costs amounted to 2,070€, meaning their annual profit was 19,452€. Thus their pre-tax net rental return was 4.99%.
Case study 2: Invest on two one bedroom apartments in the Center
This client wanted a golden visa, so they invested in two one bedroom/one bath apartments in the Center. Each apartment cost 250k€, bringing their total investment amount to 500k€. They financed 350k€ of the two purchases with mortgages. Total closing costs amounted to 58,175€ and they invested 60k€ in capital improvements (renovation + furniture + decorations). Thus their total initial investment was 268,175€.
They were able to rent the apartments for a total of 41,800€. Total annual costs amounted to 12,348€. Their mortgage amortization amounted to 17,941€, meaning their annual profit (after mortgage amortization) was 11,511€. Thus their pre-tax net rental return on the combined apartments was 4.29%.
Conclusion
Even given the changes to Madrid’s Airbnb regulations, one can still make a return of 4-5% on real estate investment, provided you follow the strategy to:
- Invest in neighborhoods such as Tetuán and the Center
- Rent the apartments in the medium term to students, academics and digital nomads
Do you need help with finding a Madrid property to rent medium term? Madrid Estate can help you find the perfect property to maximize your net rental yield, making a safe, secure profit in this changing landscape. Arrange a FREE CONSULTATION TODAY to learn more.
