Are you considering buying a property in Madrid for investment purposes? If so, there are many factors you should take into consideration to get the highest return. This article walks you through everything you know to find the perfect investment property and maximize your rental yield.
1- Determine how much you want to use the property
If you want to have a dedicated rental property, we recommend you focus your property search in the most desirable rental neighborhoods, such as the Center of Madrid or Tetuán. Many things have changed in Madrid over the past few years, and in the types of rentals allowed. For example, most short term rentals are now banned. Thus in 2025, these two neighborhoods are the ones with the best investment opportunities.
If you are planning on purchasing a property in Madrid as a second home, or vacation home, you might prefer a more residential neighborhood like Chamberí, Salamanca or Retiro. If you would rather enjoy a morning yoga class, or take your kids to the playground, you will probably be happier in a neighborhood away from the major tourist attractions. Because Madrid is a late night city that is famous for its nightlife, neighborhoods in the Center, including Chueca, can be very loud and experience a lot of foot traffic, all night long
TIP: If you are planning on spending time in your Madrid property, strategically choosing when you do this will help you further maximize your rental property yield. The Madrid market is seasonal. Because the winters are cold and the summers can be very hot, the occupancy rates are highest in spring and autumn. Occupancy rates in Madrid peak in October (92%) and are at their low in January (67%). Thus to maximize your short or medium term rental yield, plan to spend time enjoying your Madrid property in January, February and August.
2- Decide if you want to have a medium or long term rental
Recent changes to the laws governing tourist rentals in Madrid have changed the investment landscape. Very few short term rentals are now allowed, thus you need to choose whether you want to rent your property medium or long term. 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
Long term rental is another viable option. The returns aren’t as high as renting medium term, but it’s easier and less wear and tear on your apartment.
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.
3- Determine the size of apartment you want to purchase
Another way to maximize your rental property yield is to strategically choose the optimal size of the apartment you purchase. If you are renting your property in the medium term, one bedroom apartments are the most in demand. Our recommended strategy in the Center is to invest in smaller properties: one bedroom/one bath, for an average price of 250k€. These can be rented to individual students. Our recommended strategy in Tetuán is to invest in a property in the neighborhood of 360k€ that is 3 bedrooms. Renovate it into three separate apartments and then rent it to three students.
4- Our favorite neighborhoods in Madrid for investment in 2025
As we mentioned above, given changes in the Madrid real estate market and Madrid law, we recommend purchasing an apartment in the Center of Tetuán if you want to maximize your rental yield.
Centro- best for medium term rentals to students and digital nomads
Neighborhoods in the center of Madrid are extremely good places to purchase real estate if you want to rent your investment property medium term. Students love the Center’s bars and legendary clubs. If you want to rent your property long term, central neighborhoods such as Sol, La Latina and Huertas are not as desirable as they are often filled with tourists and can be very loud at night.
Tetuán- best for medium term rentals to students
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. As we mentioned above, we recommend renting a larger apartment in Tetuán, breaking it into smaller apartments and renting it to multiple students.
5- Alternative neighborhoods in Madrid for property investment
If you want the ease of renting your apartment long term, or want to spend time in your apartment throughout the year, here are some other desirable neighborhoods.
Chueca- good for long term rentals
Nestled between Salamanca and Malasaña is the neighborhood of Chueca. It is is filled with trendy boutiques, tapas bars, sidewalk cafes and night clubs. It is a very LGBTQ+ friendly neighborhood and the center of Pride month in Madrid, which draws people from all over the world. It is also very close to the main tourist attractions in Madrid. Because of its diversity and location, it is good for longer term rentals.
Justicia- good for medium and long term rentals and a beautiful neighborhood if you plan on using your apartment as a second home
Justicia is a very beautiful neighborhood; many streets feel a lot like Paris with their upscale boutiques and higher end restaurants. It also has some of the most expensive real estate in Madrid- only Salamanca is more expensive. It’s a very desirable neighborhood in which to live, but doesn’t have as many tourist attractions as the neighborhoods in the Center. It is best for longer term rentals, but there are medium term rental options here as well.
Salamanca- good for medium and long term rentals, and a great neighborhood if you want to spend time in your property
Barrio Salamanca is an old, elegant neighborhood. It is filled with high end fashion boutiques and posh big brands like Chanel and Dior. However, it is a little harder to get to the main tourist attractions from this neighborhood. It is more residential than neighborhoods in the center, and English is pretty widely spoken in shops. Thus, it is an excellent place to spend your time in Madrid and is appealing to people that want a long term rental.
Castellana- also good for medium term rentals
Castellana is located in the northern part of Salamanca. It has become a very dynamic neighborhood as the prestigious IE Business School is located here and it is adjacent to the Central Business District of Madrid. It has a number of upscale restaurants, including the avant-garde DiverXO, which carries three Michelin stars. As it is relatively far from the center and major tourist attractions, it is best for medium and long term rentals. Caveat: prices in Castellana are much higher than in Tetuán. Thus, even though there are many students in this neighborhood, rental yields are lower than in Tetuán. However, if you want to rent your apartment part of the year and live in it the rest, it’s an excellent choice.
Chamartín- best for long term rentals
The central business district of Madrid is located to the north of the city center, in Chamartín. Because so much business in Madrid is conducted over long lunches, it also has some excellent restaurants. The residential areas in Chamartín are very desirable for those that wish to walk to work. There are international schools located close by, so many expat families choose to live here. It is far from the major tourist attractions, with the exception of the Santiago Bernabéu football stadium, so it is much quieter (except on days Real Madrid plays) than neighborhoods further south. Thus, Chamartín is best for long term rentals. If you want to purchase a larger apartment and rent it long term, this is arguably the best neighborhood in Madrid to purchase an investment property.
Conclusion
If you want to maximize your rental property yield on your Madrid investment property, the optimal strategies are:
- Rent your property medium term
- If you want to spend some time in Madrid and stay in your property, do so in the winter
- Purchase a one or three bedroom property
- Purchase a property in the Center or Tetuán.
Do you need help finding an investment property in Madrid? Madrid Estate offers a full array of real estate services in Madrid. We can help you find a property that will produce a rental return well above average and help you manage that property. Arrange a FREE CONSULTATION TODAY to learn how we can help you.
