Buying an investment property is a big step and can be very intimidating, especially if it is located in a foreign country. You need to make sure you are well informed and have good advice. To help you, in this post we will provide answers to the most frequently asked questions we get from clients that want to invest in Madrid:
- Is now a good time to buy an apartment in Madrid?
- Will my investment be profitable?
- What are the best neighborhoods to buy an apartment in the Spanish capital?
Keep reading to learn the basics about where to live and invest in Madrid.
Is now a good time to invest in Madrid property?
Yes. The capital of Spain is increasingly considered an excellent place to make a successful investment. Real estate prices in the city have experienced a post covid price bump, but are still much cheaper than their counterparts in other European capital cities such as Paris and Amsterdam. Only Milan and Lisbon are cheaper. However, investing in Madrid property has one clear advantage to buying property in Milan or Lisbon: Spain’s golden visa program. If you invest more than 500,000€ in Madrid property, you will be entitled to European residency for you and your family. Italy does not offer golden visas via property investment (only via investing in Italian companies or government bonds). Last year Portugal, which once had a very popular golden visa program, shut down its golden visa program entirely.
In fact, countries all throughout Europe recently tightened up their golden visa requirements. To learn more, we invite you to read: Changes to European golden visa programs.
The thing one needs to focus on when purchasing an investment property is not just the price, but how much it can be rent for. Madrid’s relatively low prices, combined with its high rents, translate into very strong rental yields. Using data from Deloitte’s 2023 European Property Index, we calculated gross rental yields across all major European cities. The clear winner is Madrid.
So… Is it profitable to invest in an apartment?
Given the relatively low prices and high rental yields, definitely! Compared to other alternatives, like bonds for example, investing in an apartment in Madrid will be more beneficial for your future savings as you can not only earn money on the price appreciation of your property, you can earn a consistent income from renting it out medium term to students or academics. Moreover, if you want a golden visa, the investment threshold for investing in Spanish real estate is much lower than investing in other assets. You can get a golden visa for you and your family members by investing 500k€ in Madrid real estate.
Here are the other investments that qualify for a Golden Visa:
- Public debt: 2 million euros
- Public and private equity: 1 million euros
- Banks deposits or money market vehicles: 1 million euros
What are the best neighborhoods for buying an apartment in Madrid?
Before discussing the costs and benefits of different neighborhoods, we have two tips:
- You have to balance risk and return.
- You have to target the optimal clients
Surely you are wondering what we mean when we say you have to balance risk and return when choosing a neighborhood, but it is simple: many times we look at a property and think it looks marvelous, but we forget to consider whether it will not only perform well on the rental market, but also comply with Madrid’s recent restrictions on apartment rentals. To learn more about changes to European Airbnb regulations, you can read: How to optimize rental income with new European Airbnb regulations
With this in mind, we consider the best neighborhoods to invest in Madrid to be: Chueca and Malasaña. These neighborhoods, both in the Center, perform very well on the medium term rental market.
The optimal clients
One thing that is very important to keep in mind is that higher occupancy rates mean greater rental returns. Renting medium term will give you a much higher occupancy rate than renting to tourists.
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.
The optimal strategy
Our recommended strategy is to invest in one bedroom apartments in Chueca or Malasaña. For example, we recently had a client who wanted a golden visa. 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%.
If you still have doubts about this being an excellent time to invest in Madrid, Barcelona’s Universidad Pompeu Fabra has highlighted in their recent report that the revaluation of the Madrid property market makes it the most attractive for property investment in Europe. Leveraging your Madrid property investment will be very profitable in the long term if you invest in the right neighborhoods and find the ideal clients.
