Buying a holiday home in Spain to rent out: here is how to finance it
Buying an apartment on the Spanish coast and renting it out for part of the year. On paper, it makes for a nice calculation: the rent covers a portion of your expenses, and in the meantime, you build equity in Spanish real estate. However, financing in Spain works differently than you are used to with a Dutch buy-to-let mortgage. A common misconception is that the Spanish bank takes your expected rental income into account. Usually, it does not.
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Below you can read how to successfully finance a rental property in Spain, how much of your own money you need, what the rental income can realistically yield, and what to look out for before signing at the notary.
Table of contents
- Does a buy-to-let mortgage exist in Spain?
- How much can you finance and how much of your own money do you need?
- Does the Spanish bank take your rental income into account?
- What financing routes do you have?
- What is the realistic return on renting?
- Rental license: are you allowed to rent out?
- Tax on your rental income
- What do you pay attention to before you sign?
- Frequently Asked Questions
Does a buy-to-let mortgage exist in Spain?
In the Netherlands, a buy-to-let mortgage is a separate product. The lender looks at the expected rental value of the property and bases part of your borrowing capacity on that. Spain does not have that system. You finance a property you want to rent out with a standard Spanish mortgage, and the bank assesses you as an individual: your income, your fixed expenses, and your assets. Whether a tourist or you yourself occupy the property later on fundamentally changes nothing.
There is also good news. Spain does not have an occupancy requirement for mortgages. This means you can simply rent out a property with a Spanish mortgage, whereas this is often not permitted with a mortgage on your own home in the Netherlands. You can read how to practically handle renting out your home, from permits to taxes, in our article on renting out a house in Spain. On this page, we will focus on financing.
How much can you finance and how much of your own money do you need?
As a non-resident in Spain, you typically finance 60 to 70 percent of the appraisal value or the purchase price, with the bank holding the lower of the two. Therefore, count on having at least 30 to 40 percent of your own funds. On top of that come the buyer's costs, which in practice amount to about 10 to 12 percent of the purchase price for transfer tax or VAT, notary fees, registration, and a lawyer.
An example makes it concrete. If you buy an apartment for €250,000, you finance roughly €150,000 to €175,000 and put down €75,000 to €100,000 of your own money. On top of that, there are approximately €25,000 to €30,000 in additional costs. For a rental property, that equity is not a minor detail, but the linchpin of your plan: it determines whether the sum comes together. If you want to see what is possible in your situation, first calculate your options with our mortgage check, and read exactly how much equity a Spanish bank expects.
Does the Spanish bank take your rental income into account?
This is the point where most plans fail. Spanish banks assess your borrowing capacity based on your own verifiable income: your salary according to your payslips, or your business profit according to your tax returns. The rule of thumb applied by virtually every Spanish bank is that your total monthly expenses—i.e., the new mortgage plus your existing obligations—do not exceed approximately 35 percent of your net income.
Expected rental income from the property you are buying does not count towards this. Existing, demonstrable rental income from other real estate you already own does count, because it is part of your current financial situation. However, a Spanish bank will not finance based on a projected return for your new apartment. In practical terms, this means you must be able to bear the mortgage on your own income, regardless of what the rental income will yield. Those who assume this will avoid the most common disappointment in the application process.
What financing routes do you have?
Roughly speaking, there are three ways to secure a rental property in Spain.
- A Spanish mortgage based on your own income. This is the route described above: the bank looks at you, not the rent, and finances up to approximately 70 percent.
- Using the equity in your Dutch home. You increase your mortgage in the Netherlands and buy in Spain with (partly) your own funds. This can result in a lower financing requirement and sometimes better terms, but you are transferring the risk to your home in the Netherlands.
- A combination: part own funds, part Spanish mortgage. In practice, many buyers opt for this.
Which route suits you best depends on your income, your assets, and how much risk you are willing to take on your Dutch home. The differences between Spanish banks are significant in this regard: some are stricter on interest rates, while others are more flexible regarding the type of income that counts. You can find an overview of the rules and conditions on our page about mortgages in Spain.
What is the realistic return on renting?
Return is the reason you rent out, and at the same time the figure most often manipulated online. Stay realistic. Your gross return is the annual rent divided by your investment. Costs still need to be deducted from that: the complex's community fees, maintenance, insurance, a property manager if you do not live nearby, and off-season vacancies.
As a result, your net income is significantly lower than the gross rent a real estate agent calculates for you. Tourist rentals yield more per night than long-term rentals, but involve more vacancies, more management, and more regulations. Therefore, a fair return is calculated using a realistic occupancy rate including all costs, not with a peak month as the annual average. We prefer to calculate a purchase conservatively for you rather than having you disappointed afterwards.
Rental license: are you allowed to rent out?
Before counting on rental income, check whether you are even allowed to rent out your property. For tourist rentals, you need a rental license, the licencia turística, in most Spanish regions. The rules vary by region: Valencia, Andalusia, and Catalonia each have their own register and conditions, and some cities are temporarily no longer issuing new permits.
In addition, the homeowners' association of an apartment complex can restrict or even prohibit tourist rentals. Therefore, do not assume that an apartment is automatically suitable for renting to tourists. Check the rules of the region and the regulations of the complex before making an offer. How to apply for such a permit is explained on our page about renting in Spain.
Tax on your rental income
Rental income from a Spanish property is taxable in Spain, even if you live in the Netherlands. If you live in the EU or the EEA, you pay 19 percent tax on your net rent, i.e., after deduction of expenses. If you live outside the EU, it is 24 percent on the gross rent, without deductions. In addition, you pay annual property tax, the IBI.
The Netherlands and Spain have a tax treaty to prevent double taxation, but how this works out for you depends on your personal situation. Seek advice from a tax specialist on this before you buy, as the tax burden partly determines your net return. We look at the financing, a tax specialist at the tax return: these two go hand in hand in a rental plan.
What do you pay attention to before you sign?
Before making an offer, consider a few things. Can you afford the mortgage based on your own income? Is the property allowed to be rented out, according to the region and the complex? And is the return accurate if you calculate conservatively? Furthermore, always have a valuation and a legal check carried out. A lawyer verifies that the property is debt-free and that the paperwork is in order before you sign at the notary. This way, you can be certain that you are buying what you think you are buying, and that your rental plan is financially sound.
Frequently Asked Questions
Can I get a Spanish mortgage based on expected rental income?
No. A Spanish bank assesses you based on your own verifiable income and adheres to the rule of thumb that your housing costs are at most approximately 35 percent of your net income. The expected rent from the property you are buying is not included in this calculation. Existing rental income from real estate you already own is included, however.
How much of my own money do I need for a rental property in Spain?
Count on at least 30 to 40 percent of your own funds, as a non-resident typically secures 60 to 70 percent financing. On top of that come the closing costs of approximately 10 to 12 percent of the purchase price.
Am I allowed to rent out my mortgaged Spanish property?
Yes. Spain does not have an occupancy requirement for a mortgage, so renting out is allowed. However, pay attention to the rental license for tourist rentals and the regulations of the apartment complex, which may restrict renting.
Do I need a rental license?
For tourist rentals, you need a tourist license in most regions. The conditions vary by region, and sometimes a municipality temporarily stops issuing new permits. Different, often more lenient rules apply to long-term rentals.
How much tax do I pay on my rental income?
If you live in the EU or EEA, you pay 19 percent on your net rent. Outside the EU, it is 24 percent on the gross rent. In addition, you pay the annual IBI. Have your situation reviewed by a tax specialist, as a tax treaty prevents double taxation.
Is a holiday home in Spain a good investment?
That is possible, provided you calculate conservatively. Finance based on your own income, arrange the rental license, include all costs and vacancy, and take taxes into account. If the sum still turns out favorably, then you have a sound plan instead of an optimistic assumption.
