Real estate remains one of the preferred investments among Spaniards, although regulatory changes in recent years have reduced the predisposition of owners.
The gross profitability when renting can reach 8% in specific cities, but these are always figures from which the expenses borne by the owner must be subtracted. “When you go from living in an apartment to renting it, the expenses inherent to its maintenance are not estimated. By being there you absorb them: hot water, electricity, ventilation… Maintaining habitable conditions is usually forgotten and problems arise later” says Jesús Pérez, Finaer.
What specific games would you be talking about?
The tax issue is inevitable. The IBI (Real Estate Tax) is one of the major taxes on home ownership. It is paid each year with the cadastral value as the tax base and since it is set by the municipal authorities based on pre-established criteria, with maximums and minimums, there is a great variation in cases based on where you live.
A study by the Institute of Economic Studies (IEE) from mid-year pointed out that Reus or Girona have the highest IBI, above 1%. While the average in 2022 was 0.62%, in municipalities such as Boadilla del Monte, Santander, Alcobendas, Las Rozas or Majadahonda, the rate is the lowest possible (0.40%). The current rates can be consulted on the Treasury portal: on the one hand, those of provincial capitals, on the other, those of municipalities with more than 50,000 inhabitants.
If it is agreed in the contract, it can be passed on to the tenant.
In some cities you also have to pay the garbage collection or lighting fee, which adds another expense for the owner.
More tax issues. In the income tax return you must also account for rentals, which are considered returns on real estate capital. “When it comes to making the rent, the owner does not have the high percentage that taxes the rents, which is at least 19%,” says Sara Arranz, manager of the TresHabitat real estate agency. That rate is for the first 12,450 euros. In the next section, between 12,450 and 20,200 euros, it already jumps to 24%. The maximum rate is 47%.
It must be taken into account that everything the tenant pays is not taxed. If the tenant uses the home as his first residence, the owner is taxed only on 40% of the income once expenses have been subtracted, being able to apply a 60% reduction.
For example, if you rent a home that serves as your primary residence for 1,000 euros per month, you will earn 12,000 euros per year. If between all types of attributable expenses -IBI, mortgage interest, managers, repairs…- 2,000 euros have been spent, the basis on which the reduction is calculated would be 10,000 euros. On those 10,000 it is reduced by 60%, equivalent to subtracting 6,000 euros, so in the end it is taxed on 4,000 euros.
One of the changes that the Housing Law has made is that the agency’s expenses cannot be passed on to the tenant.
It is usually around 10% of the annuity or one month of the income. “It is the same amount as before, but assumed by the landlord. The owners take it badly, assuming this cost affects them as another loss, beyond the fact that the tenant can leave the home after 6 months of contract,” he explains. Start
Community expenses are another item to add to the expenses. The amount depends on the services provided or included. Cleaning, elevator maintenance if there is one, property management, the doorman… can come in.
The facilities, the square meters of the home and the number of neighbors determine the quota. Depending on this, in a city for an apartment it can go from 30 to 50 euros per month in the lowest cases to easily 100 euros and more.
The spills would also have to be added.
If it is agreed in the contract, it can be passed on to the tenant.
Insuring the home is another expense that has to be faced. The owner usually bears the cost of the continent, to guarantee habitable conditions, while the tenant can be responsible for the contents and damages to third parties.
In recent years, due to phenomena such as unrest, the demand for non-payment insurance has grown, which guarantees the owner the payment of rent if the tenant does not comply. “People look for three basic things. The payment of the monthly payment, that the property is taken care of and that the tenant does not cause problems with the community,” says Jesús Pérez, commercial director of the firm Finaer, of rental guarantees that act as insurance. of non-payment.
The current regulations mean that taxes are even paid for months in which it has not been collected.
“There is more interest for two reasons: to ensure the collection of monthly installments in case of late payment and to be legally covered in case of non-payment and having to proceed with legal eviction actions,” they point out from TresHabitat.
“Finding a tenant today is easy. The difficult thing is finding a good one,” explains Oriol Sanleandro, CEO of Wolo, a digital rental management and non-payment insurance platform, with a default rate of 6% in the market, he details. “You feel very unprotected with a non-payment.” Hence, the demand for specific insurance grows. In their case, they apply financial scoring tools to get into the depth of the tenant’s profile and calculate their probability of not paying. These insurances cover both non-payment and a delay in the payment date.
The payment for these non-payment insurance can amount to 5% of the monthly payment, comments Sanleandro in the case of Wolo, which has brokered more than 3,000 operations.
A similar fee, half a month, is charged by Finaer, which specializes in rental guarantees that are activated when non-payment occurs. Where appropriate, it also protects certain damages to the property and advises against occupations. “If you don’t provide a guarantee, profitability can disappear. Two unpaid months are 2 years of lost profitability, six months are 5 years…”, Pérez reviews.
The cost of repairs can also be a pain for homeowners. From replacing a water heater to a leak in the bathroom, a big expense can reduce profits.
It is recommended to have at least half a month’s payment saved for unforeseen events when the apartment is new and increase the cushion to 2 or 3 months for used homes, Pérez continues.
The gross profitability is around 4.6%-5%, although it reaches 8% in cities with higher profitability, such as Lleida. A high purchase price can reduce the figure, as in Madrid or Barcelona, ??where it remains at 3%, details Sanleandro. In the end, with all the disbursements that go along the way, about 20% of the income goes to expenses, figure.