With some spare cash on hand recently, I’ve started thinking about investing in property again. After living in Spain for so many years, I’ve always felt that it’s better to buy than to rent. Owning one place to live in and buying a smaller one to rent out, using the rental income to cover the mortgage and expenses—it sounds like a dream. But while it sounds great in theory, what’s the reality? I’ve spent some time researching the current rental yields in major Spanish cities. Today, I’m starting this post to share my findings and to hear opinions from all the experienced folks here.
How Exactly is Yield Calculated?
First, we need to understand how ‘gross yield’ is calculated. It’s actually quite simple, the formula is: *(Annual Rental Income / Property Purchase Price) * 100%. We’re talking about gross yield here, which doesn’t account for various costs like IBI (property tax), community fees, insurance, maintenance, etc. Therefore, the actual net yield you pocket will definitely be lower than this figure, generally by 1.5 to 2 percentage points. However, gross yield is the most straightforward indicator for assessing the investment value of a property.
Major City Yield Comparison
Based on data from platforms like Idealista and Fotocasa, I’ve put together a rough table of Spanish property rental yields. It’s important to note that these are just city averages; the figures can vary greatly from one district to another, or even street by street. Generally speaking, areas with higher property prices don’t necessarily have the highest yields. This is because rent increases often can’t keep pace with the rise in property prices.
| City | Approx. Gross Yield at End of 2023 |
|---|
| Huelva | 8.4% |
| Valencia | 7.9% |
| Murcia | 7.7% |
| Madrid | 5.2% |
| Barcelona | 5.8% |
| Palma de Mallorca | 5.5% |
Looking at the data, the return on investment in second-tier cities like Huelva and Valencia is quite attractive, much higher than in Madrid and Barcelona. The reason is simple: property prices in these areas are relatively low, but rental demand remains strong. For instance, in Valencia, you might be able to buy a decent two-bedroom apartment for €150,000 and easily collect €800-€900 in monthly rent, which results in a high yield. In contrast, for the same price in Madrid, you might only afford a small apartment on the outskirts. While the rent isn’t low, the rental yield is lower when compared to the high property price.
My personal feeling is that if the sole purpose is to pursue rental returns, it’s worth paying more attention to university towns or secondary cities with good transport links. Property prices in these places are not as outrageous, and there is a stable rental demand from students and young professionals, leading to low vacancy rates. Of course, investing in property in the core districts of major cities is more about the asset’s potential for value preservation and appreciation, but that’s a different topic. I wonder what everyone thinks about buying property to rent out in Spain? Are there any current landlords who can share the actual ups and downs? Feel free to share your thoughts!
