Buy to rent

"Thousands of Marbella purchasers are paying for their holiday homes by renting them out, says David Searl·" ¹
There are several types of people who buy Costa del Sol property with the intention of letting it. Some people who plan to retire here in the future may wish to pay off their retirement home by renting it out today, while reserving a month or two each year for their own holiday use in the meantime. Golf properties are especially popular with these buyers.

Then you have the investors, who purchase a number of units for rental purposes while counting on their property to appreciate in capital value as well. Many of these have come into the Costa del Sol market because they see sunshine property as a better investment than today?feeble stock market.

And of course, there are the pure speculators who want to make as much money as quickly as possible. They buy property off-plan in an urbanisation that hasn't even started construction, so they get a good price on their original purchase. Sometimes they sell the properties even before construction is finished, taking their profit and starting again. If prices don't rise fast enough to justify a quick re-sale, the speculator can always fall back on renting out the properties to produce an income and selling them a little later.

Marbella Prices continue to rise

So far, all these categories of buyer in Marbella are doing pretty well. Even though average price increases in Marbella have slowed a little, from 25 per cent three years ago to 17 per cent last year, these buyers are still looking at excellent capital appreciation.

Here are a couple of tips from the professionals. If you have 500.000 Euros to invest, you are better off buying two smaller properties at 250.000 Euros each, rather than one big one unless you are looking at a property in a truly prime location.

Keep in mind that, if you are renting to short-term holiday makers, where you can make the most money, you are never guaranteed more than six months' rental in a year. Often, you can get more months, but you can never count on it, even when demand is high.

You will need a reputable rental agency to handle the property for you. The agency must keep the property rented and must make sure it is properly maintained. Fees around 15 per cent are well worth it to avoid problems.

Rental income must pay your mortgage

You have a better chance of keeping your property let when it is at the lower end of the price scale, where there are more clients. If you can mortgage 60 per cent of your purchase price over, say, 15 years, your payments should be somewhere around 1.000 Euros a month, and you can be quite sure of bringing in that amount from your rentals.

At higher purchase prices you will find it just a little more difficult to always get the very high rents that you must have in order to cover your costs. That is, fewer people are able to pay the higher rents.

Although Spanish mortgage rates are very low today, between four and five per cent, the usual mortgage is a variable interest arrangement, which means that your monthly payments could rise in the future. You should make provision to cover higher mortgage costs which may not be met by rentals, even though they are rising rapidly as well.

1.5 Million people rent on coast

How can you be sure that today's booming property market, rental market and tourist visits will continue?

Well, you can't be totally sure, but the Costa del Sol Tourist Commission, which studies these matters, estimates that 1.5 million people rent apartments and villas every year on the Costa del Sol. And, as their Tourist Observatory points out, that is only the registered rentals which are certified as tourist rentals and which pay their taxes.

Tourist visits continue to rise. They are already up by six per cent over last year's figure, and estimates are that more than half of all Costa del Sol visitors stay in rented apartments rather than hotels. They are paying rents ranging roughly from 1.000 Euros to 3.500 Euros a month for two or three bedroom apartments in good locations. Rents for a Marbella villa in August can go up to figures like 50.000 Euros, of course, especially if it has a celebrity connection.

Undeclared rentals, in which the income is not revealed to the Spanish tax authorities and which are not registered officially, are certainly a very large part of this market.
Many coastal property owners, both foreign and Spanish, rent out their sunshine property quite regularly and say nothing to anyone.