What are the best Madrid neighborhoods for property investment?
Perhaps you are looking for an investment property with a high potential for capital appreciation? Alternatively, maybe you want to know the safest, or the most popular, neighborhood for property investment? As you can see, the answer to the question “What are the best Madrid neighborhoods?” depends on what you mean by “best.”
In this article I will walk you through the key questions you need to ask yourself. I will also give you some pointers regarding which neighborhoods would help you attain your individual investment goals.
An overview of the best Madrid neighborhoods
The question we get most is: “Where is the best neighborhood in which to buy property in Madrid”
To answer this, you need to take careful stock of your budget and investment objectives.
To help you, the Moving2Madrid team has incorporated my experience and created overviews of the most popular neighborhoods. These summaries will help you discover the best neighborhoods in Madrid.
Discover our expert picks of the top neighborhoods
The following lists of the best Madrid neighborhoods are ordered from the most to least expensive:
1. The Exclusive
- Salamanca – Luxury, Shopping, History
- Justicia / Almagro: Classy, Parisian-like, Design
- Opera el Madrid de los Austrias: Historic, Authentic, Culture
- Las Letras / Cortes – Culture, History, Gastronomy
2. The Hip & Trendy – The Stars for short term rental return
- Chueca: Trendy, Traditional, Gay
- Malasaña: Hipster, Bars, History
- La Latina: Tapas, Historic, Traditional
- Sol & Gran Vía – The city’s meeting point, Shopping & Dining, Entertainment
3. The Contenders – For capital appreciation or smaller budgets
- Lavapies / Anton Martin: For value in the heart of the city. – Multicultural, Alternative
- Chamberi: For larger apartments just north of the center. – Authentic, Small-Town Feel, Practical
- Chamartin: For tenants that work in the business district north of Madrid. Business, Dining, Residential
- Moncloa / Argüelles– A very authentic neighborhood, good for students and families
- Retiro: For larger, familial apartments close to the park.- Green, Posh, Family-Focused
Should I invest in premium neighborhoods? Or should I go for a lower cost alternative?
The first thing to do is examine your budget. If you need to keep your investment under 4.000€ per square meter, you should aim for the cheaper neighborhoods. If you have a bigger budget, and are focused more on return, we recommend looking for valuable properties in premium neighborhoods.
In general, premium neighborhoods in Madrid are safer investments. If for some reason rental demand softens, rents in neighborhoods like Salamanca remain relatively high. This is because many people looking for property in this neighborhood have accumulated wealth and are thus not as vulnerable to short-term economic fluctuations. Because these neighborhoods are so popular, you will also be able to rent and sell your property more easily. Thus your asset will be more liquid.
Have a look at the following graph. Notice how the premium apartment (blue line) has half the price volatility than the more cost effective apartment (red line).
The following table illustrates the differences in rental and sale prices in a premium neighborhood versus a regular neighborhood. Chueca is one of the more premium neighborhoods in the city center. Lavapiés is the most economical part of the city center. Prices are from 2016:
Here’s how we can help you. If you give us your budget and your investment goals, we can suggest the best Madrid neighborhoods for you, and give you a personalized estimate of your expected returns. Book a consultation today to take advantage of this offer.
Where not to invest
We do not recommend purchasing outside the above list of neighborhoods. Our chosen best Madrid neighborhoods give you opportunities for Airbnb rentals, corporate rentals, and letting to locals. When it comes time to sell the property, it will appeal to locals, foreigners and real estate investors. In short, this diversity ensures your property investment will have more rental income options and ultimately, greater liquidity.
Purchasing outside of the premium areas limits your options. It is also riskier because prices are more volatile in cheaper neighborhoods. For example, in the 2008 crisis the cheaper neighborhoods were hit the hardest- particularly in the suburbs. This is because the city center has a limited supply of apartments whereas in the suburbs, there is ample space to build more housing. In fact, there is still an over-capacity of apartments in many suburbs due to past overbuild.
Conclusion: 3 tips to help you choose the best Madrid neighborhood for your investment
Experience has shown me that most opportunities are not found by betting on neighborhoods, but by by targeting premium neighborhoods and then exhausting all options within these selected neighborhoods.
Depending on your investment focus, here are three tips:
- If you are most focused on the safety of your investment, choose a reasonably priced premium property in one of the neighborhoods from The Exclusive Group
- If your primary goal is long-term capital appreciation, focus your property search in The Contenders Group.
- If your focus is maximizing short-term rental returns, look for a property in The Hip and Trendy” Group that is slightly differentiated (has a terrace, French doors or other sought after details) or is a premium property. This will allow it to stand out among the competition.
If you need help defining your strategy, or determining the best Madrid neighborhoods to achieve your results, don’t hesitate to contact us. We will be happy to clarify your preferred investment profile, help you choose the optimal neighborhood and devise the appropriate investment strategy.