When purchasing a property and estimating the rental return (ie what you will get when renting it out after buying), there are 2 numbers to have in mind: the gross return and the net return.
To simplify, gross return is just counting the rents you collect. For the sake of this first explanation, net return is what you will have in your bank account after all taxes and cost.
The truth is, no one clarifies all these costs, which hinder any capacity to optimize or plan. We want to change this and empower foreign buyers and investors in Madrid property to have the same knowledge as local insiders.
Bear in mind we are giving estimates, to enable you to reach a first analysis. With clients we would prepare a specific calculation that takes into account your specific case.
Hereunder I will underline the key costs:
1) Bills: Utility bills and more
3) Management: short term or long term management
5) Refurb & decoration costs
1. Bills: Utilities and more
The best way to estimate all the bills you will have is to estimate the number of rooms you will have in your future property, and use the formula we always update in the following article: http://moving2madrid.com/cost-living-utility-bills/. There you will find also other articles to dig in the different costs.
In the linked article, we also outline two important ongoing bills to add to the classic bills:
- Community Costs (The major one!): our estimate is 1 €/month per m2. So if you have a 100 m2 apartment and there is an elevator (price is less if no elevator but it will be added in the following years given european directives), you will pay 100 €/month. Again, it is an initial estimate, because of each building association choosing their costs. We review this always for our clients and make sure no increase is planned.
- Insurance: Not expensive, but to keep into account. To simplify again, count 1,5€/year per m2. So for 100 m2, 150 €/year.
2. Legal How much is the cost of a CPA ?
Around 100 € per term. 300-400 € / year.
This will include setting up the legal paperwork to optimize the best way for you to invest (either as an individual, company or other vehicles).
3. Short term rental sites
The main sites in Madrid are Booking.com and Airbnb.com.
After experience and analysis, we recommend focusing on airbnb as they are winning the apartment rental game, and instant booking enables differentiation compared to other portals. Booking on different sites at the same time can be done but not recommended in this case. Airbnb is, let’s say, the new google of short term apartment rental.
Cost is 3% of each booking for owner in airbnb.
On the side of the guest, which the platform adds to the price we define, there is an additional 7 to 11%. This is out of our reach and transparent to the owner.
4. Short-term management fees
30% + VAT on average – 36,3 % in total
This includes cleaning, management, marketing, optimization.
In our case also: check-in, 24/7/365 answers to messages, yield management of prices like hotels, and coordination of legal and fiscal.
For long term management, expect 10% + VAT. Although we strongly recommend short term rental in Madrid as the returns are higher in the end.
In both these cases, we talk of top quality management companies optimizing the return, with 24/7 messaging, apt at managing and communicating a foreign client with investment purposes.
5. Tax on short term renting
In a nutshell, 25% of net revenues (Revenues – Costs), deductible in your country, after all costs are deducted as well as depreciation and amortization (tax concepts we can explain another time if needed).
Again, as all fiscal matters, depending on your investment, the property and your personal situation, the rate in the end is lower, which we will explain to clients in detail.
6. Cost of furnishing / refurb
In our experience, 600 €/m2 for light refurb/decoration; 800 – 1200 €/m2 for full refurb and a great result that gives best return.
This would include the full process, from the purchased apartment in whatever state it is, to ready to rent, decoration included.
For more info on refurbishment: http://moving2madrid.com/refurbishment/
So if you are looking to rent out your purchased flat in Madrid, expect your net return to be half of your gross return in the end. In other words, out of your total rental revenues, half will go in taxes and costs.
For more information on Short term and Long term rental prices for your purchased properties in Madrid, contact us at firstname.lastname@example.org.