What you need to know about buying a second home in Spain

Buying a second home in Spain is an exciting venture, whether you're drawn to the sunny coasts, vibrant cultural hubs, or serene countryside. However, this process involves several important considerations to ensure a successful investment. Understanding the financial aspects, legal requirements, and potential benefits is crucial.

Whether you want to spend long periods in Spain or generate rental income, this guide will explore the key factors to consider. From the costs of buying a second home in Spain and tax implications to the step-by-step purchasing process, we aim to provide you with comprehensive information to help you make an informed decision.

Key considerations when buying a second home

The process of buying a second home in Spain does not differ significantly from that of buying a first home. What is very important is to identify the initial scenario, as you will need to be very clear about some preliminary questions to make the best decision for your interests.

First of all, consider the intended use of the property. If you plan to use it for personal purposes, you will need to pay close attention to aspects related to its characteristics, such as size, number of rooms, and whether it has a garage, among other things. Additionally, you will be interested in knowing what services are nearby, the leisure and entertainment options, and whether there are good public transport links. Ultimately, all of this will result in greater comfort for you.

However, if you view this second home as an investment opportunity, you should consider its potential value over time and the profile of potential tenants. These tenants may be tourists, short-stay, or long-stay tenants. Demand will vary according to their characteristics and will be higher or lower depending on the area of Spain you are considering. If you later decide to sell the property, remember that its value does not necessarily have to remain stable or increase over the years. Good maintenance will also play an important role.

Additionally, you may wonder whether a second home can be used as a primary residence. The answer is "yes". Remember that your second home can indeed become your primary residence if you decide to move permanently.

However, this shift involves notifying the local authorities and updating your residency status. Non-EU citizens may need to adjust their visa or residency permits accordingly.

Financial and mortgage considerations for a second home

Without a doubt, one of the most important aspects of buying a second home is the financial aspect of the operation. In most cases, you will need to finance part of the cost of the purchase, for which you will need to apply for a mortgage from a bank. What do you need to consider in this case?

First, you will need to have more savings than you would need to buy a first home. In Spain, banks typically finance only between 50 and 70% of the property value for second homes, compared to up to 80% for primary residences. This means you'll need to have a larger savings reserve for the down payment and other upfront costs.

For example, if you wanted to buy a property valued at 250,000 euros and the bank offered you a 50% mortgage, you would need to have more than 125,000 euros saved up. Remember that, in addition to the part not covered by the mortgage, you will have to assume other expenses, such as the valuation of the property or the Property Transfer Tax (Impuesto de Transmisiones Patrimoniales, ITP) if the home is second-hand.

On the other hand, by taking on a smaller mortgage, repayment periods will also be shorter. Mortgages for second homes often come with higher monthly payments. Be prepared for this increased financial commitment, as it will require greater financial stability over time.

In addition, it is essential that, when calculating your costs, you do not forget those derived from the management and maintenance of the property. If you’re not planning to reside in Spain full-time, consider the cost of hiring a property management company to handle maintenance and even rental management if you are going to use the property for that purpose. In the latter case, and if you are thinking of using the property for holiday rentals, obtaining a tourist rental license incurs extra costs. These costs will depend on the municipality in which the residence is located. They can vary significantly not only between cities but also within the same city, depending on different calculation factors.

Tax implications of buying and owning a second home in Spain

The process of buying a home, whether it is for a primary residence or a second one, involves a series of associated costs and taxes. You can consult all the details in our article on expenses and taxes on the purchase of a property in Spain.

In any case, remember that non-residents who own property in Spain must pay various taxes. In the following chart you will find a summary of the main existing rates and the percentage they represent in relation to the cost of housing:

It is important to focus on the last point of this table: the payment of taxes for non-residents. You will find notable differences depending on the intended use of your second home.

If you rent out your second home, you must declare the rental income annually. If you are a non-resident in Spain, the Spanish Tax Agency (AEAT) will apply a flat rate of 24% on the gross rental income if your residence is outside the European Union, as well as in Norway and Iceland. Otherwise, you will be taxed at a rate of 19%. You will even be able to deduct certain rental-related charges. Ensure you keep detailed records of rental transactions and expenses.

However, if you are going to use the property for your personal use and you are non-resident, you still need to pay an imputed income tax based on 1.1% of the cadastral value of the property. If the cadastral value has not been revised in the last 10 years, the percentage of calculation will be 2%. As in the previous case, this must be declared annually.

Basic steps to buying a second home

Now that we have seen the main aspects you need to consider, let's go over the steps you will need to follow to buy a second home in Spain:

• Finding the right property:
  • Use property filters like those we offer for targeted searches.
  • If you prefer, engage with reputable property agents familiar with the area, as well as with your language, or at least with English. Trust and transparency are key.
• Securing financing:
  • Non-residents can obtain mortgages from Spanish banks, typically financing up to 70% of the property value. However, for a second home, loans are usually lower.
  • Be aware of the higher interest rates and shorter amortisation periods as a consequence.
• Conducting legal due diligence:
  • Ensure there are no outstanding debts or liens on the property. Legal due diligence is crucial to avoid future complications.
• Signing contracts:
  • Start with a preliminary contract (Contrato de arras) and follow up with the final purchase deed (Escritura pública) before a notary public.
• Property management and maintenance:
  • Have professionals take care of the management and maintenance of the property. This can mean more comfort and tranquillity, as explained below.

Property management and rental considerations

The last of the previous points is particularly important, because your direct contact with this second home will normally be occasional, especially if you rent it out. Having the right resources to manage it will give you peace of mind and security.

Of course, hiring a property management company can handle the day-to-day operations, maintenance, and tenant interactions, providing peace of mind if you are not residing in Spain full-time.

If you have considered the option of renting out the property, whether for tourist use, long-term use, or as a home, ensure it meets all local rental regulations, including obtaining a tourist rental license if necessary.

In the latter case, don't forget about marketing your rental. Use professional photos and list your property on popular vacation rental platforms to attract tenants. Effective marketing strategies can significantly boost rental demand.

Is Investing in a second home in Spain a good financial move?

The answer to this question depends on three factors that will remove any doubts:

• Rental income potential:
  • Spain’s popularity as a tourist destination means high rental income potential, especially in coastal areas and major cities. Consider both short-term tourist rentals and long-term leases.
• Appreciation:
  • Properties in prime locations tend to appreciate over time, providing long-term capital gains. Since 2014, the Spanish Housing Price Index has shown consistent growth for both new and second-hand properties.
• Personal enjoyment:
  • Beyond financial benefits, owning a second home in Spain offers a personal retreat, enhancing your quality of life with access to beautiful landscapes and rich culture.

Investing in a second home in Spain can be both financially rewarding and personally fulfilling. However, it requires careful planning, a thorough understanding of the market, and a readiness to meet the financial and legal obligations involved. By considering the unique aspects of buying a second home, you can make a well-informed decision that aligns with your financial goals and lifestyle aspirations.

If you are looking for a second home and need help finding the right property, explore our guides and articles on finding the perfect property in Spain.