Case Study: Buying a Property in Spain – Costa Blanca
Scenario Overview:
Emily and Mark, a couple from Germany, are looking to purchase a property in Spain as a second home and possible vacation rental. After researching different regions in Spain, they decide on Costa Blanca, located in the southeastern part of the country, known for its sunny weather, beautiful beaches, and relatively affordable property prices.
They aim to buy a 2-bedroom apartment in a coastal town, ideally near the beach, with an eye towards generating rental income during peak tourist seasons.
Step 1: Initial Research and Property Selection
- Location: Costa Blanca (e.g., towns like Alicante, Benidorm, or Jávea)
- Budget: €180,000 – €220,000
- Property Type: 2-bedroom apartment, preferably with a sea view
- Use: Holiday home and potential short-term vacation rental
- Desired Features: Balcony, community pool, walking distance to beach, nearby amenities (restaurants, shops)
Property Found:
- Location: Benidorm (a popular tourist town on the Costa Blanca)
- Price: €210,000
- Size: 85 m²
- Features:
- 2 bedrooms, 2 bathrooms
- Sea view from balcony
- Communal pool and garden
- Walking distance to the beach and local amenities
- Recently renovated
- Air conditioning and central heating
Emily and Mark decide this property is ideal for their needs — a comfortable vacation home with potential for high rental income during peak seasons.
Step 2: Understanding the Costs of Buying Property in Spain
Emily and Mark now estimate the full cost of purchasing the property, keeping in mind the additional costs beyond the asking price of €210,000.
A. Property Price:
€210,000
B. Transaction Costs (10-12% of the property price):
- Notary Fees: €800 – €1,200
- Property Registration Fees: €300 – €600
- Stamp Duty (Impuesto de Transmisiones Patrimoniales – ITP):
- In Valencia (where Costa Blanca is located), the ITP is typically 10% for properties over €160,000.
- €210,000 x 10% = €21,000
- Legal Fees: (usually 1% of the property price)
€210,000 x 1% = €2,100
- Land Registry Fees: €200 – €400
- Survey Fees: Optional, but recommended for €300 – €500 to inspect the condition of the property.
C. Total Estimated Additional Costs:
€24,400 – €25,800 (excluding mortgage-related costs)
Therefore, Emily and Mark will need to budget €234,400 – €235,800 for the entire purchase (property price + transaction costs).
Step 3: Financing the Property
Emily and Mark are considering financing part of the purchase with a mortgage from a Spanish bank. They have €90,000 saved up for the down payment, so they will need a mortgage for the remaining €120,000.
Mortgage Terms:
- Loan Amount: €120,000
- Interest Rate: 3.2% (fixed for 10 years)
- Loan Term: 25 years
- Monthly Payment: Around €585
The Spanish bank requires them to provide proof of income, a solid credit history, and an NIE (Número de Identidad de Extranjero), a foreigner’s identification number. The NIE is necessary for tax and legal purposes.
Step 4: Legal Considerations
- Obtaining an NIE:
Emily and Mark must apply for their NIEs before they can complete the transaction. This process involves submitting forms and providing documentation such as passports, proof of residence, and a reason for needing the NIE. This is typically done at a police station or via a Spanish consulate.
- Hiring a Lawyer:
They hire a local Spanish lawyer to handle the legal aspects of the purchase. The lawyer will:
- Verify that the property title is clean (i.e., no debts, charges, or legal disputes).
- Review the purchase contract and ensure that the transaction is legitimate and transparent.
- Help with registration of the property with the Land Registry.
- Advise on tax implications, especially in relation to rental income.
Step 5: Finalizing the Purchase
- Signing the Contract (Escritura Pública):
Once all due diligence has been completed, Emily and Mark sign the public deed (Escritura) in front of a notary, confirming the agreed-upon price and other terms of the sale.
- Payment Process:
- They had already paid a 10% deposit (€21,000) when the offer was accepted.
- The remaining balance (€210,000 – €21,000 = €189,000) will be paid at closing.
- If they are using the mortgage, the bank will transfer the mortgage amount directly to the seller’s account. Emily and Mark will cover the remaining balance from their savings.
- Property Registration:
The lawyer ensures that the property is registered with the Spanish Land Registry under their names. The transaction is now official.
Step 6: Ongoing Costs of Property Ownership
Once the purchase is complete, Emily and Mark will need to account for the ongoing costs of property ownership in Spain:
- Property Taxes:
- IBI (Impuesto sobre Bienes Inmuebles): An annual property tax that is typically around €500 – €700 for a property like theirs.
- Non-Resident Income Tax: If they rent out the property, they must pay taxes on rental income. The non-resident tax rate is 24% of the gross rental income.
- Community Fees:
Since the apartment is part of a community, they will pay monthly community fees for the upkeep of the pool, garden, and shared facilities. These fees are typically around €100 – €150 per month.
- Utilities and Maintenance:
- Monthly utility bills (electricity, water, internet) will cost around €150 – €250 per month depending on usage.
- They should also budget for property insurance, which typically costs around €300 – €400 per year.
- Additional Costs for Rental Property:
If they plan to rent the property out, they will also incur costs for property management services (if they hire a local agent to manage rentals), advertising, cleaning, and general maintenance. A property management company typically charges 10-15% of rental income.
Step 7: Rental Income Potential
Costa Blanca, especially towns like Benidorm, is a major tourist destination, attracting both domestic and international visitors year-round. Emily and Mark plan to rent out their apartment during peak tourist seasons (summer and holidays).
- Estimated Rental Income:
- High season (June – August): €1,200 – €1,500 per week
- Off-season (September – May): €600 – €800 per week
If they rent out the property for 12 weeks in the high season and 8 weeks in the off-season, they could expect to earn around €20,000 – €22,000 per year in rental income.
- Rental Yield:
Based on a property value of €210,000, the rental yield would be around 9-10% annually if the property is rented regularly.
Step 8: Long-Term Considerations
- Market Trends:
The Costa Blanca property market has shown consistent demand, particularly in areas like Benidorm, which remains a hot spot for holidaymakers. This gives Emily and Mark confidence that their property will retain or appreciate in value over time.
- Exit Strategy:
They plan to keep the property for at least 10-15 years, enjoying it as a holiday home and using it for rental income. If they decide to sell the property in the future, they anticipate it may appreciate in value, especially if demand for Costa Blanca properties continues to grow.
Conclusion:
Emily and Mark’s decision to buy a property in Costa Blanca was driven by the region’s appeal as a holiday destination, its strong rental potential, and a relatively affordable entry price. With thorough research and the help of local legal and financial experts, they successfully navigated the purchasing process. The property provides them with both a comfortable vacation home and a reliable source of rental income, making it a sound investment for their long-term financial goals.
The couple is excited to enjoy their new property and begin generating income by renting it out during peak seasons, while also planning for potential long-term capital appreciation.
