25 Aug
2022

A bustling street in Madrid features commercial and residential buildings, parked cars, and people walking. A sign on a car reads

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Last Updated on 05/06/2024 by STEPHANE

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A low-maintenance rental property in Madrid

Profile of the buyer

a single mother from France, residing in Madrid

Goal of this real estate investment?

She wanted to invest her savings in the real estate market in Madrid, but with a full-time job and a baby she had neither the time nor the knowledge to make a safe, profitable purchase.

Her goal was an apartment she could rent out long-term that would give her the least amount of trouble and would gain value with time. Hands-off management and long-term capital gains were more important than obtaining the highest possible rental yield.

A small budget for this buy-to-let property in Madrid

The total investment (including taxes, fees, renovations, etc.) budget for this apartment was 200,000 to 220,000€ with no mortgage.

This budget is really on the low end of the current market in Madrid.

In which neighbourhood should you buy an investment property in Madrid?

We considered and analysed several neighbourhoods, but due to a combination of proximity to her home, property prices and trends, plus profitability, we focused mainly on the Puerta del Ángel neighbourhood. It’s an area that’s very close to the centre, but just outside of the M30 ring road.

The perfect investment property in Madrid?

After a month and a half of viewing and analysing properties, we found a completely off-market apartment through personal contacts. The apartment had a perfect combination of attractive features for a rental, a superb location right next to the subway, and the right price. The only caveat was that it needed to be upgraded and modernised. The client didn’t have the time or desire to deal with renovations, so we took care of this part as well, requesting and comparing budgets from contractors, and supervising the works. In the end, we handed her the apartment with the tenant already selected and a rental price above expectations.

Let’s check the investment return

Total investment was 223,500€,
The rental price was 900€ /month.
Gross ROI 4.83%, net ROI 4.15%.
Duration of the project: from start to finish it took us 5 months.

Would renovation add any value?

In this case, there were minor renovation works. If you are able to buy a property at a discount price because it needs some renovation, most of the time, it will be the best investment you could do as renovation works in Spain are not too expensive. Our property hunters do manage those works and we do have teams of renovation workers nearly in all major cities in Spain.

Is the Madrid property market too expensive in 2022?

Madrid offers some of the best returns in Europe. The entry price is extremely low, and average returns on Madrid property investment are some of the best in Europe- particularly among leading capital cities.

Are real estate returns interesting in Madrid vs. other major European cities?

According to Deloitte. Check the rental Yields for the major European Cities, Madrid and Barcelona have rental yields close to 5%.

If you want to read more on real estate investments in Spain, read our article we wrote a few weeks ago: What is the return on your Spanish property investment?… Above 10% according to the bank of Spain (as of May 2022).

Madrid is the 3rd biggest city in Europe in terms of size…

Although Madrid property prices rose in 2017, there is still much room for appreciation. Prices are still 54% off their peaks of mid-2007.

Madrid is the 11th City in Europe in terms of price/m²

But check on the above chart, the price/m² in London are 16.500€/m² and 12.500€/m² in Paris… while Madrid is at 3.500€/m².

Yes, less than one-quarter and one-third of the price of London and Paris. Period.

At the same time, rents are about 50% lower at 14€/m² vs 28-29 €/m² in Paris and London…

Madrid has a rental yield 2x bigger than other major European cities

Now, yes, you see why the return in Madrid is nearly twice as high as the one in Paris and London. Do you think that the price risk is higher in Madrid than in Paris and London?

Source: Deloitte property Index 2021, Overview of the European Residential Market