Move to Spain

As an expat in Spain, navigating the rental market in a bustling city like Madrid can be daunting, especially when it comes to renting a furnished apartment. Here are some key aspects to consider before making your decision.

Understanding the Rental Market in Madrid

Madrid's real estate market is booming, with housing prices having increased by 17.5% in 2024 and expected to rise another 4% to 5% in 2025[2]. This surge in prices is driven by strong demand, particularly for central locations. The average rental price for a two-bedroom apartment in Madrid is around €1,200 per month, with prices varying significantly based on location and amenities[2].

Identifying the Right Property

When searching for a furnished apartment, it's crucial to carefully review the contract to ensure it includes all the necessary details. If the rental includes additional features like a parking space or a storage unit, the contract should stipulate the pricing for these extras. For instance, if the contract combines the rent for the apartment, parking, and storage into a single price, you should declare this collectively, but if each is priced separately, they need to be declared accordingly[1].

Legal and Tax Implications

For property owners, declaring rental income is mandatory if it exceeds €1,600. You must identify the property and the rental income in the appropriate sections of your tax return. Specifically, you will need to fill out the sections related to "Bienes inmuebles y rentas derivadas de los inmuebles" (Real estate and income derived from real estate) in the tax form. This includes detailing the property's identification, the rental contracts, and the income earned from each contract[1].

If the property has multiple owners, each owner must declare their share of the income and deductible expenses based on their percentage of ownership or usufruct. For example, if you own 50% of the property and have a 25% usufruct, you would declare 75% of the total income and corresponding expenses[1].

Deductible Expenses

As a landlord, you can deduct various expenses from your rental income to reduce your tax liability. These include interest on the mortgage, property amortization, repair costs, and fixed expenses like community fees and property taxes (IBI). It's important to note that these expenses should be proportionally deducted based on the number of days the property was rented during the year[1].

Additional Considerations

Insurance and Other Costs: Certain insurance premiums, such as those for non-payment or life insurance related to the mortgage, can be deducted. However, these need to be included in specific sections of your tax return, such as the casilla 0114 for insurance premiums[1].
Vacancy Periods: If the property was not rented for the entire year, you must indicate the number of days it was vacant or used as your primary residence. This information is crucial for calculating the proportional deduction of expenses[1].

Market Trends and Rental Yields

Madrid's rental market is highly dynamic, with about 40% of homes now being rented instead of owned. This trend is driven by rising demand and the introduction of new rent control measures that limit annual rent increases to the Consumer Price Index (IPC) or less[2].

International investors are also playing a significant role, with around 30% of property buyers in Madrid expected to be international investors by 2025. This influx of foreign investment is contributing to the city's high rental yields and favorable market conditions[2].

Conclusion

Renting a furnished apartment in Madrid can be a great option for expats, but it's essential to be well-informed about the legal, tax, and market implications. By understanding the contract details, tax requirements, and market trends, you can make a more informed decision and navigate the rental market with confidence. Whether you are a tenant or a landlord, being aware of these aspects will help you navigate the complex but rewarding real estate landscape of Madrid.