Securing Your Rental Income and Thriving
For many expat investors, buy-to-let looks like a highly lucrative opportunity; especially on the Costa del Sol. Considering all the good news we've been hearing lately with regards to the property market in Spain, many foreign investors are once again buying property in Marbella. However; if you are considering investing in property or improving returns on a rental property - it's important to do things right and to understand your position as a Spanish Landlord.
Short term rentals such as holiday lets are easier to secure, considering you can ask for the money or large deposit upfront. This is usually paid by bank transfer from the vacationer back home. Only using your property for holiday lets may seem plausible and even profitable, but remember that the summer season here in Marbella lasts a short duration. If you can afford to only rent per season, you're in luck; however, if you are depending on long term rentals, then special tips or advice from the experts should be paid special attention.
Many of the problems faced by landlords in Spain can be traced back to simple ignorance of the law. Many are simply unaware of the legal implications of renting out their properties. In 2013 however; the Spanish government finally established a new law aimed at promoting the rental market. These new rules were established for a few reasons:
- Because of the property bust back in 2007, Spain was left with an estimated three-and-a-half million empty properties
- Only 17 percent of all properties in Spain are dedicated to tenants, and the new legislation aims to increase this figure to the European average of 30 percent
The new rental laws still ensure the safety of the tenants; however, as a landlord you are required to claim all income - basically, if you are in the Spanish system, doing things right, right from the beginning; then the new laws will protect you as well.
The Trouble with Defaulting Tenants in Spain
In the Costa del Sol, and even Marbella and the Golden Mile, tenants who default on rent or simply don't pay have become a bit of a problem. But, these new laws have been established to help ease the nuisance of squatters. The real questions should stem from understanding and knowing your rights as a landlord. The bottom line is if you are relying on rental income to offset the cost of the mortgage, it's best to keep reading...
The first thing to understand is you're not in the UK anymore - this may seem a bit direct or even obvious, but far too many investors think the same laws apply in Spain as they do back home. The fact of the matter is the laws in Spain are very different, and as a new landlord you must understand that once you sign on with a new tenant, you technically lose the right to enter the property without the explicit permission of the tenant. Just to be clear, you cannot enter your own property while it's being rented out - even if the tenant is behind in rent.
So, how do you secure your rental income in sunny Spain?
- Look for a good solicitor - there is no harm in having a solicitor on speed dial. Ask around or look online for a solicitor who specialises in property law.
- Know your tenant - when it comes to common sense, you can use some old tricks from back home. For example, you can ask potential new tenants for basic information about their income status. You can request a copy of their last pay slip, and if he or she has a labour contract you can ask to see it. You may even want to give the employer a quick call just to be sure. If the potential tenant is autonomo (self employed), generally the risk runs a bit higher; however, you can request a letter from their bank manager to ensure their financial stability.
You are entitled by Spanish law to request one month's rent upfront and one month's deposit as well. But in order to weed out any potential squatters who simply pay you two month's worth of rent then stop paying all together; follow the advice above closely.
- If no rent is paid for a duration of time, start the eviction process immediately - Call your solicitor immediately, the one on speed dial. This is where many landlords make the big blunder. Even though the South of Spain is known for its relaxed mentality, and how everything can wait until tomorrow; you must start legal proceedings immediately to evict a tenant. Waiting too long or simply ignoring it will be too costly, and besides, you won't be able to take advantage of the extra safety nets in place to protect you.
- Require a rental Bank Guarantee or "aval bancario" - this piece of advice is for long term rentals only, usually a duration of 11 months. As a landlord you can request from your potential tenant a rental Bank Guarantee, which would ensure you against him or her defaulting on rent. Under Spanish law a rental Bank guarantee is considered an "executive title", and once you execute the guarantee the bank is obliged to pay the rent owed, and in turn claim back the money from the tenant.
In order to take full advantage of a rental bank guarantee, you must first start the eviction process - an eviction process and rental bank guarantee are meant to work together to ensure you get some money. Simply claiming the guarantee without starting an eviction notice is only a short term solution. The tenant lets the bank take care of the rent owed, but can continue to stay and live within your property with no intention of leaving or continuing to pay.
- Rental Insurance - there are several insurance companies that offer affordable tenancy insurance, and in some cases charging only a one-time annual fee equaling 60 to 100 percent of monthly rental. As a landlord who depends on the mortgage being paid, you need to protect your interest no matter the costs. At the end of the day, doing nothing or taking matter into your own hands will be more costly. Insurance protects you against the tenant defaulting, and covers the solicitor fees during the eviction process. Just remember, the insurance company protects their own interests first, and will no doubt evaluate the credit risk of the tenant - unlike bank guarantees who will not.
Understand Your Rights as a Landlord in Marbella
Understanding Spanish law, particularly the new laws established in 2013, can determine your success as a landlord. It doesn't hurt to use good old fashioned common sense as well. In order to thrive or profit from your rental property, remember 3 simple rules:
- Hire a solicitor
- Protect yourself
- Don't lose your cool
Education is the key to rental success in Marbella.