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When it makes sense to rent before you buy Spanish property

Should you buy Spanish property outright or is it better to rent a home before you take the plunge? In this article, we look at when renting before you buy is a good idea.

Buying property anywhere is a significant investment and often involves spending most or all of your equity or your life’s savings. And that’s before you added fees and taxes, which, in Spain, add 8 to 14% to the purchase price. It, therefore, makes sense not to rush into the decision. You might even think about renting before you buy. And as recent research shows, you won’t be alone.

An obvious case for renting 

In some circumstances, renting rather than buying is always advisable. For instance: 

Unfamiliar with the area – unless you’re chosen your spot, it would be wise to rent a property while you check out different neighbourhoods, seasonal variations and the general vibe. 

Trial run with the area – maybe you’ve picked your spot but aren’t 100% sure it will work for you. 

Newbie to Spain – perhaps you’re seriously considering relocation to Spain but want to test the waters before you invest thousands of euros in a home. 

In all three of the above situations, renting allows you to gauge whether an area and the lifestyle are right for you.

Obvious reasons to rent 

Renting comes with several advantages. 

  • Low upfront costs – the start-up expenses for a rental are low. For example, you may only have to pay a couple of months’ rent upfront and the deposit. 
  • Flexibility – providing that you give one month’s notice, you can leave a long-term rental in Spain at any time. (But, note that you must stay/pay for the first six months.)
  • Low maintenance costs – apart from your responsibility for wear and tear maintenance and repairs, the landlord has to pay.
  • Low taxes – the landlord pays community fees and council tax. Refuse disposal tax could be the only household tax you have to pay. 

When you can rent and buy 

If you’re pretty sure about a neighbourhood and would prefer to contribute to your own wealth than your landlord’s by buying, a rent-to-buy contract could be for you. 

This type of rental (known as contrato con opción de compra) offers the best of both worlds because you can rent the property as a regular tenant. However, your rental payments can contribute towards the price of the house should you wish to buy. 

This rental contract contains additional clauses outlining the deal on the rent to buy. They usually include: 

  • Reference to the property’s purchase price. It could be pre-agreed (and therefore static), subject to a later agreement, or dependent on the market price when you buy.
  • Reference to the contribution towards the price; ideally, the total of your monthly payments is deducted from the purchase price. 
  • Reference to a deadline by which you have to buy or leave the property. 
  • Reference to a premium you must pay and forfeit if you decide not to buy the property after all. 

As always, the devil lies in the detail, so ensure the above clauses reflect your interests as far as possible. 

But don’t leave it too long 

In some countries (Spain included), you may have a tax clock ticking on a purchase. In Spain, for example, if you want to avoid paying capital gains tax on the profit made from the sale of your principal home, you must reinvest it in another home within two years of selling. 

Market considerations also come into play. Leave it too long and the house of your dreams could be snapped up or rise in price beyond your budget. 

Purchase Your Guide to Buying Property in Spain here.

* This article has been written by a third party not owned or controlled by Spanish Property Insight (SPI).
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