Americans buying property in Spain

Spain has become an increasingly hot real estate market in recent years for a number of different reasons, including its:

1. Mediterranean climate
2. More affordable cost of living
3. High quality of life
4. Warm, welcoming people
5. Excellent food and wine
6. Rich culture and fascinating history

Whether you’re hoping to enjoy these perks yourselves — or just invest in a real estate market where more and more people are looking to move — purchasing property in Spain is an attractive option.

Benefits of investing in real estate in Spain

Beyond the motivating factors mentioned above, there are a number of benefits to buying property specifically in Spain. Consider that:

Americans have the right to own property in Spain (which is not the case in every foreign country)

The Spanish property purchase process is relatively straightforward.

The cost of buying real estate in Spain is often lower than in the US

There are a number of highly desirable areas of Spain to live in

It’s possible to create a reliable passive income stream by renting out a Spanish property.

Real estate in areas of Spain with high foreign demand tends to yield the strongest ROI

Golden Visa: buying property can even offer you a pathway to residency.

While Spain has received significant aid from the European Union during periods of economic difficulty, they’ve also launched their own initiatives to support economic recovery — such as the recently-launched digital nomad visa and before that, the Golden Visa.

In 2013, Spain launched a Golden Visa, offering a pathway to residency for non-EU citizens who make significant investments in Spain.

The most accessible way to qualify for the visa is to buy a property in Spain (without a mortgage) worth at least €500,000.

However, you can also qualify by depositing €1,000,000 in a Spanish bank or purchasing Spanish shares worth €1,000,000.5

In addition, you must:

Be over 18

Arrange your own health insurance for the duration of your stay.

Prove that you can financially support yourself and any family members you might bring.

Have a clean criminal background check.

Not be on Spain’s list of undesirable people or have previously had a Schengen Visa rejected.

Once obtained, the Golden Visa is valid for one year and can be renewed two more times for two years each. After five years, you can apply for permanent Spanish residency.

How to buy property in Spain: A step-by-step guide

So, how exactly do you go about buying property in Spain? Here’s a quick rundown on buying property in Spain as an American.

Spain makes it fairly easy for Americans to purchase property whether they’re residents or not — but there are a few differences you should keep in mind. Additionally, the purchasing process for foreign buyers differs depending on whether you are purchasing as a resident or non-resident.

Purchasing property in Spain as a resident

In order to purchase property as a foreign resident in Spain, you’ll need to:

Set a budget

Identify a property you want to buy

Online: Idealista is the most commonly used real estate website, but Fotocasa and Kyero are popular as well

Real Estate Agents: Many Americans choose to go with the Spanish offices of American companies like RE/MAX, Sotheby’s, and Coldwell Banker. Other options include Property in Spain Group. Remember to always research agents/agencies thoroughly before partnering with one

Make an offer

Once the offer is accepted, you’ll need to a) produce a Contrato de Reserva, which temporarily takes the property off the market while you complete due diligence and b) pay a holding fee usually 6000 euros to your lawyer.

Conduct due diligence

This typically involves checking the Registro de la Propiedad to ensure there are no debts on the property, verifying the legality of the sale documents.

Sign the sale contract (Contrato Privado de Compraventa) & pay a 10% deposit

Sign the Escritura de Compraventa to finalize the sale & pay any remaining dues

Register the sale at a Notary Public

Purchasing property in Spain as a non-resident

Americans who aren’t already residents in Spain will follow all of the same steps above, with one addition: They must register for a Número de Identificación de Extranjeros (NIE), a tax identification number. It’s also a good idea to open up a Spanish bank account to expedite the process.

Note: If you open a Spanish bank account to facilitate the transfer of funds to purchase property in Spain, you will likely trigger FBAR and FATCA filing requirements on your upcoming US tax return.

Navigating the property market in Spain as a foreigner

While there are similarities between purchasing property in the US vs buying property in Spain, there are certain aspects to be aware of when purchasing in Spain.

Property taxes in Spain

There are a few different taxes associated with purchasing or owning property in Spain, including:

Impuesto de Transmisiones Patrimoniales (ITP): A tax of 6-10% (depending on location, whether the property is commercial or private, etc.) on purchases of existing properties.

Impuesto sobre el Valor Añadido (IVA): A 10% value-added tax on purchases of new construction

Impuesto sobre Bienes Inmuebles (IBI): An annual tax of .4% to 1.1%, depending on location.

Impuesto sobre el Patrimonio (IP): A wealth/luxury tax ranging from .2% to 2.5% of your net asset value which can be triggered by the purchase of properties exceeding €700,00010

Impuesto sobre la Renta de no Residentes (IRNR): A tax on non-residents who use their property in Spain as a secondary/vacation home for less than 183 days per year, applied at a rate of 24% of the home’s imputed income (equal to 1.1% to 2% of the property’s value)

Tasa de Basura: A trash collection tax with an average fee of €92.10, although it varies by municipality.

Additionally, if you choose to rent out your Spanish property, income generated from that will be subject to taxation by the Spanish government.

Capital gains tax in Spain

If you choose to sell your home in Spain, the gains generated from the transfer of assets are subject to unique tax rates:

Financing options for US expats

US expats can qualify for mortgages in Spain, but it’s worth noting that:

Properties purchased with the help of a mortgage do not qualify for the Golden Visa, even if they are valued at €500,000 or more

Expats who are Spanish residents will have an easier time qualifying for a mortgage from a Spanish or international bank (and often, receive more favorable rates)

Mortgages will not be granted until you buy the property, so it’s wise to include a clause in your contract stating that the purchase is not to go through if you are unable to secure a mortgage13

 To secure a mortgage, you typically need:

An NIE number

Proof of income

Tracked expenses

A list of your debts

Proof that the property has no outstanding taxes to be paid.

A pre-agreement with the seller

A record of your existing deeds and assets

On top of those aforementioned requirements, you must typically be able to put down a deposit of at least 30% of the property’s purchasing price — likely more if it’s a vacation home or if you’re a non-resident — and prove that your mortgage payments will not take up more than 30% to 35% of your net earnings.

Typical mortgage terms and interest rates

Mortgages in Spain are usually available at either variable or fixed rates, with the former being more common than the latter.

Note:

The average interest rate is 2.67%, and mortgages typically last from 15-20 years for non-residents or up to 40 years for residents.

Pitfalls of buying property in Spain

There are several pros and cons to consider when buying property in Spain. Up until now, we’ve covered key information and many pros, but of course, no picture is complete without the cons. Here are some common pitfalls of buying property in Spain:

Legal fees typically 1% of the purchase price.

Scams aren’t unheard of, so you’ll want to make sure that you thoroughly vet any opportunities you come across and professionals you’re considering working with

Any official documents must be translated into Spanish. In the event of disputes, Spanish documents are the ones that carry weight in court, so an airtight translation is critical.

Climate change continues to take a toll on Spain, making it riskier to buy properties along the coast or in areas prone to extreme heat.

Buying real estate in Spain not only opens you up to the different Spanish property taxes mentioned earlier but can also affect your US taxes.