When considering a foreign real estate, many questions can arise and answers are important to understand risks and opportunities.
1. WHAT IS CANARY HOME INVEST?
Canary Home Invest
We assist individuals and firms in (1) analyzing the investment opportunity, (2) finding the right property, (3) negotiating price and terms, (4) going through a trouble-free purchase process, and (5) activating extra income from vacation or long-term rentals.
Canary Home Invest beats the competition by mixing (1) real estate and vacation rentals smart data and analytics, (2) excellent local expertise, (3) a transparent and trustworthy service process, and (4) a set of support services that ensure a successful real estate investment experience.
Canary Home Invest offices are located in Gran Canaria but we can provide our services also in Fuerteventura and Lanzarote. Through our network of expertes, we have access to real estate opportunities, market data, service providers, and any other services needed in the three eastern islands.
2. WHO IS BEHIND CANARY HOME INVEST AND IS IT A SERVICE I CAN TRUST?
Our team of professionals are experts on the market with years of experience in real estate and tourism property management in the Canary Islands, Spain.
The core members are:
Victoriano Benitez: founder with 20+ years of experience in property management and vacation rentals.
Fito Benitez: market intelligence and real estate services.
Cristina Galván: property management services, based in Gran Canaria, Spain.
Apart from our full-time team, we have strategic partnerships with key local experts as real estate lawyer, notary, maintenance services, home improvement firms, etc.
For further reference please check our company page on LinkedIn.
3. IS THE SERVICE JUST ONLINE OR CAN I MEET SOMEONE?
Canary Home Invest office is located in Gran Canaria, Spain. We are also available online via videocalls.
We encourage face-to-face meetings either live or online so we can fully understand what are your interests and expectations. We are excited about providing a personal and transparent service process you can trust.
4. WHY IS THE CANARY ISLANDS A GREAT PLACE TO INVEST IN FOREIGN REAL ESTATE PROPERTY?
If you are interested in a longer explanation, check out our blog post '8 Safe Reasons Why to Invest in Real Estate in the' Canary Islands [Post Covid-19]'.
For a shortlist, here are the top five reasons why.
The Canary Islands is a very exciting real estate market, and it just got hotter. Thanks to vacation rental platforms like Airbnb, HomeAway, and others, the market offers low risk and high return, averaging a cash-to-cash ratio between 16% to 25%. Due to Covid-19, real estate just got cheaper, while vacation rentals demand and price are expected to increase.
Like in any other EU territory, your legal and fiscal rights are guaranteed in the Canary Islands, lowering the risk of any investment going sour. Furthermore, the islands enjoy some fiscal benefits, for example a 6.5% on the real estate purchase tax, compared to the 10% in mainland Spain. This is one reason why one third of all homes in the Canary Islands are owned by foreigners.
The Canary Islands have been a top EU tourism destination for the last 50 years, and one of the only ones in the the whole Europe with visitors all around the year. In 2018, the islands welcomed 15 million visitors, becoming Spain's number one destination. It is interesting that since the real estate crash of 2007, most of the growth is attributed to accommodation in vacation homes.
The real estate market is fully recovered from the 2007 deacceleration. While the Covid-19 pandemia is starting to lower prices of real estate by 10%, it is not expected to decrease much more than that. As tourism already starts returning to the Canary Islands, real estate owners can hold on to their properties with the extra income generated through vacation rentals.
The island's vacation rental market has been hit hard during the start of the 2020, with around 20% of the offering moving to long-term rentals to save the season. As tourism goes back to its normal levels, those properties still in the vacation rental market will enjoy higher prices due to the shorter offer of properties. Also the demand for vacation rental properties is expected to increase, as tourists prefer this type of accommodation over hotels and apartments because of a perception of lower risk of Covid-19 infection.
In summary, investing in the Canary Islands is not only a safe choice but right now a great option too. There is economic and political stability, and as a foreign investor, certainty in fiscal and legal rights as a property owner. Being part of the EU means being a safe choice for European home investors and tourists especially in times of economic turmoil, which assures the value of your property and the potential of extra earnings through rentals, higher on the vacation property market. As the crisis-related price correction starts to hit the market, we are starting to see interesting opportunities already available. A great choice are villas or bungalows since data and analytics indicate they have the potential to generate the highest return. Last, vacation home type of rentals generate the highest return on investment, and its demand is expected to increase due to the lack of new developments, and the effects of the pandemic- the perception of being a safer option than other types of properties, decreasing the chance of COVID-infection
5. WHAT ARE THE COSTS OF BUYING A RESIDENTIAL REAL ESTATE PROPERTY IN THE CANARY ISLANDS, SPAIN?
Before dissecting the costs, it is valuable to know that one important incentive to invest in real estate in the Canary Islands compared to other regions of Spain or Europe, is related to purchase tax (VAT) savings. When in mainland Spain the purchase tax of residential real estate is 10%, in the Canary Islands it is only 6.5%.
The costs related to real estate investment are composed of (1) the transaction due taxes, and (2) transaction costs.
The due taxes involved in the transaction include:
a. IGIC: purchase tax that stands at 6.5% of sales price.
b. AJD: tax related to official documentation. It varies between 0.5% - 1% of the property’s value. It is paid through a from directly to the tax administration max one month after the signature of the deal.
The costs involved in the transaction include:
(a) an independent property valuation to determine the market value priced at around €250,
(b) a real estate lawyer to provide counseling and revise documentation priced at around €500,
(c) notary services priced at 0.5% - 0.75% of property value. Ranges from €300 to €1000,
(d) property registration priced at around 0.25%. It is assigned from a chart based on the sale price and can vary from €24,04 to €2.181,67. Here is the official list.
(e) deed request and handling priced at around 0.02% of the property value,
(f) if you take a mortgage from a Spanish bank (recommended), add charges between 1.5% to 2% of the mortgage’s value.
As a rule of thumb, the costs of buying residential real estate in the Canary Islands are an extra 8.5% of the final sale price of the property. Compared to the 12% average in mainland Spain, on a €500 000 property, it represents a €17500 saving. This is a big discount with an important effect for the return on investment expectations of the property.
6. WHAT ARE MY LEGAL AND FISCAL OBLIGATIONS AS A RESIDENTIAL OWNER IN THE CANARY ISLANDS, SPAIN?
Once you own residential property in Spain, you will have to pay property taxes (IBI) and the property' public services fee. If you are also renting the property out (long-term or vacation rentals), you will also have to account and file for income taxes (IRNR). Property taxes are normally paid once a year, while income taxes are paid every three months.
PROPERTY TAX & FEE
The IBI tax is a town/district yearly tax for residential property. It is calculated by multiplying the cadastral value times a rate assigned by the town/district. For example, the rate in the south of Gran Canaria is 0.57/100. Although it is not always the same, note that in general the cadastral value of vacation homes in the islands stands between 1/4 to 1/5 of the property's market value. So for example, if you own a €500 000 residential property, and its cadastral value is around €100 000, then the IBI local taxes add up to €570 per year (€100 000 X IBI rate).
The public services fee is a yearly cost for trash management and other residential services. For example in the south of Gran Canaria, depending on the type of residential property, it varies from €29 to €48 per year.
The IRNR tax:
for non-rented properties is a bit of a controversial tax because whether the property is rented or not, for the Spanish tax administration your residence generates value. In the case of not being rented, the value comes from the variation of the market price (can be a loss too if for example, the market suffered from loss of value). To calculate it you first need to calculate the yield. To do this check the latest property valuation. If it is 10 years or younger, the tax rate is 1.1%. If the valuation is older, then the rate is 2%. The yield is the cadastral value multiplied by the rates mentioned. Ex: cadastral is €100K and the valuation is 7 years old = 100 000 X 1% = yield is €1000. Once you know the yield, all you have to do is multiply it by the tax %, which is 19% for EU citizens. The final yearly tax cost is €1000 X 0.19 = €190.
for rental properties it is paid every 3 months, starting in April. To know how much you pay for your property, you need to first calculate the yield. This is the same as the revenue from the rental after discounting related costs (utilities, repairs, homeowner's fee, amortization, loan interests, etc. For example, if your property generates from vacation rentals €14,400 on the 1st three months of the year, and you have had €9,500 on costs, in April you will pay a IRNR tax of (€14,400 - €9,500) X 19% (EU citizens rate) = €855.
Note that if you are not an EU citizen, the rate goes up from 19% to 24%, and that you are not allowed to discount any costs from the income generated when calculating the IRNR costs. Although this diminishes the return for non-EU citizens, depending on the property and the yield expectations, the investment can be still worth it.
7. WHAT ARE THE FACTORS THAT DETERMINE WHAT IS THE BEST PROPERTY TYPE TO INVEST ON?
There are several factors that determine the income that your property can generate with vacation rentals, and therefore the return it can yield. These are:
Luckily, when investing in the Canary Islands, seasonality is not an issue as its year-round warm weather keeps tourists coming all year long. There are two to three months when there are fewer tourists arriving, but this can pass unnoticed for properties in a good location and with good amenities. This is quite different than most other top European tourism destinations, where the cold weather takes over for part of the year and the tourist areas are practically empty of tourists.
Apart from price, this is the most important factor to generate a high return on your property's investment. To keep it simple, there are two sets of factors that influence occupancy. The first is related to the property type, location, and amenities. The second is related to managing the properties on the online rental platforms. Having an attractive mix of descriptions, images, and customer reviews is proving to benefit properties to be more popular than others, and ensure the desired occupation rates. On average, Canary Home Invest's clients enjoy a yearly average occupancy rate of 25 days, way over the market's 18-day average.
Like occupancy rates, the price has a huge influence on the property's return potential. It is very important to (1) compete on the same price range as similar properties and nearby competitors, and (2) regularly adjust your price to the changes in demand and supply, to be able to make the most out of the price factor. At Canary Home Invest we make use of data analytics technology to support pricing level decisions, that allows our clients to have the most attractive price on a daily basis.
There are several aspects to the location's income potential. As most if not all tourists want to enjoy sunny days, it is important that your property is located in an area that enjoys the sunniest weather possible. As a general rule, the south part of the islands is less prone to cloudy days but it is also true that the north of Fuerteventura or Lanzarote can brake the rule. Another aspect of location is related to being within a short distance of supermarkets, restaurants, the beach, healthcare, shopping, etc., as guests perceive the added value and security of having these nearby. At Canary Home Invest we make use of real-time real estate data and analytics to hand-pick properties with the highest value and income potential.
Type of property
The property factor in generating the highest return is influenced by the disposable income of the different types of tourists vising the islands, and the type and quantity of properties these groups are looking for. One property category that has been generating the most income relative to the investment needed is single houses, especially those with private swimming-pools. This type seems to be the preferred choice for seven-day family vacations, keeping high prices and occupation rates all around the year, even when not on the beachfront. In general, single or semiattached houses are the ones leading the post-COVID recovery. This is because tourists feel less threat of infection away from hotels and apartment buildings, feeling more secure and with less need for continuous caution on these types of vacation homes.
Renovation and interior design investment
The best way to maximize your potential income from vacation rentals is to adapt your new property to invest a small budget on renovating the property and its amenities. Therefore, make sure to account for renovation costs on your investment budget. For good measure, at Canary Home Invest we recommend the budget to be divided between renovation and new amenities. The first adapt the property to the requirements of the vacation rental market, and the second increases its competitiveness among similar properties and nearby competitors, to ensure high occupancy rates. Canary Home Invest we provide a Home Improvement service for new and existing property owners. The service starts with an analysis of the property and renovation examples to increase the overall value, (price and occupation rate). We present you with recommendations, and if moving forward, take care of vendors, coordination, and quality check.
The current healthcare pandemic has had and will continue having an influence over the tourism industry. As a future property investor in the Canary Islands, being aware of these will help you minimize risk and know where to find the maximum return. First, as the numbers of visitors show, the Canary Islands is a safe haven at times of humanitarian and environmental turmoil. Being part of the EU makes it much more attractive and less risky to European travelers than far away locations. Second, single and semi-attached homes with terrace and shared or private swimming-pool, ensure the highest return on investment. Third, at least until the risk of infection becomes really low, tourists will continue preferring vacation homes over hotels and apartment buildings. And last, the pandemic has hit the finances of some vacation homeowners, resulting in fewer vacation homes available for growing demand, and in an average 10% decrease in the prices of real estate in the islands, making it a great moment to invest.
8. HOW MUCH RETURN COULD I EXPECT FROM RENTING MY RESIDENTIAL PROPERTY ON AIRBNB AND OTHER SHORT-TERM VACATION WEBSITES?
The best way to study a property's return potential is to compare it with another property, under a set of equal parameters. Note that the two scenarios below are real-life examples of properties in the Canary Islands.
Both properties are located in Gran Canaria's main tourism location, Maspalomas. They both have a terrace/garden space and can host a family of four. They are both located within the range of all expected amenities nearby, as well as healthcare in tourists' native language. The difference is that property A has a shared swimming pool and a less luxurious feel, while property B has a private swimming pool and all premium details. Both properties purchase are financed with a local bank's mortgage of 25 years, with a fixed 2.30% interest rate. Also, both properties enjoy yearly real estate appreciation rates of 1.5% and yearly rent appreciation rates of 1%.
It is valued at €250,000.00, and the new owner invested to upgrade facilities and include a private hot tub and BBQ area on the terrace. The initial cash investment (30% of the mortgage, 8.5% in closing costs, loan costs, and taxes, and 6% on rent-ready renovation) sums up to a bit more than €111K. Thanks to the upgrade on the property's amenities, the property keeps a high vacation rental occupancy rate of 25 days per month and gets rented with a 20% higher price than its closest competitors at €125 per night.
At this level, the property generates a gross income of €3,125 per month or €37,500 per year. Including the Airbnb management services, the total costs of the property add up to 46% or €17,145.
Based on this real-life scenario, Property A will generate the following types of return:
The capitalization rate of 8.03% for the total time of the mortgage loan, standing at 7.25% during the first 5 years. Note that a cap rate that falls between 4% and 12% is considered to be good.
Cash-on-cash returns at 12.36% during the total time of the mortgage loan, standing at 10.36% during the first 5 years. Note that although there is no rule of thumb, investors seem to agree that good cash on cash return is between 8% to 12%.
Return on investment at 27.64% for the total time of the mortgage loan, standing at 23.61% during the first 5 years. Note that most real estate experts agree anything above 8% is a good return on investment, but it's best to aim for over 10% or 12%.
Return on equity at 17.71% for the total time of the mortgage loan, standing at 28.70% during the first 5 years. What is a good ROE? Think that the stock market has returned 8-10% on average over the long term. Also, private equity real estate deals should be able to make you a 12 to 15% over the long term. Investing in real estate that can provide a ROE above that, makes it totally worth it.
Ok! But what if the property gets rented 22 days per month only, which is the industry average in the Canary Islands?
Even in that scenario, the average for the first five years is still very attractive. (1) Cap rate = 6.31%, (2) CCR = 7.96%, (3) ROI = 21.21% , (4) ROE = 25.73%.
It is valued at €450,000.00, and since the property already has a luxury upgrade, the new owner only had to invest an extra 1% to upgrade things like furniture. The initial cash investment (30% of the mortgage, 8.5% in closing costs, loan costs, and taxes, and a bit more than 1% on rent-ready renovation) sums up to a bit more than €178K. Due to the short supply of this type of property and the high demand for them, the property keeps a high vacation rental occupancy rate of 25 days per month and gets rented at a yearly average price of €275 per night.
At this level, the property generates a gross income of €6875 per month or €82,500 per year. Including the Airbnb management services, the total costs of the property add up to 38% or €31,605.
Based on this real-life scenario, Property B will generate the following types of return:
The capitalization rate of 11.65% for the total time of the mortgage loan, standing at 10.52% during the first 5 years. Note that a cap rate that falls between 4% and 12% is considered to be good.
Cash-on-cash returns at 22.92% during the total time of the mortgage loan, standing at 19.80% during the first 5 years. Note that although there is no rule of thumb, investors seem to agree that a good CCR rate is between 8% to 12%.
Return on investment at 38.75% for the total time of the mortgage loan, standing at 33.45% during the first 5 years. Note that most real estate experts agree anything above 8% is a good return on investment, but it's best to aim for over 10% or 12%.
Return on equity at 22.21% for the total time of the mortgage loan, standing at 36.16% during the first 5 years. What is a good ROE? Think that the stock market has returned 8-10% on average over the long term. Also, private equity real estate deals should be able to make you a 12 to 15% over the long term. Investing in real estate that can provide a ROE above that, makes it totally worth it.
Ok! But what if the property gets rented 22 days per month only, which is the industry average in the Canary Islands?
Even in that scenario, the average for the first five years is still very attractive. (1) Cap rate = 9.20%, (2) CCR = 16.16%, (3) ROI = 29.82% , (4) ROE = 32.19%.
While there is a lot said about the Spanish real estate market, the Canary Islands keeps on being a safe and highly rewarding EU region where to invest in property. No matter the degree of income you expect from the property, it is insightful, useful, and highly recommendable to analyze its income potential. This simple exercise will keep you in check with the risk involved and your return expectations to help you choose the best property. From this exercise, it is clear that family-friendly luxury homes are gaining momentum and can offer the best price-occupancy ratio, but also that less expensive properties are also able to generate fantastic levels of extra income and make it a rewarding investment. Some common factors are the location of the properties, access to a shared or private swimming pool, and family-friendly amenities.
9. WHAT ARE THE PRICES OF CANARY HOME INVEST'S SERVICES?
For simplicity, all services are priced independently.
Opportunity Assessment: includes (1) an introduction to the Canary Islands, (2) an overview of current state of the real estate market, (3) knowledge on the acquisition process and the costs and taxes associated, and (4) an investment and return example.
Property Scouting: includes (1) property preferences interview and survey (2) scouting of five properties that have all requirements, (3) document with cost estimates, and return scenarios for each of the five final choices.
Pricing: €400 (refundable if the client hires Purchase Support services within a year).
Purchase Support: includes (1) seller communications and negotiation of price and terms, (2) buying process and parties guide and walk-through, (3) cost and tax estimates, document preparation and payments schedule, (4) and guidance and assistance supported by local real estate lawyer before, during, and after the purchase.
Pricing: a fee of 1% of the property sale price.
Property Improvement: includes (1) a value increase assessment, (2) a renovation design plan tailored to increase the rental value, and (3) coordination and quality control of the renovation project.
Pricing: the design rate is 10% of the home improvement project's total cost, and the execution is another 10% of the project's total costs.
Maintenance Services: includes (1) cleaning services, (2) repair services, (3) home security services.
Pricing: contact us for personalized packages depending on the property's needs.
Utilities, Insurance & Taxation: includes (1) assistance in finding and hiring all necessary utilities, (2) insurances, and (3) accounting firm to take care of your tax responsibilities.
Pricing: combined one-time fee of €500,00.
Long-term Rentals: includes (1) listing, interviews, and candidate screening, (2) rental documentation and process support, (3) switch to vacation rental services at any point, and (4) optionally, tenant support.
Pricing: the fee for features 1, 2, and 3 is equal to one month of rental fees. For feature 4, it depends on the level of support. Please get in touch for a personalized offer.
Vacation Rentals: includes a full service covering the (1) preparation of all legal, fiscal and marketing aspects of vacation rentals, (2) digital services to run the vacation rental operations on platforms like Airbnb, Booking, Home Away, etc., including reservations, guest communications, daily smart price adjusting, recommendations, etc., (3) location tasks as cleaning, maintenance, key handling, welcome packages, etc., (4) distribution of monthly reports and fiscal documents, and (5) access to our Owner's mobile app to follow your property's return in real-time.
Pricing: the full service's rate is 22% of the property's monthly rental revenue.
* If you are looking for an individual or unlisted service pricing, please contact us to evaluate if doable and what would be the service rate for that.
10. WHAT KIND OF INFORMATION CAN I ACCESS WITH CANARY HOME INVEST'S OWNER MOBILE APP?
Being able to access real-time information of your property's rental management is very valuable to some property owners.
When subscribed to Canary Home Invest's vacation rental management services, you will be able to access your property's information with the Owner's mobile app. This includes guest information, current and future occupancy, pricing, prepayments, etc.
All owners get a monthly summary of their property's activity by email in any case, but some owners like to know how things are going and the app is a great way to to stay up-to-date.
11. WHAT IS THE SITUATION OF THE COVID-19 PANDEMIC IN THE CANARY ISLANDS? [UPDATED ON 09.2021]
The situation in the islands is under control and 80%+ of the local population has been vaccinated against Covid-19. Official web.
Although tourism levels are not yet back to pre-Covid times, the increase through the summer and early autumn have been steady. While hotels are suffering the slowest recovery, vacation rentals are the fastest growing segment.
Although sales of real estate were heavily affected during the first 6 months of the pandemic, especially villa-style homes have been in high demand in all eastern islands.
12. WHEN I HAVE PUT MY PROPERTY UP FOR VACATION RENTAL, CAN I BLOCK DATES FOR PERSONAL USE?
The answer is simple. Yes, you can.
Plan it and lock the dates in advance or go enjoy your property any time there's a reservation gap. This is a great benefit that you would not be able to enjoy if you had put your property on long-term rental.
Insightful articles on real estate in the Canary Islands written by our team of experts.