ROI – RETURN ON INVESTMENT

There are various types of clients who come to purchase property on the Costa del Sol. Not including the institutional investors who mainly come to buy multiple units or even invest in new developments, these categories include:

• Clients who are looking to relocate and enjoy the wonderful lifestyle that the coast has to offer and live here year-round.

• Clients who wish to purchase a second home or holiday getaway property for personal use through the year at their convenience and not rent while absent.

Then there are clients who purchase for the purpose of using it for certain times of the year and rent for the remainder. These are the clients who buy purely as an investment opportunity and can be divide (simply) into 2 subsections:

• Clients who purchase a property at a low value and refurbish it to sell as a quick flip, to make a profit off their investment in a short period, and

• Clients who purchase solely for the purpose of renting throughout the year, earning higher yields during the peak seasons generally considered to be between mid-June and mid-September with the ‘bread and butter’ months being July and August which are considered the height of the peak season.

A lot of my clients who have come to the Costa del Sol for the purpose of an investment opportunity always ask me the same question. What is the return on investment they can expect through rentals? To clarify, this situation when simplified depends on 3 factors.

1. The price at which the property is acquired. You can’t make a good investment if you don’t get a good price.

2. The strategy used for the rental, which depends on the length of the rentals (short-term or long-term). If short-term, then the months when they intend to rent the house are the peak seasons as they yield higher returns and therefore generate larger profits.

3. The location where the property is acquired, with more popular areas obviously being more fruitful in terms of prices that can be charged for rentals, both long-term and short-term.

Before continuing, I would like to define what the ROI is and how to calculate it efficiently.

Say you buy a property for €500,000 (all in, including taxes and fees), and you rent it out monthly for €2,500 a month between September and June and during the months of July and August you rent it for €300 a day. The income received is

(€2,500*12) + (€300*62 ) = €48,600

We then have to take into account the expenses (which of course vary on numerous factors) but on the Costa del Sol would usually be the IBI (annual property tax), basura (rubbish collection tax) and community fees.

In this example we’ll set the IBI at €1,500 a year, the rubbish collection at €500 and the community fees at €250 per month. Your total outgoings are €5,000 per year. During long term rentals the price of utilities is covered by the tenant unless stipulated otherwise in the contract. During holiday rentals they are generally included in the price per night set for the rental. So, in this case we’ll include just the 2 months of tourist rental (assuming the remaining 10 months is a long term rental) and calculate an average cost of €200 in electricity and €50 in water expense per month. A total of €500 for the utilities.

The basic ROI equation is

(Net Profit / Total Investment Cost) x 100%

Income - Expenses = Net profit

€48,600 - €5,500 = €43,100

So therefore:

(43,100 / 500,000) x 100 = 8.62%

The ROI in this example is a resulting 8.62%

At the end of the day, the figures for the ROI change year on year but currently basing the calculation off the average figures from 2024 and the first quarter of 2025 the resulting profit percentages are. Due to the recent changes in the tourist rental market in areas such as Fuengirola and Malaga I have overlooked these areas as tourist rental is a large reason for the initial investment. Heading from East to West for the most popular areas based on density of new developments.

• Mijas: Long-term rental - 4 - 5.5% ROI Holiday rental - 6 - 7.5% ROI

• Marbella East (El Rosario - Calahonda): Long-term rental - 5 - 6.5% ROI Holiday rental - 6.5 - 8.5% ROI

• Marbella: Long-term rental - 6 - 8% ROI Holiday rental - 9 - 11.5% ROI

• Benahavís (Luxury urbanisations / high end properties): Long-term rental - 4.5 - 6% ROI Holiday rental - 9 - 12.5% ROI

• New Golden Mile (Cancelada to El Velerín): Long-term rental - 5 - 6% ROI Holiday rental - 8 - 9% ROI

• Estepona: Long-term rental - 5 - 6% ROI Holiday rental - 7 - 9% ROI

• Estepona West (La Gaspara - Manilva): Long-term rental - 4 - 5% ROI Holiday rental - 5 - 6.5 % ROI

Of course the value of the property purchased changes the outcome of the average percentages as it focuses on a different type of clientele which in turn results in higher tourist rental prices. To sum it up from the perspective of general mean investment:

• 350k apartment - long term rental - 5-6% ROI holiday rental - 6.5-7.5% ROI

• 500k apartment - long term rental - 6-7% ROI holiday rental - 8-9% ROI

• 750k townhouse - long term rental - 7-8% ROI holiday rental - 9.5 -11% ROI

• 1.5m property - long term rental - 8-10% ROI holiday rental - 12-13.5% ROI

Again these figures are based on the average occupancy for the areas indicated.

These figures are as stipulated below based on the numbers calculated over the last 3 years.

• Mijas 54% - 59%

• Marbella East 50% - 54%

• Marbella 58% - 60%

• Benahavís 45% - 51%

• New Golden Mile 50% - 55%

• Estepona 55% - 59%

• Estepona West 42% - 48%

*Percentages are based on the annual averages provided through condensing figures from Booking, Airbnb, Expedia and Wimdu.

At the end of the day the Costa del Sol is still proving to be a lucrative place to invest, besides the fact that the inflation in value of the property market over the last 6 years has been quite astounding. It doesn’t appear to be dwindling in any way, and the yearly ROI averages are still maintaining and if anything increasing year on year. The demand is still there with respect to both buyers and holiday makers and many investors continue to make their property acquisitions in this area and make a decent return on investment.

Remember a property investment when used for rental purposes is not a quick % win. It is more of a high interest bank account for your savings. There is never a guarantee that the investment will be fruitful as many factors may affect the property market, be it political influence, economic factors, supply and demand, social trends, market expectation or even external shocks (i.e., pandemics or natural disasters). However with the absence of these factors the property market continues to thrive along the southern Mediterranean coast line and with this continued trend is still a profitable investment.

If you would like some more information please don’t hesitate getting in touch.