The gross yield of a property purchased for rental purposes in Spain was 6.5% in the second quarter of 2026, compared to 7.2% a year earlier. This figure is widely circulated, it's accurate, and it tells you almost nothing. It compares the asking rent to the asking price, without expenses, taxes, vacancy periods, or acquisition costs. For an actual property, the difference between this percentage and what you receive is two to three percentage points.
The three calculations and what they measure
Gross profitability divides the annual rent by the purchase price. Net profitability deducts expenses and acquisition costs. Cash-on-cash measures the return on the money you actually put out of pocket. All three answer different questions, and confusing the first two is the most common mistake.
Calculation | Formula | What is it used for? |
|---|---|---|
Gross profitability | Annual rent divided by the purchase price | Quickly compare two areas or two properties |
Net profitability | Annual rent less charges, divided by the total investment | Knowing what the asset actually produces |
Cash-on-cash | Annual cash flow divided by committed equity | Measuring the effect of bank financing |
Gross profitability has a real purpose: it serves as a first-pass filter. A property with a 3.5% gross return will never become profitable net. A property with a 7% gross return warrants a full calculation. It's useless for making a decision, only for narrowing down options.
The costs that gross profitability ignores
Seven items separate rent collected from disposable income. None are optional, and two of them are almost always overlooked.
Job | Order of magnitude annual | Noticed |
|---|---|---|
Municipal property tax | 0.4% to 1.1% of the cadastral value | The rate is set by the municipality |
Condominium fees | €600 to €1,500 | Higher-rise buildings with elevator, swimming pool, or concierge |
Insurance | €250 to €500 | Housing, plus unpaid rent if you subscribe to it |
Maintenance and repairs | 0.5% to 1% of the price | Smoothed-out position, not a regular annual expense |
Rental vacancy | 4% to 8% of the rent | The months between tenants |
Rental management | 7% to 10% of the rent | Only if you delegate |
Acquisition costs | 8% to 13% of the price | They inflate the denominator, not the charges |
The two overlooked factors are vacancy and acquisition costs. Vacancy because it doesn't appear on any invoice. Acquisition costs because they are paid once and treated as a past expense, even though they are part of fixed capital.
An end-to-end encrypted example
An apartment costing €220,000, rented for €1,190 per month, or €14,280 per year. Acquisition costs amount to €22,000, bringing the total investment to €242,000.
Line | Annual amount |
|---|---|
Rent collected | €14,280 |
Property tax | €420 |
Condominium fees | €900 |
Insurance | €380 |
Smooth maintenance | €1,100 |
Vacancy at 4% | €570 |
Rental management at 8% | €1,140 |
Net income before tax | €9,770 |
The gross return reaches 6.5%, exactly the national average. The net return on the total investment falls to 4.0%. You have just lost two and a half percentage points without paying a single euro in taxes.
Two and a half points separate the stated profitability from the actual profitability, even before considering taxation.
Taxes change the outcome, and the law has changed the rules.
Rental income from residential properties is subject to income tax as capital gains from real estate. You can deduct actual expenses, loan interest, and depreciation of 3% of the property's value. A tax reduction is then applied to the resulting profit.
Law 12/2023 replaced the previous single 60% reduction with four different rates. The most confusing aspect for homeowners is the date: contracts signed before May 26, 2023, retain their 60% reduction for its entire duration. Contracts signed after that date are subject to the new scale.
Reduction | Condition | Availability |
|---|---|---|
50% | Residential rental, general case | Throughout Spain |
60% | Rehabilitation work within the two years preceding the lease | Everywhere, with supporting documents. |
70% | First rental in a high-demand area to a tenant aged 18 to 35 | Declared areas only |
90% | New lease in a high-demand area with rent reduced by more than 5% | Declared areas only |
The 70% and 90% rates depend on an official declaration of a tight residential market area by the autonomous community. Catalonia has declared more than 140 municipalities. Madrid has declared none, thus barring access to these two rates throughout its territory.
In our example, for a property owner who is a tax resident in Spain, after depreciation and a 50% reduction, the annual tax comes to around 770 euros. The net income after tax falls to 9,000 euros, or 3.7% of the total investment.
A non-resident property owner is not subject to these rules. They are liable for non-resident income tax, declared using form 210, and the 50% reduction does not apply to them. Their tax rate depends on their country of tax residence.
Owner's situation | Rule applied | Estimated annual tax | Net profitability after tax |
|---|---|---|---|
Tax resident in Spain | Expenses and depreciation deducted, 50% reduction, progressive scale | €770 | 3.7% |
Non-resident of the European Union or the European Economic Area | After deduction of charges and depreciation, a fixed rate of 19% | €1,100 | 3.6% |
Non-resident outside the European Union, including the United Kingdom and Switzerland | No deductions, 24% tax rate on rents collected | €3,290 | 2.7% |
For a landlord based outside the European Union, there is therefore a difference of nearly four percentage points between the stated profitability and the actual profitability. These figures assume annual depreciation of approximately €4,000 and rental income of €13,710, after deducting vacancy periods.
The 3% annual deduction reduces your tax now, but it lowers the acquisition value used at the time of sale. The taxable capital gain increases accordingly. The benefit is a delay, not a permanent gain.
Bank leverage and cash-on-cash
Let's take the same apartment, financed at 70% over twenty-five years at 3.4%. The loan amounts to €154,000 and the monthly payment is €763, or €9,156 per year. Your equity consists of a €66,000 down payment and €22,000 in fees, totaling €88,000.
Indicator | Amount | Yield |
|---|---|---|
Net income before tax | €9,770 | 4.0% on €242,000 |
Credit annuity | €9,156 | including €5,176 in interest |
Annual cash flow | €614 | 0.7% on €88,000 |
Capital repaid in the first year | €3,980 | not available but acquired |
Total enrichment | €4,594 | 5.2% on €88,000 |
This is why cash-on-cash alone is just as misleading as gross profitability. A cash flow rate of 0.7% seems disastrous. It hides €3,980 of capital repaid by the tenant in the first year, and this amount increases every year as the interest portion decreases.
Conversely, a property with a gross yield of less than 5.5% almost always generates negative cash flow as soon as it's financed under current conditions. You're putting money in every month. This isn't a disqualifying factor, but it should be a deliberate choice, not something you discover in the third month.
Where gross yields are highest
In the first quarter of 2026, six provincial capitals exceeded 7.2% gross profitability. These are medium-sized cities where purchase prices remain low relative to rents.
Capital | Gross profitability |
|---|---|
Murcia | 7.5% |
Segovia | 7.3% |
Lleida | 7.3% |
Huelva | 7.2% |
Jaén | 7.2% |
Castellón de la Plana | 7.2% |
These figures come with a caveat. High yields often signal a less liquid market, lower appreciation, and a greater risk of vacancy. Major cities offer the opposite: lower rental yields, higher appreciation, and faster resale. The right decision depends on your investment horizon, not on a ranking.
How InvestPilot reads it
A single percentage doesn't determine anything. What matters is applying the same method to all the properties you're comparing, taking into account the actual costs in the area and the tax rate of the autonomous community.
Strategy | Concerned | Concrete impact |
|---|---|---|
Primary residence | No | Profitability calculations do not apply. Usage costs and revaluation take over. |
Second home | Partial | The asset generates an annual cost, not an income. Profitability is measured by resale. |
Long-term rental | Yes | This is the central case of this article. The three calculations apply as is. |
Short-term rental | Yes | Expenses increase, vacancy becomes seasonal, and the 50% tax reduction does not apply. |
Renovation and resale | Partial | No rent, but acquisition and carrying costs weigh on the final margin. |
InvestPilot's InvestScore applies this calculation to each property in the catalog, across all five strategies, taking into account local charges and taxes. You see the net return, not the percentage shown in the listing.