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Buy-to-Rent in Spain with peace of mind
Friday, May 7, 2021 @ 12:09 PM

If you have a property in Spain or you are looking to buy a property in Spain and want to rent it out long-term or even short-term, being insured is, without a doubt, the only way to sleep peacefully at night and the best way to free yourself from the worries of rental default and property damage.

The best insurance is the one that covers non-payment of rent (Seguro de Impago de Alquiler), but there are policies that cover much more than that. They offer amongst other things advice to the owners on any problems related to the tenancy or the tenants and even problems they may have with the community associations.
It is in essence legal defence insurance that protects the owner against any problem that may arise with the rental of their property, from non-payment to a disagreement with the tenant over who should pay for repairs or problems which may arise with the community or neighbours. legal fees are normally covered in full, in addition, in the event of the tenant not paying the rent, the insurance company will forward you the unpaid monthly payments while the case is being handled whether it be an eviction or a negotiation.

The insurance company will try to mediate with the tenant from the first month that they stop paying, warning them of their contractual obligations. And, in situations where it is not possible to reach an agreement, they will set in motion the legal procedures necessary, allowing the landlords to take a step back and avoid this unpleasant process.

Additionally, insurance companies will also serve as mediators for any problems that may arise between the tenant and the neighbours. This really takes the pressure off and gives you added peace of mind, especially if you are not living in Spain. Insurance companies which centre on this service are professionals and specialised in rentals, so rest assured any necessary procedures will be carried out as quickly and reliably as possible. A claim for non-payment can mean a significant outlay of cash in addition to the lost income from unpaid rent and especially so if you are not present in the country, so having rental insurance can be an important safety net, especially if the property is mortgaged and you rely on the monthly payments to meet your mortgage requirements.

Not all rental insurances are equal, so make sure you check carefully what is and what isn't included and the checks that are made before giving the green light to a tenant. Before taking out the policy, the insurance company should study the tenant's solvency status. It is always better to carry this out before signing the rental contract, as it will be easier to ask the tenant for all necessary documentation beforehand and, if the study is rejected, to find a solution by including additional documentation or perhaps a guarantor.

Rental default insurance policies in Spain usually cover the following:

  • Upfront payments of rent due, normally up to 12 months. This starts to be paid when the claim is processed, this will have a retroactive effect.
  • Legal defence and claims if the tenant breaches the contract.
  • Criminal liability defence
  • All lawyer's fees, solicitor's fees and fees included in any management related to the rental.
  • Protection against vandalism to the property.
  • In the event of an eviction, the costs of a lock and locksmith are included.
  • The insured will also normally have a phone line at his or her disposal to resolve any legal queries related to the property.

The price of rental default insurance in Spain varies depending on the services included in each policy, as most companies offer flexible policies with add-ons that can be adapted to the individual needs of each property owner. For example, you can choose the number of months rent you want the insurance to cover: usually, insurers offer up to a maximum of 18 months coverage, although most customers opt for 12 months as it reduces the cost and gives ample coverage for most cases. However, policies are available from around 4 months coverage for short seasonal stays too.

On average, the cost of rental default insurance will generally be between 3% and 5% of the annual rent.

For rental default insurance to be approved, a study of the tenant's solvency will be carried out. Tenants may not spend more than 40% of their net income on rent and one of them must be a permanent tenant with a probationary period or have been with the same company for more than one year. Guarantors can be added if the tenant's income or seniority is not sufficient.

If the tenants are salaried employees, the minimum documentation requested by the insurance companies will normally be the following:

  • last two payslips
  • employment contract
  • ID
  • The application form signed by the tenant/s - giving the insurance company permission from the tenant to officially check the documentation.

If the tenants are self-employed, as a minimum, they are asked for:

  • Their last income tax declaration (IRPF)
  • Their last two payments to the Social Security
  • ID
  • The application form signed by the tenant/s - giving the insurance company permission from the tenant to officially check the documentation.

And if the tenants are pensioners:

  • Pension certificate issued by Social Security
  • ID
  • The application form signed by the tenant/s - giving the insurance company permission from the tenant to officially check the documentation.

So, if you want to rent out your property or start a buy-to-rent business in Spain and be sure to receive your monthly payments, this route may well be the best solution to provide security and peace of mind for short and long-term rentals. You are effectively bringing on board a property partner who will help you manage your property from a legal perspective and give you financial coverage when necessary.

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