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How to Calculate the Price of a Flat in Spain?
Friday, June 30, 2023 @ 9:28 PM

When we face the purchase or rental of a house, we always face the first doubt: Is it the right time to buy a property? If we decide it is, we'll start the search, and when we find a flat we like, we will face the next doubt: Is it well-priced? Is it an expensive or cheap house? How could I calculate the appropriate price for this flat?

It doesn't matter if you are the owner, the buyer, the landlord, or the potential tenant; everyone doubts what the adequate price for a house on sale or rent would be, and it is not always easy to identify cheap flats.



Formulas to Calculate Housing Price

Sale and rental prices have a relationship that, despite being variable depending on the time and other specific characteristics (such as location or city where the property is located), allows you to have an approximate idea.

In fact, we will see a series of simple ratios that will lead us to the approximate price of any property in relation to the rent price.

a) Gross Profitability of Rent

The gross profitability of rent is the percentage resulting from dividing the annual money we would get from a rental property by its theoretical sale price. Even if we are not going to rent our house, it is a good reference to know if we are making a good investment.

Gross Profitability of Rent = (annual rental income/purchase price) * 100

For example, with a house that rents for 12,000 euros per year (1,000 euros/month) and is worth 240,000 euros, it is said to offer a gross profitability of 5% according to this formula:

(12,000/240,000) x 100 = 5%

Keep in mind that we are talking about gross profitability (not net) because it is the ratio used for this calculation by the Bank of Spain. If we wanted to calculate the net profitability, we would subtract the expenses from the income, but that number would not be useful for the calculations in this article, for which gross profitability should be used.

b) The PER

The PER (Price Earnings Ratio) is another formula that allows us to identify if we are moving in the right price when buying a house. It involves dividing the sale price by the rental price. This data is equivalent to the number of times the annual rental income is contained in the sale price, or in other words, the number of years it would take to pay for a house through the rent under current conditions. It is a universally accepted ratio for valuing assets such as companies, homes, etc.

PER = (purchase price / annual rental income)

The PER of the previous house would be 20 times, and the calculation by which it was arrived at that data would be:

(240,000 / 12,000) = 20 times

Table of Equivalency Between Rent and Sale Price

With the above data, if we had two of the three previous figures (sale price, rent price, or PER), we could calculate the third. As we have the gross profitability data of all of Spain offered by the Bank of Spain (BdE) updated quarterly, we only need to know a reliable sale or rent figure to calculate an approximation of the other variable.

Thus, according to the latest report from the Bank of Spain (BdE), the gross profitability of renting a home in Spain at the end of the first quarter of 2023 is 3.4%. If we calculate the inverse of that data and multiply it by 100 (100/3.4), we would obtain the PER. In this case, the PER would be 29.4 years or almost 353 months.

In summary, if we are sure that an identical or similar house to our interest is rented at a certain price, currently you only need to multiply the monthly rent price by 353 months to obtain a suitable approximate sale price.

For example, if a house is rented for 1,500 euros per month and multiplied by the monthly rent price by 353 months, we would obtain that the selling price should be around 529,500 euros under current conditions.

Similarly, if we have a house that could be sold for 270,000 euros, just divide by 353 to know that its rent price should be about 765 euros monthly.

With this data and knowing that the gross profitability data changes over time and should be checked regularly, we can construct a table that relates the rent price to the current sale price.

Equivalencies between the rent and the purchase price with the average PER in Spain

Rent Price                         Purchase Price

300 €                                  105,900 €

400 €                                  141,200 €

500 €                                  176,500 €

600 €                                  211,800 €

700 €                                  247,100 €

800 €                                  282,400 €

900 €                                  317,700 €

1,000 €                               353,000 €

1,100 €                               388,300 €

1,200 €                               423,600 €

1,300 €                               458,900 €

1,400 €                               494,200 €

1,500 €                               529,500 €

1,600 €                               564,800 €

1,700 €                               600,100 €

1,800 €                               635,400 €

1,900 €                               670,700 €

2,000 €                               706,000 €

2,100 €                               741,300 €

2,200 €                               776,600 €

2,300 €                               811,900 €

2,400 €                               847,200 €

2,500 €                               882,500 €

2,600 €                               917,800 €

2,700 €                               953,100 €

2,800 €                               988,400 €

2,900 €                               1,023,700 €

3,000 €                               1,059,000 €


Note: The data has been calculated according to the latest data published by the Bank of Spain for a gross profitability of 3.4% in the first quarter of 2023 (PER 29.4 times). To move from one column to another, you must multiply or divide one of the data by 353 months. This coefficient is valid for current data but varies over time.



[source of data - Bankinter]

Like 1


macsco said:
Saturday, July 1, 2023 @ 12:53 PM

I would say the chart is way off the real world. We have an apartment in Fuengirola and it is rented out at 900€ a month, but the sale price is estimated at +or- 200,000€ (Idealista) so way off, in my opinion.

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